2009 (9) TMI 1043 - HC - Customs

Summary

Issues Involved:
1. Legality of Customs Circular No. 26/07, dated 20.7.2007.
2. Liability to pay interest u/s 61(2) of the Customs Act when duty is exempted.
3. Equivalence of DEPB credit adjustment to payment of duty in cash.
4. Implications of delayed clearance from the warehouse on interest liability.

Summary of Judgment:

Issue 1: Legality of Customs Circular No. 26/07, dated 20.7.2007
The court did not specifically address the legality of the Customs Circular No. 26/07, dated 20.7.2007, as the primary focus was on the interpretation of the Customs Act and relevant notifications.

Issue 2: Liability to Pay Interest u/s 61(2) of the Customs Act When Duty is Exempted
The appellant argued that since they were clearing goods using DEPB scrips under a notification issued u/s 25 of the Customs Act, which exempts them from paying duty, they should not be liable to pay interest on a non-existing duty. The court referred to the Supreme Court's judgment in Pratiba Processors v. Union of India, which held that interest is linked to the duty payable. If the principal amount (duty) is nil due to exemption, the interest is also nil. However, the court distinguished this case from the present one, noting that the DEPB Scheme involves duty payment through credit and not an unconditional exemption.

Issue 3: Equivalence of DEPB Credit Adjustment to Payment of Duty in Cash
The court examined whether debits under DEPB are equivalent to payment of duty in cash. It concluded that goods cleared under the DEPB Scheme are not exempted but are considered duty-paid through credit. The court referred to the Foreign Trade Policy 2004-07 and Circular No. 59/2004-Cus., which clarified that DEPB debits are treated as duty payments, allowing for CENVAT credit or duty drawback.

Issue 4: Implications of Delayed Clearance from the Warehouse on Interest Liability
The court held that interest is chargeable on duty paid by way of debit in DEPB on goods cleared from the warehouse beyond the interest-free period of 90 days as per Section 61(2) of the Customs Act. The court emphasized that the DEPB Scheme does not provide for unconditional exemption from duty, unlike the DEEC Scheme, which allows duty-free clearance. Therefore, the delayed clearance under the DEPB Scheme incurs interest liability.

Conclusion
The court dismissed the appeals, ruling that the goods cleared under the DEPB Scheme are duty-paid and not exempted, thereby attracting interest u/s 61(2) of the Customs Act for delayed clearance from the warehouse.