Case Law Details
Gateway Terminals India P. Ltd. Vs Commr. of Cus. (Nhava Sheva-II) (CESTAT Mumbai)
The appeal before the Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) arose from an order-in-original dated 09.04.2015 passed by the Commissioner of Customs, Nhava Sheva-II. By the impugned order, the Commissioner had cancelled the appellant’s Export Oriented Unit (EOU) registration and Customs Bonded Warehousing Licence ab initio, confirmed customs duty demands aggregating to more than ₹78.86 crore along with applicable interest under Sections 28AB/28AA of the Customs Act, permitted adjustment of a substantial portion of the duty against EPCG licences, and rejected the request to debit the remaining liability through SFIS licences.
The appellant had obtained a private bonded warehouse licence under Section 58 of the Customs Act on 26.05.2006 and permission for in-bond port handling services under Section 65. It was also registered as an EOU on 09.06.2006. Subsequently, it was noticed that the imports made by the appellant did not qualify for exemption under Notification No. 52/2003-Cus. because Paragraph 11 of the notification excluded service sector EOUs that did not directly export services out of India. Based on this understanding, three show cause notices dated 02.11.2006, 22.01.2007 and 29.01.2007 were issued proposing cancellation of EOU registration, cancellation of bonding permissions, and recovery of customs duty and interest in respect of 33 consignments.
The Commissioner adjudicated the notices after considering the appellant’s submissions. The adjudicating authority held that the EOU registration and bonded warehouse licence were interlinked and that, consequent upon the Board of Approval’s order dated 13.11.2007 cancelling the EOU status ab initio, both permissions became null and void from inception. It was further held that the imported goods ceased to enjoy exemption benefits and were deemed to have been cleared for home consumption, rendering the appellant liable to customs duty and applicable interest under Section 28. The Commissioner, however, gave effect to the EPCG Committee’s decision dated 19.09.2014 by permitting adjustment of a substantial portion of the duty liability against EPCG licences issued in 2005. The request to utilise SFIS scrips for payment of the balance duty was rejected.
Before the Tribunal, the appellant contended that it should also be allowed to utilise SFIS scrips for payment of the remaining duty because, under later foreign trade policies, such utilisation had become permissible. The appellant further argued that interest should not be demanded because it had acted bona fide and could have availed EPCG benefits at the time of import. It was also submitted that the doctrine of promissory estoppel barred the demand of interest since the authorities had initially granted EOU registration and permitted imports under the exemption notification. Alternatively, it was argued that interest, if payable, should be restricted only to the portion of duty payable in cash and not the amount adjusted against EPCG licences.
The Revenue opposed these submissions, contending that adjustment of duty against EPCG licences pursuant to the EPCG Committee’s decision did not alter the fact that the appellant had failed to pay the appropriate duty at the relevant time. Since duty had been short-paid or not paid, the consequent levy of interest under Section 28AA/28AB followed automatically. The Revenue also argued that SFIS utilisation was impermissible because the foreign trade policy applicable during the import period did not allow such adjustment.
The Tribunal upheld the Commissioner’s findings. Relying extensively upon the Bombay High Court’s decision in Valecha Engineering Ltd., it held that once duty became payable under Section 28 due to non-payment or short-payment, interest under Section 28AA/28AB became payable by operation of law. The Tribunal observed that interest is compensatory in nature and not penal. It further held that the doctrine of promissory estoppel could not override statutory provisions, reiterating the settled principle that there can be no estoppel against law. The Tribunal also referred to judicial precedents emphasising that the burden of establishing entitlement to an exemption rests upon the person claiming such benefit.
Rejecting the appellant’s plea regarding limitation of interest, the Tribunal held that interest was payable on the entire duty adjudged under Section 28, irrespective of whether the liability was discharged through cash payment or adjustment against EPCG licences. On the issue of SFIS scrips, the Tribunal found that such utilisation was not permissible during the relevant period of imports. It observed that permitting such adjustment would place the appellant in a better position than if EPCG benefits had originally been claimed, and no party should be allowed to derive an advantage from its own wrong. Accordingly, the Tribunal found no infirmity in the Commissioner’s order and dismissed the appeal.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against the order in original No 01/2015-16 dated 09.04.2015 of the Commissioner Customs (NS-II), JNCH, Nhava Sheva. By the impugned order, Commissioner has held as follows:
“33. On the basis of the foregoing, following order is passed:
i. The EOU registration of M/s GTIL stands cancelled ab-initio.
