2022 (10) TMI 212 - HC - Customs

Leviability of interest and penalty in relation to amounts payable as duty other than basic customs duty - mis-declaration of goods - intent to evade customs duty or not - HELD THAT - When a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not extended to the machinery provisions which are construed like any other statute - Section 28AB of the Customs Act, 1962 is a taxing provision which creates and fastens the liability on a party. The provision has to be strictly construed and will be governed by the language employed in the section. In the present case, it is not disputed that petitioner has paid a sum of Rs.11.84 Crores much prior to the issuance of show cause notice. There is no determination of duty under Section 28(2) of the Customs Act, 1962 and, therefore, Section 28AB of the Customs Act, 1962 is also not applicable. Petitioner has also paid the difference between the admitted duty liability and the amount settled by respondent no.2 - respondent no.2 contention that CVD, SAD and surcharge are being recovered under Section 28 of the Customs Act, 1962, cannot be agreed upon. Consequently Section 28AB of the Customs Act, 1962 also will also not be applicable. In the absence of specific provision relating to levy of interest in the respective legislation, interest cannot be recovered by taking recourse to machinery relating to recovery of duty. The finding of respondent no.2 that it has the inherent authority or power to determine the terms of settlement covering not only the amount of duty but also interest and penalty as well is ex-facie untenable. Reliance by respondent no.2 upon Section 127C of the Customs Act, 1962 to direct payment of interest is totally misplaced in the case at hand. Section 127C of the Customs Act, 1962 itself provides that the order of the Settlement Commission has to be in accordance with the provisions of the Customs Act, 1962. Respondent no.2 certainly cannot pass an order beyond the provisions of the Customs Act, 1962 - Respondent no.2 cannot include interest in the settlement arrived at by it on the ground that petitioner has derived financial benefits by not paying the correct rate of duty when it was due. Deriving financial benefits itself cannot be a ground to order payment of interest in the absence of any statutory provisions for payment of interest. The order of the Commission to the extent of requiring petitioner s to pay interest at the rate of 10% against the four show cause notices and penalty (Rs.1,00,000/- in the case of first show cause notice, Rs.10,00,000/- in the case of second show cause notice and Rs.5,00,000/- in the case of third show cause notice) is liable to be and are hereby quashed and set aside - Respondents to refund the amount of Rs.16,00,000/- being penalty deposited by petitioner together with interest, if any, within four weeks of receiving an application. The bank guarantee furnished on behalf of petitioner for a sum of Rs.74,67,790/- together with the renewals to be cancelled and returned to petitioner by the Registry of this Court within four weeks of receiving an application. Petition disposed off.

Summary

Issues Involved:
1. Leviability of interest and penalty on amounts payable as duty other than basic customs duty.
2. Jurisdiction and authority of the Settlement Commission to impose interest and penalty.
3. Applicability of Section 28AB of the Customs Act, 1962 to surcharge, additional duty (CVD), and special additional duty (SAD).

Detailed Analysis:

1. Leviability of Interest and Penalty on Amounts Payable as Duty Other Than Basic Customs Duty:

The petitioner challenged the imposition of interest and penalty on differential customs duty other than basic customs duty. The court examined the relevant statutory provisions, including Section 3 and Section 3A of the Customs Tariff Act, 1975, and Section 90 of the Finance Act, 2000. These sections did not provide for the imposition of interest or penalty. The court referred to several precedents, including *J.K. Synthetics Ltd. v. Commercial Taxes Officer* and *India Carbon Ltd. v. State of Assam*, which established that provisions for charging interest or penalty must be substantive and explicitly stated in the statute. The court concluded that since the relevant sections did not explicitly provide for interest or penalty, the imposition was unwarranted.

2. Jurisdiction and Authority of the Settlement Commission to Impose Interest and Penalty:

The petitioner argued that the Settlement Commission (respondent no.2) acted beyond its jurisdiction by imposing interest and penalty. The court referenced the Supreme Court's judgment in *Jyotendrasinhji v. S.I. Tripathi and Ors.*, which held that the court should interfere if the Settlement Commission's order is contrary to the provisions of the Act. The court found that the Settlement Commission's reliance on Section 127C of the Customs Act, 1962, to impose interest was misplaced, as this section did not provide the authority to impose interest or penalty beyond the provisions of the Customs Act. The court ruled that the Settlement Commission's order was contrary to the provisions of law and thus invalid.

3. Applicability of Section 28AB of the Customs Act, 1962 to Surcharge, Additional Duty (CVD), and Special Additional Duty (SAD):

The court examined whether Section 28AB of the Customs Act, 1962, which provides for interest on delayed payment of duty, applied to surcharge, CVD, and SAD. The court noted that Section 28AB applied only to duties levied under Section 12 of the Customs Act, 1962, and not to duties under Section 3 or Section 3A of the Customs Tariff Act, 1975, or Section 90 of the Finance Act, 2000. The court cited precedents, including *Collector of Central Excise, Ahmedabad v. Orient Fabrics Pvt. Ltd.* and *Pioneer Silk Mills Pvt. Ltd. v. Union of India*, which held that interest and penalty could not be imposed without explicit statutory authority. The court concluded that Section 28AB did not apply to surcharge, CVD, or SAD, and thus, the imposition of interest and penalty was incorrect and without jurisdiction.

Conclusion:

The court quashed and set aside the Settlement Commission's orders imposing interest and penalties on the petitioner. It directed the respondents to refund the penalty amount deposited by the petitioner and to cancel the bank guarantee provided by the petitioner. The court emphasized that interest and penalties could only be imposed if explicitly provided for in the relevant statutory provisions, which was not the case here. The petition was disposed of with no order as to costs.