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2009 (8) TMI 451

..... ith interest. The show cause notice also set out as to why the bonds, undertakings filed at the time of import should not be enforced. The demand, included (1) recovery of customs duty and (2) interest and penalty. On receipt of the said show cause notice an application came to be filed by the petitioners under Section 127B of the Customs Act, 1962, hereinafter referred to as the Customs Act before the Settlement Commission on 17th December, 2007. In the application the petitioners have specifically given the details of the admitted duty liability, the interest thereon and the payment made. By the prayer clause the petitioners prayed for immunity from prosecution for any offence under the Customs Act, 1962, imposition of any penalty under the Customs Act, 1962 and grant of immunity from imposition of any fine in respect of the goods under settlement and some other relieves. There was no relief sought for refund of interest paid or for waiver of interest. Commissioner by its order held that the interest which was paid could not be charged and has to be refunded. Held that- Impugned order of the commissioner is liable to set-aside and held that interest was payable. Thus remand back .....

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..... cation had made no claim for refund though orally before the Commission it was contended that the amount is not due and payable. 5. In Writ Petition No. 1106 of 2009 the application was filed after 1st June, 2007. The assessee there approached the Settlement Commission after paying the duty liability, interest was not paid at all and in the application it was specifically prayed that interest is not payable. There was also no admission or acceptance of liability towards interest. The commission on adjudication of the matter held that interest is not payable. 6. In Writ Petition Lodging No.1387 of 2009, also an application was made after 1st June, 2007. In this case the Department had collected from the assessee even before the issue of show cause notice, duty along with interest. After issuing the show cause notice the assessee approached the Settlement Commission. In the application the assessee has specifically contended that interest is not payable under Section 28AB of the Customs Act as the said Section is not attracted to the facts of the case. In other words in the application itself a contention was raised about the non-liability to pay interest. The Commission by its order .....

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..... ) which came into effect from 1st June, 2007. By virtue of the proviso to Section 127B as substituted it is provided that no such application shall be made unless the applicant has paid the additional amount of Customs duty accepted by him along with interest due under Section 28AB . It would thus be clear that to maintain an application after 1st June, 2007, the applicant has to pay the customs duty admitted and the consequential interest which becomes due under Section 28AB of the Customs Act. Amendments were also made to Section 127H. The earlier power of the Commission to waive imposition of interest was excluded by Finance Act, 2007. In other words if interest is payable under the provisions of the Act, then in that event the Settlement Commission which earlier had the power to waive interest subsequent to 1st June, 2007 ceased to have such powers. Section 127C (5) would be relevant and it reads as under:- 127C(5) After examination of the records and the report of the Commissioner of Customs received under sub-section (3), and the report, if any of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applic .....

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..... a notice issued under Section 28, consequently interest becomes due and payable under Section 28AB by operation of law and it is open to the Settlement Commission to consider the issue of interest at the time of passing the order. If there be power in the proper Officer of Customs to waive and/or reduce interest, that power can also be exercised by the Settlement Commission. This was in the context of Section 127H as it then stood. Now that is power of the Settlement Commission has been excluded, to waive interest if otherwise interest was payable. The Supreme Court in Commissioner of Trade Tax v. M/s. Kanhoo Ram Thekedar - 2005 (185) E.L.T. 3 (S.C.) has taken the view that interest liability accrues automatically. 12. On behalf of Revenue it has been submitted that firstly the provisions of Section 28AB were clearly attracted as admittedly in all cases there was no payment or short payment of duty. It is secondly contended that under Section 127B(c), once an applicant files an application and admits the duty and interest payable and pays the same and seeks no relief in the matter of refund of interest, even if otherwise it could be so done, then it was beyond the jurisdiction of t .....