ii. The Customs Bonded Warehousing License No. PN-1/CUSTOMS-01/2006 issued under Section 58 of the Customs Act, 1962 stands cancelled ab-initio. Consequently, the in bond Port Handling Services permission given to the importer under Section 65 of the Customs Act, 1962 also stands cancelled ab initio.
iii. I confirm the demand of duty amounting to Rs 78,81,61,176/- (Rupees Seventy Eight Crores Eighty One Lakhs Sixty One Thousand One Hundred and Seventy Six only), Rs 3,59,418/- (Rupees Three Lakhs Fifty Nine Thousand Four Hundred and Eighteen only) and Rs 1,28,025 (Rupees One Lakhs Twenty Eight Thousand and Twenty Five only) under Section 28 of the Customs Act, 1962 along with the applicable interest under Section 28AB of the Customs Act, 1962 (Section 28AA w.e.f. 08.04.2011) on the importer M/s GTIL in respect of the three SCN’s dated 02.11.2006, 22.012007 and 29.01.2007.
iv. The EPCG license (i) 033000831 dated 31.03.2005, (ii) 0330009232 dated 21,07.2005, (iii) 0330009814 dated 23.09.2005, (iv) 0330010231 dated 16.11.2005 and (v) 0330010407 dated 05.12.2005 of year 2005 issued to the importer and deemed to be valid by the EPCG committee and the new EPCG Licenses to be issued by the Regional Authority can be used for debiting so much of the duty as is in excess of the amount calculated at the rate of 5.1 ad valorem for the capital goods and spares already cleared under EOU scheme as per the notification No 97/2004-Cus dated 17.09.2004 subject to the goods being covered under the said licenses and necessary debits (quantity, value and duty) and fulfilment of export obligation as may be fixed/ determined and accounted by the Regional Authority.
v. The importer is permitted to debit the duty of Rs 67,91,49,875/- (Rupees Sixty Seven Crores Ninety One Lakhs Forty Nine Thousand Eight Hundred and Seventy Five only) against EPCG licenses and pay the remaining amount of duty of Rs 10,94,98,744/-(Rupees Ten Crores Ninety Four Lakhs Ninety Eight Thousand Seven Hundred and Forty Four only) in cash as per the table A annexed to this order. The request of the importer to debit the duty against the SFIS licenses is rejected.
vi. The show cause notices vide F Bo S/6-Gen-416/06 Bond JNCH dated 02.11.2006, 22.01.2007 and 29.01.2007 stand disposed of accordingly.”
2.1 Appellants were granted license No PN-1/Customs-01/2006 dated 26.05.2006 as private bonded warehouse under Section 58 of the Customs Act, 1962 and for in Bond port handling services under Section 65 of the Customs Act, 1962. They were also registered as EOU on 09.06.2006 by the EOU Section of JNCH.
2.2 Though appellants were registered as EOU, but on examination it was noticed that imports made by the appellants were not exempt under the Notification No 52/2003-Cus dated 31.03.2003, para 11, which read as follows:
“Nothing contained in this Notification shall apply to the goods imported by a service sector export oriented undertaking as specified (a) in the opening paragraph, who does not directly export services out of India.”
2.3 After seeking clarification from Additional Director General (DGEP), revenue was of the view that EOU Registration granted by JNCH to Appellants was liable for consideration and also the permission granted to license granted as Private Bonded Warehouse and for in bond Port handling Services also was liable for cancellation.
2.4 Three Show Cause notices dated 02.11.2006, 22.01.2007 and 29.01.2007 were issued to the Appellant asking them to show cause as to why-
i. EOU Registration should not be cancelled;
ii. Bonding permission given to their premises should not be cancelled;
iii. Why duty amount of Rs 78,80,51,953/-, Rs 3,59,418/- and Rs 1,28,025/- along with applicable interest in respect of the three show cause notices (total 33 consignments) should not be recovered from them as per Section 28 of the Customs Act, 1962 read with para 11 of Customs Notification No 52/2003-Cus dated 31.03.2003
2.5 After considering the submissions made by the Appellants, Commissioner has by the impugned order adjudicated the three Show Cause Notices. Aggrieved by the impugned order appellants are in appeal.
