2009 (8) TMI 451 - HC - Customs

Demand and Penalty- A show cause notice came to be served on the petitioners under Section 124 read with Section 28 of the Customs Act, 1962. Demand was for duty under the Customs Act along with interest. The show cause notice also set out as to why the bonds, undertakings filed at the time of import should not be enforced. The demand, included (1) recovery of customs duty and (2) interest and penalty. On receipt of the said show cause notice an application came to be filed by the petitioners under Section 127B of the Customs Act, 1962, hereinafter referred to as the Customs Act before the Settlement Commission on 17th December, 2007. In the application the petitioners have specifically given the details of the admitted duty liability, the interest thereon and the payment made. By the prayer clause the petitioners prayed for immunity from prosecution for any offence under the Customs Act, 1962, imposition of any penalty under the Customs Act, 1962 and grant of immunity from imposition of any fine in respect of the goods under settlement and some other relieves. There was no relief sought for refund of interest paid or for waiver of interest. Commissioner by its order held that the interest which was paid could not be charged and has to be refunded. Held that- Impugned order of the commissioner is liable to set-aside and held that interest was payable. Thus remand back the matter to the Commissioner.

Issues Involved:
1. Whether interest is payable pursuant to a statutory provision under an enactment.
2. Applicability of Section 28 of the Customs Act to cases where duty was exempt at the time of assessment but became payable due to post-importation violations.
3. Whether provisions for interest under the Customs Act are incorporated under Section 3 or Section 3A of the Customs Tariff Act.
4. Jurisdiction of the Settlement Commission to direct refund of interest.

Detailed Analysis:

1. Interest Payable Pursuant to Statutory Provision:
The court examined whether interest could be demanded if not provided under an enactment. It was established that interest, penalty, or fine is only payable if there is a substantive provision for it. The court referred to several judgments, including J.K. Synthetics Ltd. v. Commercial Taxes Officer, which emphasized that provisions for charging interest must be construed as substantive law and not merely machinery provisions. The court concluded that an authority would act without jurisdiction in demanding payment of interest where no statutory provision exists.

2. Applicability of Section 28 of the Customs Act:
The court analyzed whether Section 28 applies when duty was exempt at the time of assessment but became payable due to post-importation violations. It was clarified that Section 28 confers power on the customs officer to levy duty in cases of non-payment or short payment. The judgment in M.J. Exports Ltd. was cited, where it was held that Section 28 would be attracted in cases of suppression of facts leading to duty becoming payable. The court reconciled conflicting views by stating that Section 28 is applicable when there is a dispute about liability, while Section 125(2) applies when there is no dispute about the quantum of duty.

3. Incorporation of Interest Provisions under the Customs Tariff Act:
The court discussed whether the interest provisions of the Customs Act are incorporated under the Customs Tariff Act. It was noted that Section 3(6) and Section 3A(4) of the Customs Tariff Act state that provisions of the Customs Act, including those relating to refunds and exemptions, apply to duties chargeable under the Tariff Act. The court held that interest under Section 28AB of the Customs Act is compensatory and becomes payable by operation of law once duty is ascertained as due. The amendment on April 18, 2006, which explicitly included interest, was seen as a clarification rather than a new provision.

4. Jurisdiction of the Settlement Commission to Direct Refund of Interest:
The court examined the Settlement Commission's jurisdiction to order the refund of interest. It was held that the Commission, being a tribunal of limited jurisdiction, cannot act as a court of equity and direct refunds unless the statute explicitly provides for it. In Writ Petition No. 2540 of 2008, the Commission's order directing the refund of interest was set aside as the petitioners had not sought such relief, and the Commission lacked jurisdiction. In Writ Petition No. 1106 of 2009 and Writ Petition Lodging No. 1387 of 2009, the orders of the Commission were set aside, and the matters were remanded for determining the interest due.

Conclusion:
The court concluded that interest is payable if provided under a statutory provision, Section 28 applies to cases of duty becoming payable due to post-importation violations, and the interest provisions of the Customs Act are incorporated under the Customs Tariff Act. The Settlement Commission does not have jurisdiction to order refunds of interest unless explicitly provided by law. The judgments in the writ petitions were accordingly set aside or remanded for further determination.

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