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..... the same has also been reiterated in the case of Commissioner of Customs, New Delhi v. C.T. Scan Research Centre (P) Ltd., 2003 (155) E.L.T. 3 (S.C). Reliance is also placed in the judgment in the case of Chhotabhai Jethabhai Patel and Co. v. Union of India - AIR 1952 Nagpur 139 to contend that where an assessment is correct on the day it was made, but becomes incorrect due to an event occurring/taking place after removal of the goods from the factory, the same is not covered by Rule 10 of the Central Excise Rules, 1944, as it stood in 1951. Same analogy it is submitted would apply to Section 28 of the Customs Act, 1962. In support of this submission it is further contended that on the date the bill of entry was assessed considering the exemption, the assessment was correct as there was no error or omission nor short levy or wrong levy. Section 28, it is submitted, would not apply to cases, where duty is not levied at the time of clearance in view of correct extension of an exemption notification, but became payable due to subsequent violation of end-use condition of the said notification. In such cases, there is no short levy or non-levy when the assessment was made. For this pur .....

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..... red by the application. It can also deal with a matter not covered by the application but relating to the case and referred to in the report of the Commissioner under sub-section (3) or sub-section (4). It, therefore, is a Tribunal of limited jurisdiction. It, therefore, normally cannot act as a Court of equity. It can regulate its own procedure. Case under Section 12A(b) means any proceedings under the Act or any other Act for the levy of assessment and collection of customs duty. In other words if there be a provision for levy of customs duty under the Customs Act or any other Act which would include the Customs Tariff Act, then it forms part of the case and consequently the Tribunal would be clothed with jurisdiction as if it was the subject matter of the application for settlement and not otherwise. 14. We may now consider the first and second questions as to whether interest could be demanded, if otherwise it is not payable under an enactment and further whether provision for interest under the Customs Act is not incorporated into the Customs Tariff Act. To understand the issue we may first refer to some of the decisions of the Supreme Court. The judgment of the Constitution B .....

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..... y for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. Commissioners of Inland Revenue, CIT v. Mahaliram Ramjidas, Indian United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay, and Gursahai Saigal v. CIT, Punjab. But it must also be realised that provision by which the authority is empowered to levy and collect interest even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal NagpurRailway Co .....

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..... n Ltd. (supra). 15. In Hyderabad Industries Ltd. (supra) the Court was considering the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. On consideration of the provisions the Supreme Court held that Section 12 is the charging section in so far as Customs Act is concerned and Section 3 is the charging Section of the Customs Tariff Act, 1975. Under the Customs Tariff Act there is a provision for additional duty. The issue there was whether additional duty was leviable. The Court noted that if the article cannot be subjected to excise levy because it is not produced or manufactured, then on the import of like articles, no additional duty can be levied. 16. Interest, penalty or fine is only payable if there be a substantive provision for payment of interest, penalty or fine though levy and collection of interest can be said to be a part of the machinery provisions and not part of the charging provisions. In the absence of any statutory provision, an Authority would be acting without jurisdiction in demanding payment of interest where otherwise no interest is payable. Incidentally, we must note that the remedy which a party is seeking. If in respect of the remedy so .....

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..... ch reads as under:- (viii) Section 125 provides for option to the owner of the goods to pay fine in lieu of confiscation thereof in addition to any duty and charges payable thereon. It is proposed to suitably amend this section so as to specifically provide that whenever any fine in lieu of confiscation of goods is imposed on any owner of the goods, such owner shall also be liable for duty and charges payable in respect of such goods. It is also proposed to clarify that in a case where the owner of the goods is not known, the person from whose possession or custody such goods are seized will be made responsible for the payment of the fine, duty and other charges. 18. The Supreme Court in Union of India & Ors. v. Security & Finance (P) Ltd., 1983 (13) E.L.T. 1562 (S.C.) was considering Section 183 of the Sea Customs Act. The issue before the Court was after having imposed fine under Section 183 of the Sea Customs Act whether an Officer was precluded from levying duty under Section (sic). 19. Examining the scheme of the Act the Court noted that import/export duty is an obligation cast by Section 20 of the Act. It is a tax, not a penalty; it is an innocent levy once the exigib .....