3.1 We have heard Shri Vikram Nankani, Advocate for the Appellant and Shri R K Dwivedy, Additional Commissioner, Authorized Representative for the revenue.
3.2 Arguing for the Appellants learned Counsel submitted that-
> The issue in respect of the cancellation of EOU Registration and subsequently permitting to discharge the duty that is in excess of 5.1% ad-valorem is settled by the EPCG Committee’s decision dated 19.09.2014. Commissioner has in his order given effect to the decision of EPCG Committee, by permitting the debit of duty demanded in respect of the goods initially imported claiming the benefit of Notification No 52/2003-Cus against the various EPCG Licenses issued to them in 2005.
> They are entitled to debit remaining amount of duty i.e. 5.1% ad-valorem, by utilizing the SFIS Scrips available with them for the reasons as stated below:
-
- From 01.01.2009 (under Policy of 2009-14) the SFIS Scrips have been allowed to be utilized towards payment of duty under EPCG scheme;
- The duty @ 5.15% scheme is being paid vide EPCG Committee order dated 19.09.2014;
- It is settled that duty credit scrip is equivalent to cash and hence is the alternate mode of payment of duty.
> The next issues raised by them in the appeal are in respect of the demand of the interest. Since they have acted bonafidely and the duty payable on the imported goods have been permitted to be debited against the EPCG License that were issued to them in 2005, the demand of interest should not be there because at the relevant time of importing the goods they could have instead of availing the benefit of Notification No 52/2003-Cus, applicable to EOU, debited the duty payable from the EPCG License;
> Demand and levy of interest are against the Doctrine of Promissory Estoppel.
> Even if the demand of interest is there then the same can only be in respect of the duty required to be paid by them in cash and not on the component of duty allowed to be debited by them from the EPCG Licenses.
> He would rely upon the decisions as follows in support of the contentions raised.
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- Pratibha Processors [1996 (88) ELT 12 (SC)]
- Jayathi Krishnan & Co [2000 (119) ELT 4 (SC)]
- U K Paint Industries [2014 (306) ELT 284 9Del)]
- Leave has been granted by the Apex Court in SLP [2017 (353) ELT A132 (SC)]filed against the decision of Bombay High Court in case of Valecha Engineers Ltd [2010 (249) ELT 167 (Bom)]
3.3 arguing for the revenue learned Authorized Representative while reiterating the findings of Commissioner submitted that-
> Order of Commissioner permitting the debit from the EPCG licenses issued to the appellant in the year 2005 was in line with the decision of EPCG Committee. However permitting such debit from the EPCG License would not imply that appellants had paid the duty due against the imported goods on the due date. Since the appellants have not paid the duty on the due date, by claiming the exemption which was not admissible to them, the demand of duty under Section 28 was justified;
> Since the demand has been confirmed by the adjudicating authority under Section 28, the demand for interest under Section 28, is natural consequence of the confirmation of demand under Section 28, hence the impugned order cannot be faulted with;
> Further the case law relied upon by the appellant are in respect of warehousing interest and not in respect of the duty demanded and confirmed under Section 28, for the duty short paid or not paid on the due date, these decisions will not apply to the facts of the present case and are distinguishable. In a series of the decisions including the decision of Bombay High Court in case of Valecha Engineers Ltd., it has been held that demand of interest under Section 28AA of Customs Act, 1962, is in respect of duty short paid or not paid and hence cannot be set aside or waived.
> Since during the period of imports the Foreign Trade Policy as it existed then did not permitted the debits from the SFIS Scrips/ License against the imports made under EPCG Scheme, Commissioner was absolutely justified in denying such permission.
4.1 We have considered the impugned order with the submissions made in appeal and during the course of arguments on appeal.
