The Supreme Court’s recent decision in Union of India & Ors. v. Mahindra and Mahindra Ltd. [SLP (Civil) Diary No. 18824 of 2023] has vital implications on the imposition of interest and penalty on custom duty and additional duties. By dismissing the appeal by the Revenue Department, the Supreme Court upheld the Gujarat High Court’s view that the imposition was without jurisdiction. This ruling clarifies important legal principles in the application of interest and penalties in customs law.
M/s. Mahindra and Mahindra Ltd. (“the Respondent”) is engaged in the business of manufacturing of vehicles.
The Respondent was served with Show Cause Notices (“the SCNs”) to show why the entire amount payable in connection with the imported goods which amounts to misdeclaration with an intent to evade payment of customs duty. The Respondent filed reply of such SCNs.
Aggrieved by the SCNs the Petitioner filed writ before the hon’ble Bombay High Court.
The Petitioner contended that Section 90 of the Finance Act, 2000 relates to surcharge, Section 3 of the Customs Tariff Act, 1975 relates to additional duty of customs equal to excise duty and Section 3A of the Customs Tariff Act, 1975 relates to special additional duty of customs but none of these provisions provided for imposition of penalties and interest on the chargeable duty thereunder. Therefore, there was no power under provision of law to impose penalties and interest.
The Hon’ble Gujarat High Court relied upon the Judgement of India Carbon Ltd. & Ors. v. State of Assam [Civil Appeal No. 2156-2167 of 1993] wherein the Supreme Court held that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax and further held that, where there is no substantive provision requiring the payment of interest, the authorities cannot, for the purpose of collecting and enforcing payment of tax, charge interest thereon.
The Court observed that, mere fact that there is machinery for assessment, collection and enforcement of tax and penalty under the Customs Act, 1962, it does not mean that the provision for penalty and interest in the Customs Act, 1962 is treated as applicable for penalty and interest under the Customs Tariff Act, 1975 and the meaning of penalty or interest under the Customs Tariff Act, 1975 cannot be enlarged by the provisions of machinery of the Customs Act, 1962 incorporated for working out the Customs Tariff Act, 1975.
Stating so, the High Court held that imposition of interest and penalty on the portion of demand pertaining to surcharge or additional duty of customs or special additional duty of Customs was incorrect and without jurisdiction.
Aggrieved by the Order of the High Court the Petitioner filed Special leave petition before the Hon’ble Supreme Court.
Whether interest and penalty can be levied on demand of Customs Additional duty, SAD and surcharge?
The Hon’ble Supreme court in Special Leave Petition (Civil) Diary No. 18824 of 2023 held as under:
Conclusion: The ruling by the Supreme Court sets an essential precedent regarding the imposition of interest and penalties on customs duties. By requiring an explicit substantive provision, the judgment ensures that the principles of legality and fairness are observed in tax administration. It confirms that the mere existence of machinery for assessment, collection, and enforcement does not authorize the imposition of interest and penalties where the governing law does not expressly provide for it. This decision will likely guide future interpretations and application of customs law, providing clearer and more precise legal standards for both taxpayers and authorities. The case showcases the judiciary’s role in upholding the rule of law and emphasizes the importance of clear legislative drafting in tax matters.
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