2003 (7) TMI 78 - HC - Customs

Breach of Advance Licences - Jurisdiction and power of the Settlement Commission to levy interest - imposition of Interest - Quantum of - Exemption Notification No. 204/92 issued u/s 25 - Applicability of Customs Circular No. 53/2000 - HELD THAT - In the present case it is not in dispute the imported goods were cleared without payment of duty as per Notification No. 204/92. It is not in dispute that the bond and the legal undertaking given by the petitioners to the Licensing Authority and produced before the Customs authorities at the time of the clearance of the goods did contain a clause to the effect that if the export obligation is not fulfilled then the customs duty payable on the goods cleared under Notification No. 204/92 shall be paid with interest at the rate specified therein. It is also not in dispute that the petitioners have committed breach of the licence granted to them and have also committed breach of the conditions attached to Notification No. 204/92. When the Customs authorities initiated proceedings for recovery of duty the petitioners have approached the Settlement Commission. Before the Settlement Commission the petitioners have not disputed the jurisdiction of the Customs authorities to initiate proceedings under the Customs Act for recovery of customs duty. Therefore the question to be considered is having not disputed the jurisdiction of the Customs authorities to initiate proceedings under the Customs Act is it open to the petitioners to challenge the grant of interest. Since there was breach of the terms of the Exemption Notification the customs authorities were entitled to recover the duty with interest. Merely because the Commission erroneously or otherwise had not levied interest in his order it cannot be said that the Customs authorities had no jurisdiction to recover interest. If the petitioners were satisfied with the order of the Commissioner of Customs there was no need for them to approach the Settlement Commission. Once the petitioners have voluntarily chosen the jurisdiction of the entire issue by the Settlement Commission afresh in the light of the disclosure made by them it was open to the Settlement Commission to direct the petitioners to pay the customs duty with interest. Although the Settlement Commission has levied interest at a percentage much less than what was agreed to pay by the petitioners in their bond and legal undertaking the same being not an issue in this petition we are not expressing any opinion in that behalf. Therefore we have no hesitation in holding that once the petitioners committed breach of the terms of the exemption Notification No. 204/92 the Customs authorities were entitled to enforce the declaration with bond and legal undertaking given by the petitioners and recover customs duty with interest. If the customs authorities were entitled to recover duty with interest then no fault could be found with the Settlement Commission in directing the petitioners to pay customs duty with interest. Turning to the facts of the present case it is not in dispute that petitioners have as a fact committed breach of exemption Notification No. 204 of 2002 dated 19-5-1992 in addition to the breach of Advance Licences. If that be so following the line of reasoning of the Apex Court one can safely say that the Customs authorities were well within their jurisdiction to issue show cause notice and adjudicate upon duty liability arising therefrom. If the Customs authorities had a power to determine duty liability in that event logically it must follow that the Settlement Commission has the same power. Thus in our view the circular issued by the Central Board of Excise and Customs dated 20-8-2002 sought to rely upon by the petitioner will not be applicable to the facts of the present case wherein the petitioners are guilty of committing breach of the terms of licence as also the breach of exemption Notification No. 204/92-Cus. dated 19-5-1992. In the present case duty liability has been admitted by the petitioners. As a matter of fact duty liability has been recovered from the petitioners. Petitioners have not challenged this part of the impugned order which directs recovery and adjustment of the duty liability from the petitioner. It was thus clear that the petitioners have committed breach of the exemption notification as well as the terms of the licences. In this view of the matter no further opportunity was required to be given to the petitioners. The admission of the petitioners would bind them. Therefore recovery of duty liability and adjustment thereof with interest was well within the jurisdiction of the Settlement Commission. Such order cannot be said to be in breach of principles of natural justice as sought to be faintly canvassed by the learned Counsel for the petitioners. We do not think it necessary to examine those contentions in view of the terms of bond executed by the petitioners wherein petitioners held themselves liable to pay duty with interest. The terms and conditions of bond are very much binding on the petitioners. In the absence of legislative guidelines it was well within the jurisdiction of the Settlement Commission to direct recovery of duty with interest as the bond prescribes recovery of duty with interest from the licence holder. So far as rate of interest determined by the Settlement Commission is concerned the same cannot be said to be arbitrary looking to the prevailing bank rate on deposits. It is not in dispute that rate of interest awarded by the Settlement Commissions is much below rate prescribed in the bond. In the circumstances no fault can be found with order of the Settlement Commission. In the result petition is dismissed with no order as to costs.

Summary

Issues Involved:
1. Jurisdiction and power of the Settlement Commission to levy interest.
2. Validity of the Settlement Commission's order directing payment of interest.
3. Applicability of Customs Circular No. 53/2000.

Summary:

Jurisdiction and Power of the Settlement Commission to Levy Interest:
The petitioners challenged the Settlement Commission's order directing payment of interest at 10% p.a. on customs duty, arguing that neither Notification No. 204/92 nor the Customs Act provided for such interest. The court held that the Settlement Commission had jurisdiction to direct payment of interest as the petitioners had committed a breach of the exemption notification and the terms of the bond executed by them. The court emphasized that the terms and conditions of the bond, which included an obligation to pay interest in case of breach, became part of the exemption notification issued u/s 25 of the Customs Act.

Validity of the Settlement Commission's Order Directing Payment of Interest:
The court found no merit in the petitioners' contention that the Settlement Commission's order was without jurisdiction. The court noted that the petitioners had admitted their duty liability and had approached the Settlement Commission voluntarily. The court held that once the petitioners committed a breach of the exemption notification, the customs authorities were entitled to recover duty with interest. Consequently, the Settlement Commission's order directing payment of interest was valid and within its jurisdiction.

Applicability of Customs Circular No. 53/2000:
The petitioners relied on Customs Circular No. 53/2000, which stated that the Settlement Commission had no jurisdiction to entertain applications involving default in export obligations under Advance Licence/EPCG Schemes. The court held that the circular was not applicable to the present case as the petitioners had committed a breach of both the terms of the licence and the exemption notification. The court further noted that the circular could not override the law laid down by the Supreme Court, which empowered customs authorities to investigate breaches of exemption notifications.

Conclusion:
The court dismissed the petition, upholding the Settlement Commission's order directing payment of interest at 10% p.a. on the customs duty. The court found that the Settlement Commission had jurisdiction to levy interest and that the circular relied upon by the petitioners was not applicable to the facts of the case. The petitioners were held bound by the terms of the bond executed by them, which included an obligation to pay interest in case of breach.