4.2 Commissioner has in para 27 to 31 of the impugned order recorded as follows:
“27. The contentions being raised by the importer are examined point-wise as follows:
i. In the instant case as there was a dispute related to the provisions of foreign trade policy and scope of the Notification No. 52/2003-Cus dated 31.03.2003 read with para 11 thereof, three SCN’s dated 02.11.2006, 22.01.2007 and 29.01.2007 were issued to the importer. In light of the BoA order dated 13.11.2007 cancelling the EOU status ab-initio, interim order of the Hon’ble Bombay High Court and the EPCG Committee’s decision dated 19.09.204, the said SCN’s are now being taken up for adjudication.
ii. The EPCG Committee’s decision dated 19.09.2014 issued with the approval of DGFT under para 2.5 of FTP and providing for relaxation of provision of FTP: vis-a-vis permitting EPCG benefit for the clearances made under EOU and waiver of interest as a special case needs to be given effect subject to the statutory provisions regarding duty and interest contained in the Customs Act, 1962.
iii. The EPCG Committee’s decision dated 19.09.2014 provides for EPCG benefit to the goods already cleared under EOU scheme and also holds the EPCG licences issued to the importer in 2005 as valid. However, the issues related to the current status of warehouse registration needs to be examined.
iv. Vide para 11 of the Notification No. 52/2003-Cus, the benefit of EOU scheme itself is being excluded. Further, the said issue stands finalized in light of the BoA order dated 13.11.2007 cancelling the EOU status ab-initio and the amendments brought in the Policy for 2008-2009 and notified on 11.04.2008 wherein Para 6.9(f) of the FTP itself was omitted.
v. The EPCG Committee’s decision dated 19.09.2014 does not specifically call for giving effect to its decision prior to the initiation of adjudication proceedings pertaining to the subject SCNs.
vi. The issue stands finalized in light of the BoA order dated 13.11.2007 cancelling the EOU status ab-initio.
vii-ix. The Customs Bonded Warehousing Licence no. PN-1/CUSTOms-01/2006 dated 26.05.2006 was issued to M/s. GTIL under Section 58 of the Customs Act, 1962 as per the condition no. 1 of the Letter of Permission (LOP) issued by the Development Commissioner, SEEPZ Special Economic Zone, Mumbai vide letter No. PER:37(2005): SEEPZ:EOU:82/05-06/2245 dated 29.03.2006 and the agreement dated 13.04.2006 entered into by M/s. GTIL with the Development Commissioner, SEEPZ SEZ, Mumbai for setting up of the 100% EOU. Thus, it is evident that the customs bonding licence was issued to M/s. GTIL only for the purpose of permitting the in-bond port handling services under EOU scheme and therefore the EOU registration dated 09.06.2006 and customs bonding licence dated 26.05.2006 issued to M/s GTIL needs to be seen as inter-linked for giving effect to the 100% EOD scheme. Thus the customs bonding licence issued to M/s GTIL does not have independent existence. Consequent to the ab-initio cancellation of EOD status by the BoA vide order dated 13.11.2007, the EOD registration dated 09.06.2006 and the customs bonding licence dated 26.05.2006 issued to the importer become null and void and stand cancelled ab-initio. The post facto application dated 15.02.2013 of the importer for renewal of the customs bonding licence therefore does not merit consideration. Accordingly, the imported goods are not eligible for duty exemption under the notification no. 52/2003-Cus dated 1.03.2003 and the domestically procured goods are not eligible for the benefit of notification no. 20/2003-C. Ex dated 31.03.2003 and the good cease to be warehoused goods and are deemed to be have been cleared for home consumption under Section 47 of Customs Act, 1962 on the date of bonding itself. Thus, the importer is liable to pay the duty on the imported goods at the rate applicable on the date of filing of the warehouse bill of entry and the same becomes payable on the date of assessment of the warehouse bill of entry and is recoverable under Section 28 of the Customs Act, 1962 along with the applicable interest under Section 28AB of the Customs Act, 1962 (Section 28 AA w.e.f 08.04.2011). In respect of the duty free procurement effected against the CT 3/ Procurement Certificate no. 01/2006 dated 22.09.2006 issued by the EOD Section, JNCR, the importer is liable to pay the duty of Rs 1,28,025/- which was forgone on account of CVD and Education Cess at the time of bonding and the same is recoverable under Section 28 of the Customs Act, 1962 along with the applicable interest under Section 28AB of the Customs Act 1962 (Section 28AA w.e.f 08.04.2011). Thus the SCNs issued under Section 28 are not premature.
