2010 (12) TMI 1151 - HC - Customs

Detention of machinery - EPCG Scheme - detention on the ground that respondent did not fulfil the export obligations and exported only 1.5 per cent - Whether in the circumstances of the case the Tribunal is correct in holding that the order of confiscation of the goods and imposition of penalty is not correct since it was beyond the control of the importer to fulfil export and there is no deliberate attempt to avail of N/N. 169/1990 making any misdeclaration? - Held that - the machinery was installed at the factory and production of goods was also started in March 1994 and that they could only meet the export obligation to the extent of 1.5 per cent. only and that the Department did not allege the first respondent-company made deliberate attempt to avail of the benefits and concluded that there was no material to doubt about the first respondent s bona fides. Therefore the Tribunal based on the aforesaid facts held that there was no mens rea and further held that the confiscation of goods and imposition of penalty is not sustainable. Hence the finding of fact given by the Tribunal cannot be interfered with and therefore the first question of law is answered against the appellant. Whether the Tribunal is right in holding that interest on duty foregone under N/N. 169/1990 cannot be demanded since there is no provision in the Customs Act 1962? - Whether the duty foregone would be only a duty when there is a failure to fulfil the conditions stipulated in the exemption notification? - Held that - The notification prescribed various conditions for availing of benefits. However it is seen that there was no provision in the notification to levy interest on the duty. Though the learned counsel for the appellant referred sub-section 18(3) of the Customs Act and contended that the importer is liable to pay interest as per the rate fixed under section 28AB of the Act the same is liable to be rejected in view of the judgment of the hon ble Supreme Court in Commissioner of Customs (Import) v. Jagdish Cancer Research Centre 2001 (8) TMI 113 - SUPREME COURT OF INDIA . Circular No. 5/1997-Customs dated March 14 1997 which postulates interest at the rate of 24 per cent. as specified in relevant notification is not applicable to this case as the said circular would be applicable prospectively from March 14 1997 only. A perusal of section 143 would reveal that it speaks about the advance licences relating to import of input and raw materials for manufacture and export. Paragraph 197 in Chapter XIV of the Duty Exemption Scheme for the Import and Export Policy (April 1990 to March 1993) speaks about advance licences. Whereas the first respondent s licence is covered by the EPCG scheme. The import of capital goods at concession rate of the customs duty was done by the first respondent as per paragraph 197 of the Import and Export Policy 1990-93. Therefore section 143A is not applicable to the present case. Appeal dismissed - decided against appellant.

Summary

Issues Involved:

1. Confiscation of goods and imposition of penalty.
2. Demand for interest on duty foregone under Notification No. 169/1990.
3. Applicability of duty foregone as a duty when conditions of exemption notification are not fulfilled.

Issue-Wise Detailed Analysis:

1. Confiscation of Goods and Imposition of Penalty:

The Customs, Excise, and Service Tax Appellate Tribunal upheld the differential duty liability on the goods payable to the customs by the first respondent/importer but set aside the confiscation of machinery and deleted the payment of redemption fine, penalty, and interest. The Tribunal recorded a finding of fact that there were sincere efforts by the first respondent/importer to fulfill the export obligations, and due to circumstances beyond their control, they could not fulfill the export obligations despite their best efforts. The Tribunal noted that the importer did not make any deliberate attempt to avail of the benefits of the notification. The machinery was installed at the factory, and production started in March 1994, but they could only meet 1.5% of the export obligation. The Department did not allege any deliberate attempt to avail of the benefits. Therefore, the Tribunal concluded that there was no mens rea, and the confiscation of goods and imposition of penalty was not sustainable. The High Court upheld this finding and answered the first question of law against the appellant.

2. Demand for Interest on Duty Foregone Under Notification No. 169/1990:

The Tribunal held that there was no provision in Notification No. 169/1990 or the Customs Act to levy interest on the duty foregone. The appellant's counsel argued that under sections 18(3) and 47(2) of the Customs Act, the importer is liable to pay interest as per the rate fixed under section 28AB of the Act. However, the High Court rejected this argument, citing the Supreme Court's judgment in Commissioner of Customs (Import) v. Jagdish Cancer Research Centre, which stated that liability to pay duty under section 125(2) of the Customs Act does not attract section 28(1) of the Customs Act. The High Court confirmed that the provisions of section 28(1) or section 28AB are not applicable for levying interest in this case. The High Court also noted that Notification No. 169/1990 was rescinded by Notification No. 99/1994-Customs, dated March 1, 1994. Therefore, the Tribunal's reasoning that the first respondent is liable to pay duty but no interest is chargeable was upheld. The second and third questions of law were answered against the appellant.

3. Applicability of Duty Foregone as a Duty When Conditions of Exemption Notification Are Not Fulfilled:

The High Court reiterated that the notification only gives exemption, whereas sections 28(1) and 28AB deal with duty not levied, short-levied, or erroneously refunded. The appellant's reliance on Central Excise Notification No. 16/2000, which speaks about the levy of interest under section 28AB, was found not sustainable. Circular No. 5/1997-Customs, which postulates interest at the rate of 24%, was also deemed not applicable as it would be applicable prospectively from March 14, 1997, only. The High Court noted that the appellant's contention regarding section 143A of the Customs Act, which refers to advance licenses and not EPCG licenses, was raised for the first time during the argument and was not a question of law raised in the appeal. Therefore, it was rejected.

Conclusion:

The High Court dismissed the appeal, answering all questions of law against the appellant. The Tribunal's order setting aside the confiscation of goods, imposition of redemption fine, penalty, and interest was upheld, and the first respondent was found liable only for the differential duty without any interest. There was no order as to costs.