2004 (3) TMI 77 - HC - Customs

Summary

Issues Involved:
1. Eligibility of goods for exemption from customs duty under Section 90 of the Customs Act.
2. Validity of the Settlement Commission's findings and imposition of duty, interest, and penalty.
3. Interpretation of terms "ship stores," "foreign going vessel," and "tug" under the Customs Act.
4. Compliance with procedural requirements for duty-free clearance.
5. Authority and correctness of endorsements on shipping bills.
6. Applicability and calculation of interest on duty under Section 61(2) of the Customs Act.
7. Settlement Commission's power to levy interest.

Detailed Analysis:

1. Eligibility of goods for exemption from customs duty under Section 90 of the Customs Act:
The petitioners argued that the goods supplied to the DGNP for use on a tug were eligible for duty-free clearance under Section 90 of the Customs Act, asserting that the tug qualifies as a ship and the goods as ship stores. However, the Settlement Commission found that the goods were not supplied to the Indian Navy as claimed but were diverted to the local market, thus disqualifying them from duty exemption.

2. Validity of the Settlement Commission's findings and imposition of duty, interest, and penalty:
The Settlement Commission concluded that the goods did not qualify for duty-free clearance and settled the duty amount at Rs. 93,88,432/-, with interest and a nominal penalty. The High Court upheld these findings, noting the fraudulent clearance of goods and the petitioners' failure to follow prescribed procedures.

3. Interpretation of terms "ship stores," "foreign going vessel," and "tug" under the Customs Act:
The petitioners contended that the tug is a ship and the goods fitted on it are ship stores, thus exempt from duty. The High Court, while assuming the tug could be considered a ship, emphasized that the goods were not delivered to the consignee as declared, invalidating the claim for duty exemption.

4. Compliance with procedural requirements for duty-free clearance:
The High Court highlighted the petitioners' failure to follow proper procedures for warehousing and clearance. The goods were cleared based on false declarations and unauthorized endorsements, and the required transhipment procedures were not followed, leading to the conclusion that the goods were improperly cleared.

5. Authority and correctness of endorsements on shipping bills:
The endorsements on the shipping bills by Mr. P.R. Seshadri, a storekeeper at the Naval Dockyard, were unauthorized and fraudulent. The High Court noted that the proper authority, the Controller of Procurement, did not make these endorsements, and there was no evidence that the goods were delivered to the Naval Dockyard.

6. Applicability and calculation of interest on duty under Section 61(2) of the Customs Act:
The petitioners argued that no interest was payable as the goods were cleared within the warehousing period. However, the High Court, following the precedent set in Hitech Engineers v. Union of India, held that interest was applicable under Section 61(2) since the goods were improperly cleared without payment of duty.

7. Settlement Commission's power to levy interest:
The High Court affirmed the Settlement Commission's authority to levy interest, referencing the Supreme Court decision in Pratibha Processors Limited v. Union of India. It was established that the Settlement Commission, like the adjudicating authority, could levy interest on duty payable due to improper clearance of goods.

Conclusion:
The High Court dismissed the petition, upholding the Settlement Commission's order for duty, interest, and penalty. The Court emphasized the fraudulent nature of the petitioners' actions, the unauthorized endorsements, and the failure to follow proper procedures, which disqualified the goods from duty exemption under Section 90 of the Customs Act. The petitioners were also ordered to pay costs.