2012 (10) TMI 1007 - HC - Customs

In the absence of any provision in the notification for levy of interest the interest cannot be levied on the duty.

Summary

Issues Involved:
1. Validity of the impugned order demanding interest.
2. Compliance with export obligations under the Export Promotion Capital Goods Scheme.
3. Applicability of interest on customs duty in the absence of specific provisions in the relevant notifications.

Detailed Analysis:

1. Validity of the Impugned Order Demanding Interest:
The petitioner challenged the impugned order passed by the third respondent, which demanded payment of interest within 30 days, failing which penal action would be initiated under Section 11(2) of the Foreign Trade (Development and Regulation) Act. The petitioner argued that the impugned order was illegal, arbitrary, and without jurisdiction as there was no provision in Notification No. 160/1992 to demand interest on duty for non-compliance with export obligations.

2. Compliance with Export Obligations Under the Export Promotion Capital Goods Scheme:
The petitioner obtained a licence under the Export Promotion Capital Goods Scheme to import machinery at a concessional customs duty rate, subject to the condition of exporting goods worth four times the CIF value within five years. Due to unforeseen circumstances, the petitioner failed to meet the export obligation, leading to the enforcement of the bank guarantee and recovery of Rs. 18 lakhs towards duty liability.

3. Applicability of Interest on Customs Duty in the Absence of Specific Provisions:
The customs authorities issued a show-cause notice demanding an additional duty amount and levied 24% interest per annum on the duty amount. The petitioner contended that there was no provision in Notification No. 160/1992 for levying interest on duty. The petitioner relied on a previous judgment (Cochin Malabar Estates v. Customs and Central Excise) where it was held that in the absence of specific provisions in the notification, interest could not be levied on duty.

Judgment:
The court considered Notification No. 160/1992 and the previous judgment in Cochin Malabar Estates v. Customs and Central Excise. It concluded that the respondents could not levy interest as there was no specific provision in the notification or the Customs Act for such a levy. The court referenced Circular No. 131/1995-Customs, which provided for interest in cases of non-fulfillment of conditions, but noted that Notification No. 160/1992 was not covered by this circular. The court also cited a Division Bench decision which held that interest could not be demanded in the absence of specific provisions in the notification or the Customs Act.

Conclusion:
The court found no merit in the arguments of the respondents and held that no interest could be levied against the petitioner for failing to comply with the conditions mentioned in the licence. The writ petition was allowed, and the impugned order demanding interest was set aside.