2006 (3) TMI 790 - HC - Customs

Summary

Issues Involved:
1. Liability of M.J. Exports to pay interest on delayed payment of duty under Section 28AA of the Customs Act, 1962.
2. Correctness of the interest amount of Rs. 4,67,02,251/- demanded by the respondent.

Detailed Analysis:

Re: Question (one)
Liability to Pay Interest under Section 28AA:
- Facts: M.J. Exports imported Haemodialysis Machines under an Open General License (OGL) and claimed exemption under Exemption Notification No.208/81-cus. They exported these machines to the USSR without processing them in India, leading to a show-cause notice from the Customs Department.
- Initial Proceedings: The Collector of Customs determined a duty of Rs. 2,94,42,867/- and imposed a penalty of Rs. 1,00,00,000/-. M.J. Exports appealed to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), which initially ruled in their favor. However, the Supreme Court later restored the Collector's order.
- Section 28AA: This provision, inserted by Act 22 of 1995, mandates interest on delayed payment of duty if the duty is not paid within three months from its determination.
- Petitioner's Argument: The petitioner argued that their liability to pay duty was suspended due to the pending appeal and interim orders, and thus, interest should only accrue from three months after the Supreme Court's decision on 14th August 2001.
- Respondent's Argument: The respondent contended that the duty was determined on 28th January 1994, and the petitioner failed to pay within three months of Section 28AA coming into force, making them liable for interest from 26th August 1995.
- Court's Decision: The court held that the petitioner was liable to pay the duty determined on 28th January 1994. Since they did not pay within three months of Section 28AA's enactment, they were liable for interest from 26th August 1995. The court clarified that the term "fails to pay such duty" includes any non-payment, regardless of the reason.

Re: Question (two)
Correctness of the Interest Amount Demanded:
- Facts: The respondent demanded Rs. 4,67,02,251/- as interest on the unpaid duty from 26th August 1995. This calculation was based on the duty amount of Rs. 2,94,42,867/-.
- Petitioner's Argument: The petitioner had deposited Rs. 50,00,000/- on 22nd April 1995 under an interim order, which was later refunded in 2000. They argued that interest should not be charged on this amount for the period it was deposited.
- Respondent's Concession: The respondent acknowledged that interest should not be charged on the Rs. 50,00,000/- for the period it was deposited and that the interest rate should align with the Central Government's notifications under Section 28AA.
- Court's Decision: The court found the initial interest calculation improper and directed the respondent to recalculate the interest, excluding the Rs. 50,00,000/- for the relevant period and applying the correct interest rates as per the notifications.

Conclusion:
- Interest Liability: The demand for interest from 26th August 1995 is upheld.
- Interest Calculation: The initial calculation is set aside. The respondent must recalculate the interest, excluding the Rs. 50,00,000/- deposit period and applying the correct rates.

Order:
1. The demand of interest from 26th August 1995 is legal and valid.
2. The initial interest calculation is set aside.
3. The respondent must recalculate the interest, excluding the Rs. 50,00,000/- deposit period.
4. The recalculated interest should follow the rates specified in the Central Government's notifications under Section 28AA. No costs.