x. The EPCG Committee’s decision dated 19.09.2014 issued with the approval of DGFT under para 2.5 of the Foreign Trade Policy and providing for relaxation of provision of FTP vis-a-vis permitting EPCG benefit for the clearances made under EO does not render the SCN redundant and irrelevant inasmuch as the issues of interest related to the chargeability of customs duty and the date on which the duty becomes due are to be determined as per the statutory provisions contained in the Customs Act, 1962. The BoA order revoking the EOD status ab-initio and the EPCG Committee’s decision dated 19.09.2014 does not call for fresh assessment under the EPCG licence but recommends leniency in respect of fine penalty and interest. In light of the EPCG Committee’s decision dated 19.09.2014, the duty liability can be adjusted against the 2005 year EPCG licences and the new EPCG licences. As the instant case pertains to the imports effected during the period 2006-2007, the same are to be governed as per the FTP 2004-2009 in respect of availing the benefit of EPCG scheme. Therefore, it appears that the importer is not eligible for the Zero Duty EPCG scheme as the said scheme was introduced only vide para 5.1 of the FTP 2009-14.. The instant case does not warrant any academic discussion about the differentiation between levy and assessment. The liability to pay the duty and applicable interest stands finalized as already discussed in the para vii-ix above.
xi. Though the customs bonded warehousing licence was valid for 3 years but the EOU ceased to exist ab-initio and consequently the imported goods and the duty free domestically procured goods become liable to interest as already discussed in the para vii-ix above.
xii. Though the EPCG Committee vide the minutes of the meeting dated 19.09.2014 had recommended for waiver of interest as a special case, the same was contested by the CBEC vide letter F. No. 605/53/2014-DBK dated 05.11.2014 stating that the same had been done without tile concurrence from the Department of Revenue and it was requested that the same be expunged from the minutes of the meeting dated 19.09.2014 as it would not be proper to decide on the issue of interest beforehand under the para 2.5 of the FTP as the issues of interest related to the chargeability of customs duty and the date on which the duty becomes due were to be decided by the jurisdictional Customs Authority. Further, as per the provisions of Section 61 of the Customs Act, 1962 waiver of interest can only be ordered by the CBEC if the same serves the public interest. The provisions of Section 28AA(3) and Section 151 A of the Customs Act, 1962 are not applicable in the instant case as the duty has become payable consequent to the order of BoA and not that of CBEC.
xiii. As the instant case pertains to the imports effected during the period 2006-2007, the same are to be governed as per the FTP 2004-2009. The para 4.29 of HBP Vol. I of FTP 2004-2009 does not provide for payment of customs duty component through the valid duty credit scrips issued under Chapter 3 of FTP and the said provision was introduced only vide the FTP 2009-14. Thus, the request of the importer to allow the duty debit through SFIS licences appears to legally untenable and the same is rejected.
xiv. As regards the case law Bharat Warehousing Corporation and Others vs. Collector of Customs, Calcutta [1988 (34) ELT 423 (Cal.)] relied upon by the importer, the same is not applicable as the instant case involves ab-initio rejection of the EOU status by BoA and therefore merits ab-initio cancellation of the EOU registration and the customs bonding licence which was issued as per the LOP issued by the Development Commissioner, SEEPZ Special Economic Zone, Mumbai.
xv. As regards the case law Pratibha Processors Versus Union of India [1996 (88) ELT 12 (SC)] relied upon by the importer, the same is not applicable as the goods are liable to payment of duty and the goods cease to be warehoused goods.
xvi. As regards the case law Assistant Collector of Central Excise, Calcutta vs. National Tobacco Co. of India Ltd. [1978 (2) ELT (J 416) (SC)] relied upon by the importer, the same is not applicable as the instant case does not warrant any differentiation between levy and assessment.
28. As regards the case laws viz. Commissioner of Customs vs. Acalmar Oils & Fats Ltd. [2009 (240) ELT 440 (Tri.-Bang.)], Dinesh Oils Ltd. vs. Commissioner of Customs [2007 (220) ELT 246 (Tri.-Ahmd.)], Govind Ram Agarwal vs. Collector of Customs [2002 (149) ELT 1209 (Tri.-Kolkata)], Krishna Filaments Ltd. vs. Commissioner of C. Ex. [2002 (143) ELT 100 (Tri.-Mumbai)] and Essar Oil Ltd. vs. Commissioner of Customs [2006 (197) ELT 450 (Tri.-Mumbai)] relied upon by the importer, the same are not applicable as the instant case merits ab-initio cancellation of the EOU registration and the customs bonding licence which was issued as per the LOP issued by the Development Commissioner, SEEPZ Special Economic Zone, Mumbai which renders the goods as deemed cleared for home consumption under Section 47 of the Customs Act, 1962 on the date of bonding itself.”
