2006 (2) TMI 191 - HC - Customs

Demand of interest - Writ jurisdiction - violation of Section 28 of the Customs Act, 1962 - principles of natural justice - Whether the demand made by the respondents for payment of interest on the differential customs duty payable on the import of machinery under EPCG Scheme is legally valid? - HELD THAT - On perusal of the official record which was produced, learned counsel for the respondents, shows that notices were in fact issued to the petitioner in connection with the payment of interest due from the petitioner to which the petitioner had not responded. Notices dated 28-4-1999, 20-7-1999, 7-3-2000 and 30-3-2000 sent to the petitioner did not evoke any response from it forcing the Assistant Commissioner of Customs EPCG Section, Mumbai to direct the Assistant Commissioner of Central Excise, Sangrur to verify the existence of the unit and to send a report. There is in the light of these facts no gainsaying that the petitioner had been given an opportunity of being heard in the matter and that a demand was raised only after it failed to respond to or avail of that opportunity. There has thus been no violation of either the provisions of Section 28 or the requirement of principles of natural justice on which the said provision is based. Section 28AB deals with interest on delayed payment of duty in special cases and inter alia provides that where any duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 28, shall, in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is fixed by the Central Government by notification. It is, thus, evident that duty determined as payable would earn interest in the event of a delay in the payment of the same. But for the exemption from payment of duty under the EPCG scheme, the petitioner would have been liable to pay the duty at the rate stipulated for the imports made by it. A concessional rate was, however, applied to the said imports subject to the petitioner's satisfying the requirements stipulated for the said benefit. No sooner it is found that the petitioner has failed to perform its export obligation which was one of the conditions for applying a concessional rate of duty, the exemption would cease to be effective and the liability to pay the duty at the rate ordinarily applicable re-emerge. Consequently non-payment of the differential would attract payment of interest in terms of the statutory provisions referred to above. Claim for interest, it is fairly settled, can arise either on the basis of a statute or a contract or trade usage. In the instant case, the claim for payment of duty is supported not only by the statutory provisions of Sections 28AA and 28AB, but also the terms of the statutory policy and the legal undertaking provided, by the petitioner in accordance with the same. In the result, this writ petition fails and is hereby dismissed but in the circumstances without any order as to costs.

Summary

Issues Involved:
1. Legality of the demand for interest on differential customs duty under the EPCG Scheme.
2. Compliance with Section 28 of the Customs Act, 1962, and principles of natural justice.
3. Enforceability of the demand for interest.

Issue-wise Detailed Analysis:

1. Legality of the Demand for Interest on Differential Customs Duty:
The primary issue is whether the demand for interest on differential customs duty under the EPCG Scheme is legally valid. The petitioner imported capital goods under the EPCG Scheme, paid concessional customs duty, and failed to meet the export obligation. The petitioner paid the differential customs duty but contested the demand for interest at 24% per annum, later reduced to 15%. The petitioner argued that there was no constitutional or statutory sanction for such a demand and that a show cause notice under Section 28 of the Customs Act, 1962, was a prerequisite for any demand.

2. Compliance with Section 28 of the Customs Act, 1962, and Principles of Natural Justice:
Section 28 of the Customs Act, 1962, mandates that a notice must be served to the person chargeable with duty or interest, providing an opportunity to show cause. The petitioner did not contest the demand on the grounds of non-service of notice or violation of natural justice principles. The official record indicated that notices were issued to the petitioner, which went unanswered. Therefore, there was no violation of Section 28 or principles of natural justice.

3. Enforceability of the Demand for Interest:
The petitioner had unequivocally undertaken to pay the differential duty with interest at 24% per annum in case of failure to meet the export obligation. The Handbook of Procedures and the legal undertaking/agreement executed by the petitioner created a legal obligation to pay interest. The court held that no party could retain benefits without fulfilling the conditions attached. The statutory provisions under Sections 28AA and 28AB of the Customs Act support the claim for interest on delayed payment of duty. The Handbook of Procedures stipulates that interest is payable from the date of import of the first consignment until the date of payment. The court found sufficient legal sanction for the demand for interest.

Conclusion:
The court dismissed the writ petition, upholding the demand for interest on differential customs duty. The petitioner was bound by the legal undertaking and statutory provisions to pay interest on the duty saved due to the concessional rate under the EPCG Scheme. The court emphasized that equitable jurisdiction could not be invoked by a party failing to fulfill its obligations.