Case Law Details
Union of India & Ors. Vs A. R. Sulphonates Private Limited & Anr. (Supreme Court of India)
The dispute concerned whether interest, penalty, confiscation, and redemption fine could be levied on Integrated Goods and Services Tax (IGST) payable on imports made under Advance Authorization licences during the period when a “pre-import condition” was in force. The imports were made between 13 October 2017 and 9 January 2019 without payment of IGST, contrary to the pre-import condition then prescribed. After investigation and issuance of a show cause notice, the adjudicating authority confirmed IGST demand and also ordered recovery of interest, imposed penalty, ordered confiscation of goods, and levied redemption fine.
The core issue was whether, prior to its amendment in August 2024, section 3(12) of the Customs Tariff Act, 1975 empowered the authorities to levy interest, penalty, and confiscation in respect of IGST levied under section 3(7). The High Court held that the unamended section 3(12) merely applied procedural provisions of the Customs Act and did not specifically incorporate provisions relating to interest, offences, or penalties. Relying on earlier precedent, it held that interest and penalty are substantive liabilities and cannot be imposed without clear statutory authority. Consequently, the High Court quashed the demand of interest, penalty, confiscation, and redemption fine, and also declared that the relevant customs circular was invalid to the extent it sought to recover interest.
The matter reached the Supreme Court. At the preliminary stage, the Court considered submissions on whether section 3(12) amounted to legislation by reference, thereby importing the power to levy interest and penalty, and whether earlier precedents applied. After hearing both sides, the Supreme Court issued notice for further consideration.
Reading the Supreme Court proceedings together with the High Court judgment, the legal position that emerged was that, prior to its amendment by the Finance (No. 2) Act, 2024, section 3(12) did not authorize levy of interest, penalty, or confiscation for IGST payable under section 3(7). The High Court’s reasoning was grounded in settled law that fiscal and penal provisions must be expressly provided for, and that the use of inclusive language applying customs procedures was insufficient to create substantive liabilities. The later amendment to section 3(12), which expressly introduced applicability of interest, offences, and penalties, was held to be prospective with effect from 16 August 2024.
The High Court further held that once IGST was paid, the imports stood regularised, and confiscation provisions were not attracted. It also relied on administrative clarification allowing regularisation of past imports on payment of tax. The Supreme Court proceedings did not disturb this reasoning at the notice stage and acknowledged that the controversy involved interpretation of the pre-amendment statutory framework.
Overall, the combined effect of the judgments clarified that for the pre-amendment period, while IGST itself was recoverable, there was no authority in law to demand interest, impose penalties, confiscate goods, or levy redemption fine. The statutory amendment expanding section 3(12) was prospective and could not be applied retrospectively to past imports.
Read also HC Judgment in this case: A. R. Sulphonates Private Limited Vs Union of India (Bombay High Court); Writ Petition No. 19366 of 2024; 09/04/2025
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Delay condoned.
2. Heard Mr. N. Venkataraman, learned Additional Solicitor General for the petitioners and Mr. Jitender Motwani, learned counsel for the respondents.
3. The learned Additional Solicitor General draws attention to Section 3(12) of the Customs Tariff Act prior to its amendment by Finance Act 2 of 2024 (extracted at page 21 of the paper-books). The learned Additional Solicitor General contends that in view of this provision, there is a legislation by reference. Hence, the power to levy IGST would also encompass the power to levy interest and penalty. The learned Additional Solicitor General refers to the judgment of the Constitution Bench in Ujagar Prints & Ors. Union of India & Ors. [(1989 3 SCC 488] and, more particularly, paragraphs 85,88,95 and 96.
4. In response, Mr. Motwani, learned counsel for the respondents relies on the dismissal of the Special Leave Petition (C) @D.No.18824/2023 in the case of Union of India & Ors. Mahindra & Mahindra (2023 (8) TMI 135) as well as the judgment of this Court in CCE Ahmedabad v. Orient Fabrics Limited (2003 (158) ELT 545 (SC) and more particularly, paragraphs 5,6,7 and 20 thereof. Considering the nature of issue involved, we are inclined to issue notice.
5. Mr. Jitender Motwani, learned Advocate, instructed by M/s. Trilegal Advocates accepts notice on behalf of the respondent No.1. Hence, service of notice is waived on respondent No.1.
6. List the matter for further consideration on 07.04.2026.
7. In the meantime, parties may complete their pleadings and also file a short note of submissions along with compilation of case law.
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