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..... Revenue before the Supreme Court contended that once there was an order of confiscation, the duty had to be paid in terms of Section 125(2) and there was no need to issue notice under Section 25 of the Act. It is in that context that the Supreme Court was pleased to observe that the liability to pay duty arises under sub-section (2) of Section 125 and the order for payment of duty under Section 125(2) would be an integral part of proceedings relating to confiscation and consequential orders. This was reiterated in C.T. Scan Research Centre (P) Ltd. This view was followed by a learned Bench of this Court in BombayHospital Trust v. Commissioner of Customs (ACC), Mumbai, 2006 (201) E.L.T. 555 (Bom.). 22. Normally in a case when import or export of goods is covered by an import free license or notification, the goods are released against a bond for the amount of duty otherwise payable so that the party complies with the conditions of the notification failing which the duty as set out in the bond becomes payable and can be recovered under Section 143 and 143A of the Act. The Notification itself normally provide that in the event of failure to use the goods for the purpose covered by th .....

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..... ce duty is payable the importer would be liable for interest on the unpaid duty under Section 28AB, as by operation of law, when duty is not paid or short paid on ascertainment of such non-payment and ascertainment of interest under Section 28AB becomes payable. If interest is payable under a bond or notification the interest would be payable pursuant to the bond or notification. In such cases there can be no further interest under Section 28AB. 25. The judgment in Rexnord Electronics & Controls Ltd. v. Union of India, 2008 (224) E.L.T. 184 (S.C.) may now be considered. The Supreme Court in that case held that the interest was payable pursuant to a bond given and it will be contractual and the Settlement Commission would have no jurisdiction to waive the interest. The Court there was considering the provisions of Section 28AA of the Customs Act. Under that provision on duty being ascertained, if not paid, within three months, interest is payable. On the facts of that case though the goods were dutiable in terms of the Notification they were exempt from duty subject to terms and conditions. The goods were released pursuant to a bond and undertaking. The exporter i.e. The Appella .....

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..... d interest fixed by the Notification under Section 28AB of the Customs Act. Though ultimately as can be seen considering the Notification issued under the Rules the interest is secured by a bond notwithstanding the interest is payable pursuant to an exercise in subordinate legislation. Therefore, in our opinion, what emerges is that interest payable is compensatory for failure to pay the duty. It is not penal in character in that context. The Supreme Court under the provisions of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 in Collector of C.Ex., Ahmedabad v. Orient Fabrics Pvt. Ltd. - 2003 (158) E.L.T. 545 (S.C.) was pleased to observe that when the breach of the provision of the Act is penal in nature or a penalty is imposed by way of additional tax, the constitutional mandate requires a clear authority of law for imposition for the same. There the Court noted that the Act created liability for additional duty for excise, but created no liability for any penalty. The Supreme Court noted the judgment of the Federal Court in Chatturam v. C.I.T. Bihar, 1947 (15) ITR 302 which observed that liability does not depend on assessment. There must be a charging s .....

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..... ich would be leviable on a like article if produced or manufactured in India, or, if a like article is not so produced or manufactured, which would be leviable on the class or description of articles to which the imported article belongs, and where such duty is leviable at different rates, highest duty. 3(6) The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act. The relevant provisions of Section 3A(4) reads as under:- 3A(4) The provisions of the Customs Act, 1962 (52 of 1962), and the Rules 25 and regulations made thereunder, including those relating to refunds and exemptions from duties shall, so far as may be, apply to the duty chargeable under this section as they apply in relation to the duties leviable under that Act. 29. The question, therefore, would be what is the meaning of the expression provisions of the Customs Act, 1962 and the Rules and Regulations made thereunder should as far as may be apply to the duty chargeable .....

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..... ot penal in character, but is compensatory in nature. In other words it recompensates the State on failure to pay duty at the rate of interest as determined by the Board. Two constructions flow. One the rule of strict construction it being a taxing statute and the other not a strict construction if it be part of the machinery provisions. We may now refer to Section 28AA. Under Section 28AA interest becomes automatically payable on failure by the assesee to pay duty as assessed within the time as set out therein. Similarly, under Section 28AB on duty being ascertained as under Section 28 interest is payable by operation of law. In a case, therefore, where duty has been ascertained as due under the Customs Tariff Act, 1975 by the machinery under the provisions of the Customs Act if the provisions of Sections 3 and 3A are read in their proper context, then Section 28 would first be attracted. No interest will be payable under Section 28AB if the predicates of Section 28 are not satisfied. Therefore, in a case of non-payment of duty of the payment or erroneous refund even under the provisions of the Customs Tariff Act, 1975, Section 28 would be attracted and once duty is ascertained un .....

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