4.3 It is admitted fact that Appellants had imported the goods covered by thirty three Bill of entries as detailed below, claiming the benefit of exemption under Notification No 52/2003-Cus. Subsequently it was determined that the appellants were not eligible to benefit of exemption under the said notification accordingly the proceedings to demand the duty short/ not paid by the Appellants were initiated under Section 28 of the Customs Act, 1962. The demands in respect of the duty short/ not paid by the appellant have been confirmed by the Commissioner along with the interest in respect of the duty short/ not paid.
4.4 The contentions raised by the Appellant in respect of the demand made under Section 28 and interest under Section 28AA have been considered by the Hon’ble Bombay High Court in case of Valecha Engineering Ltd [2010 (249) ELT 167 (Bom)], and following has been held:
“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 the notification such importer shall pay an amount equal to the difference between the levy on the said imported goods but for the exemption under the Notification and the duty the party paid at the time of importation. In so far as the bond is concerned it could be enforced under Section 142(2) of the Act.
23. As submitted on behalf of the Petitioners that by itself does not mean that Section 28 is not attracted. In all cases of non-payment of duty or short levy or erroneous refund where investigation is to be done, Section 28 would be attracted in the absence of any machinery under Section 125 for deciding whether there is any breach. In a case of an import where duty is exempted by a notification, if there be breach duty becomes leviable and that would fall in the expression of nonpayment or short payment of duty. Once any duty becomes due interest would be payable if provided in the Bond. The two views in M.J. Exports (supra), Security & Finance (P) Ltd., on the one hand and Jagdish Cancer & Research Centre (supra) and C.T. Scan Research Centre (supra) can be reconciled. The view in Jagdish Cancer & Research Centre (supra) and C.T. Scan Research Centre (supra) would apply when there is no dispute on there being a breach about the quantum of duty. As rightly pointed out on behalf of the Petitioners for a party disputing its liability Section 28 is the only provision. There is no machinery for adjudication under Section 125(2). Notice to satisfy the principles of natural justice will be no answer in the absence of an adjudicating machinery.
24. Considering the interpretation of the provisions of Sea Customs Act as it then stood, the Objects and Reasons clause as earlier noted and the judgment in M.J. Exports (supra) though the judgment in Jagdish Cancer & Research Centre is of a Bench of three Judges vis-a-vis the Judgment in Union of India v. Security & Finance (P) Ltd., (supra) and M.J. Exports Ltd. (supra), in our opinion, in addition it would be open under Section 28 for the Competent Authority, to issue a show cause notice. Section 28 is the provision under the Act, if there has been nonpayment or short payment and the like, to adjudicate the dispute to decide whether there has been a breach and/or the like and consequently recovery of duty which has not been paid or short paid. Such an exercise would not be without jurisdiction. Once 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 nonpayment 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 Appellant before the Supreme Court did not comply with the conditions of re-export and accordingly a demand was made. The notices were the subject matter before the Settlement Commission and in that context the observations were made. The law, therefore, would be that the Settlement Commission had the power to waive interest only if it is statutory and payable under the Act.
26. Under Section 28AB of the Customs Act, interest becomes payable on duty becoming payable in the set of cases as set out under the said Section, which duty has not been levied or paid or has been short levied or short-paid or erroneously refunded by reasons of collusion or any wilful misstatement or suppression of facts. In Nirlon Ltd. v. Union of India, 2007 (209) E.L.T. 12 (Bom.) the issue was charging interest under the provisions of the Central Excise Act. This Court there held that it was requirement of law including natural justice that notice will be issued to the Petitioner or party aggrieved as to why interest amount should not be claimed from it and after affording a hearing that liability ought to be decided. Under the Customs Act if there is short levy of duty or non-payment thereof the requirement of serving a notice under Section 28 arises. The decision, therefore, would be as held by us in M/s. Kamat Printers Pvt. Ltd. (supra) that once duty is ascertained then by operation of law, such person in addition shall be liable to pay interest at such rate as fixed by the Board. The Proper Officer, therefore, in the ordinary course would be bound once the duty is held to be liable to call on the party to pay interest as fixed by the Board.
