2008 (3) TMI 8 - SC - Customs

Import of capital goods under EPCG scheme failure to meet export obligations there is no power of settlement commissioner for waiver of interest - Since the appellant has evaded from payment of duty bound to pay duty with interest order of settlement commissioner is upheld

Summary

Issues Involved:
1. Interpretation of Section 127A and Section 127H of the Customs Act.
2. Jurisdiction of the Settlement Commission to waive interest payable under a bond.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 127A and Section 127H of the Customs Act:
The appeal involves the interpretation of Section 127A read with Section 127H of the Customs Act. The appellant, an exporter, failed to meet its export obligations under the Export Promotion Capital Goods (EPCG) Scheme and was issued a demand notice for payment of duty and interest. The appellant approached the Settlement Commission, which directed the payment of duty and interest but granted immunity from prosecution and penalty. The appellant contested the interest rate of 15% per annum imposed by the Settlement Commission.

The Customs Act mandates that customs duty is payable on imported goods, and interest is payable for delayed payment of duty under Section 28AA. The statutory scheme under the Notification dated 20th April 1992 requires an undertaking to pay interest on the differential amount if export obligations are not met. The Settlement Commission's role, as per Chapter XIVA of the Act, includes granting immunity from prosecution, penalty, and interest under the Act, provided the applicant makes a full and true disclosure of their duty liability.

2. Jurisdiction of the Settlement Commission to Waive Interest Payable Under a Bond:
The core question is whether the term "interest" in Section 127H includes interest payable under a bond furnished to the Director General of Foreign Trade. The statutory scheme for settlement under Chapter XIVA of the Act allows the Settlement Commission to grant immunity from prosecution, penalty, and interest under the Act. However, this does not extend to interest payable under other Acts or contractual obligations.

The appellant argued that the Settlement Commission should have the jurisdiction to waive interest under the bond, as it is directly related to the payment of excise duty. The respondents contended that the Settlement Commission has no jurisdiction over the matter, as the interest payable under the bond is a contractual obligation, not a statutory one.

The Supreme Court agreed with the High Court's view that interest payable under the bond is not interest payable under the Act. The Settlement Commission's power to grant immunity from interest is limited to interest under the Customs Act, not contractual interest under a bond. The Calcutta High Court's decision in Commissioner of Customs (Port) vs. Settlement Commission supported this view, stating that the Settlement Commission cannot waive interest under a bond as it is a contractual obligation.

The Supreme Court also referred to the Bombay High Court's decision in Pratibha Syntext Ltd. vs. Union of India, which held that the terms of the bond and legal undertaking become part of the conditions of the exemption notification. The customs authorities are entitled to recover duty with interest if the terms are breached. The Settlement Commission's jurisdiction does not extend to waiving interest under such bonds.

Conclusion:
The Supreme Court concluded that the Settlement Commission does not have the jurisdiction to waive interest payable under the bond. The appellant was bound to pay the duty and interest as per the bond, and the Settlement Commission's direction to pay the interest was not a jurisdictional error. The appeal was dismissed, affirming the High Court's judgment.