27. We may at this stage only note that various Notifications under the Customs Act have been brought to our attention. These are notifications issued under Section 25(1) of the Customs Act. Under the Notifications in exempting the goods from the whole of duty of customs the importer has to execute a bond binding to pay an amount equal to the duty together with interest as set out in the Notification. The interest varies from time to time depending on the nature of the Notification. There are Rules also framed called Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996. In terms of these Rules for failure to comply with the conditions of imports power is conferred to recover the difference of duty and 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 section to create liability. There must be first a liability created by the Act. Second, the Act must provide for assessment. Third, the Act must provide for enforcement of the taxing provisions. The mere fact that there is machinery for assessment, collection and enforcement of tax and penalty in the State Act does not mean that the provision for penalty in the State Act is created as penalty under the Central Act. The meaning of penalty under the Central Act cannot be enlarged by the provisions of machinery of the State Act incorporated for working out of the Central Act. The law on the issue of charge of interest, in our opinion, stands concluded and is no longer res integra. We may only gainfully refer to the judgment in India Carbon Ltd. v. State of Assam, (1997) 6 SCC 479. The Court there observed as under :-
“This proposition may be derived from the above: interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf.”
Therefore, once it is held that duty is due, interest on the unpaid amount of duty becomes payable by operation of law under Section 28AB. Secondly, when there is a dispute as to whether there is a breach of the notification, then Section 28 can be resorted to Section 125(2) in addition can be resorted to when there is no dispute.
………..
30. It is sought to be contended that it is only after 18th April, 2006 that the Customs Tariff Act, 1975 provides for interest. It is in this context that this Court would have to consider the true import of the meaning of the expression that that provisions of the Customs Act, Rules and Regulations made thereunder as far as may be, apply to the duty charged under this Act. It is no doubt true that the provisions of Customs Tariff Act themselves do not provide for interest. However, we may gainfully refer to the expression “duty” under Section 2(15) of the Customs Act, which reads as under :-
“”duty” means a duty of customs leviable under this Act.”
A reading thereof would indicate that the provisions of the Customs Act pertaining to duty would also apply duty payable under the Customs Tariff Act.
The law as now settled is that the charging Section for Customs Duty is Section 12 whereas the charging Section in so far as the Customs Tariff Act is Section 3. However, relevant for our discussion would be the Sections 3, 3A and their relevant sub-sections. Would a construction of these provisions, result in holding that interest be treated as having been incorporated under the provisions of the Customs Tariff Act, 1975. The provision for interest as now settled is a part of the machinery provisions. It by itself is not 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 under Section 28 interest becomes payable under Section 28AB as the machinery provisions of the Customs Act are incorporated into the Customs Tariff Act and the provision for interest is part of the machinery provisions though at the same time Section 28AB is a substantive provision for payment for interest under the Customs Act. The rule of strict construction must be rejected. Interest is compensatory for failure to pay duty on the date due and payable. Therefore, once duty is determined considering the expression, the provisions of the Customs Act shall as far as may apply Section 28AB would be applicable. The amendment of the 18th April, 2006 only clarifies the position.
31. In the case of Orient Fabrics Pvt. Ltd. (supra) the Court was specifically dealing with the issue of penal provisions like penalty and confiscation. It did not deal with the issue of interest. Interest in that context has not been held to be penal in character.
32. In Writ Petition No. 2540 of 2008 the Commission held that interest could not have been charged and accordingly directed that interest be refunded. The petitioner there had already paid the interest. The Commission, therefore, suo motto could not have ordered refund of interest in the application the petitioner had not sought for refund of interest paid or for waiver of interest. Apart from that as we have now held, interest was payable. If interest was not payable under the Act the question of the Commission exercising jurisdiction, directing the refund would also not arise. This is irrespective of the fact that any issue pertaining to refund of interest would be subject to the provisions of unjust enrichment. In our opinion Rule in this Petition will have to be made absolute both on the count that interest was payable and alternatively on the ground that the Commission had no jurisdiction to direct refund of interest.”
4.5 Appellants have sought to contest the demand of interest by invoking the provisions of promissory estoppel. It was there submission that once they had been allowed registration as EOU, and clearance of the goods by allowing the exemption under Notification No 52/2003-Cus, the demand made under Section 28 and demand of interest under Section28AA/ 28AB will be hit by the principles of promissory estoppel. Hon’ble Supreme Court has constantly held that there is no estoppel against the operation of law:
Elson Machines Pvt Ltd [1988 (38) ELT 571(SC)]
8. The next submission on behalf of the appellant is that the Classification Lists had been approved earlier and the Excise authority was estopped from taking a different view. Plainly there can be no estoppel against the law. The claim raised before us is a claim based on the legal effect of a provision of law and, therefore, this contention must be rejected.
Plasmac Machine Mfg Co Pvt Ltd [1991 (51) ELT 361 [SC)]
6. The appellants contention that the department having earlier approved the classification of Tie Bar Nuts under Tariff Item 68 has no justification for its revision is, to our mind, not tenable inasmuch as there could be no estoppel against a statute. If according to law Tie Bar Nuts fall within Tariff Item 52 the fact that the department earlier approved their classification under Tariff Item 68 will not estop it from revising that classification to one under Tariff Item 52. See M/s. Elson Machines Pvt. Ltd. v. Collector of Central Excise – 1988 (38) E.L.T. 571 (SC) = 1989 Suppl. (1) SCC 671, Para 10 at 675.
Indian Rayon and Industries [208 (229) ELT 3 (SC)]
13. We do not find any substance in this submission advanced on behalf of the assessee. The only notification which was available to the assessee at the time of import which granted the assessee the right to import duty free goods was Notification No. 158/95-Cus. Having availed of the benefit of notification, the assessee has necessarily to comply with the conditions of the notification. It goes without saying that the assessee cannot approbate and reprobate. In Tractors and Farm Equipment Ltd. v. Collector of Customs, Madras, 1997 (91) E.L.T. 254 (S.C.) = 1998 (9) SCC 665, it was pointed out by this Court that once the assessee’s case was that what it had imported do not constitute internal combustion piston engines but only certain components, the importer cannot turn around and say that what was imported constitutes piston engines. Of course, there is no estoppel against the law but having sought for and taken the benefit of the notification to import goods without payment of duty, it is not open to the assessee to contend that the conditions in the said notification need not be fulfilled, be it on the ground that the benefit under another notification is available to him or otherwise.”
4.6 In view of the specific provisions Section 28 of Customs Act, 1962, providing for the demand of duty short/ not paid at the time when the same was due, we are not in agreement with the submissions made by the appellant by invoking the principle of promissory estoppel. It is also settled law that in case of exemption, it is responsibility of the person claiming the exemption to satisfy that the said exemption is available to him. Hon’ble Supreme Court has in case of Dilip Kumar & Co [2018 (361) ELT 577 (SC)] held as follows:
“52. To sum up, we answer the reference holding as under –
(1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification.
(2) …….”
4.7 In view of the discussions as above we are not inclined to agree with the submissions made by the appellant’s respect of the interest. We are also not inclined to agree that demand of interest should be limited to the amounts demanded in cash and not in respect of the amounts allowed to be debited from the EPCG licenses. In our view when short/ nonpayment is adjudged under Section 28, Section 28AA mandates the interest t appropriate rate on the quantum of short/ nonpayment adjudged independent of the fact that how the said amount is paid.
4.8 Now coming to the issue of permitting the debit of the duty demanded in cash from SFIS Scrips. It is not in dispute that during the relevant period when the imports were made such debits from the SFIS Script was not permitted. Had the appellants claimed the duty exemption against the EPCG Licenses issued to them in 2005, at the time of import, they would have paid duty @ 5.1% in cash. Now when the benefit of inadmissible exemption has been denied to them, and as special measure benefit of debit against EPCG license has been allowed by the EPCG Committee against the licenses issued in 2005, appellants could not be placed in better position then what they would have been in if they had cleared these goods against these license. Hence we do not find any infirmity in the order of Commissioner denying the debit from SFIS Scrip/ License specifically for the reason that no one should be allowed to take benefit of his own wrongs.
5.1 In view of discussions as above we do not find any merits in the appeal and dismiss the same.
(Order pronounced in the open court on 24.10.2019)
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