2024 (12) TMI 301 - HC - Customs

Challenge to order passed by the Settlement Commission - bonafide defaults - benefit of N/N. 46/2013-Cus dated 26.09.2013 read with P.N.No.22(RE-2013)/2009-2014. It is the specific case of the petitioner that the petitioner was unable to discharge Export Obligation duty adverse marking condition and therefore was unable to discharge Export Obligation for a period of nine years as per the EPCG Licence issued by the Original Authority under the provisions of the Foreign Trade Policy, 1992 r/w Foreign Trade Policy. HELD THAT - The amendment at Sl.No.22 Notification No.49/2000-Cus. dated 27.04.2000 deals with only default in Export Obligation, when the duty on the goods is paid, to regularise the default amount of interest paid by the importer and it shall not exceed the amount of duty with such regularisation in terms of Public Notice No.22(RE-2013)/2009-2014 of the Government of India, Foreign Trade Policy in Ministry of Commerce. It is clear from a reading of the Public Notice No.22(RE-2013)/2009-2014, all the pending cases of the default in meeting Export Obligation (EO) can be regularised by an authorisation holder on payment of applicable customs duty, corresponding to the shortfall in export obligation, along with interest on such customs duty. The interest component to be so paid was not to exceed the amount of customs duty payable for this default. The above Public Notice which is basis for amendment to Notification No.49/2000-Cus.dated 27.04.2000 vide Sl.No.22 and Notification No.46/2013-Cus dated 26.09.2013. Thus, it is clear that Public Notice No.22(RE-213)/2009-2014 was not in the context of bonafide default by the importer. The intention of the Commerce Ministry under Public Notice No.22 (RE-2013)/2009-2014, has been reflected in the form of amendment through several notifications of the customs dealing with various scheme announced under the Foreign Trade Policy which were implemented under Notifications issued under Section 25(1) of the Customs Act, 1962. The amendment to Notification No.49/2000 Cus dated 27.04..2000 vide Sl.No.22 Notification No.46/2013 Cus dated 26.09.2013 also does not refer to the case of the bonafide defaulter. It only talks about default simplicitor in Export Obligation. Therefore, the views taken by the Settlement Commission is contrary to the Public Notice No.22 (RE-2013)/2009-2014 and therefore it has to be held as arbitrary. Consequently the determination of defaulted interest component vide communication dated 03.09.2013 of the Deputy Commissioner being report of the Deputy Commissioner bearing FN.S.Misc.188/2011-SIIB was incorrect. The impugned order of the Settlement Commission affirming the same is hereby set aside to that extent it asks the petitioner to pay further amounts towards interest - the application filed by the petitioner before the Settlement Commission deserves to be allowed - This writ petition thus stands allowed.

Summary

Issues Involved:

1. Validity of the Settlement Commission's order regarding the applicability of Notification No.46/2013-Cus and Public Notice No.22(RE-2013)/2009-2014.
2. Whether the default by the petitioner was bonafide or not.
3. Determination of interest liability and its compliance with the relevant notifications and public notices.

Issue-wise Detailed Analysis:

1. Validity of the Settlement Commission's Order:

The petitioner challenged the Settlement Commission's order, which denied the benefit of Notification No.46/2013-Cus dated 26.09.2013, read with Public Notice No.22(RE-2013)/2009-2014. The Settlement Commission had concluded that the petitioner's case did not qualify as a bonafide default, and thus, the benefits of the notification could not be extended. The court noted that the Settlement Commission's interpretation was contrary to the intention of the Commerce Ministry as expressed in Public Notice No.22(RE-2013)/2009-2014, which did not limit its applicability to bonafide defaults. The court found the Settlement Commission's decision arbitrary and set aside the impugned order to the extent it required further interest payments from the petitioner.

2. Bonafide Default:

The Settlement Commission had determined that the petitioner's default was not bonafide, citing the diversion of capital goods and the lack of exports even after nine years. The petitioner had imported sewing machines under the EPCG Scheme but failed to fulfill the export obligations. The court, however, focused on the language of the relevant notifications and public notices, which did not specify that only bonafide defaults could be regularized. Therefore, the court held that the Settlement Commission's conclusion on the nature of the default was not in line with the applicable legal framework.

3. Determination of Interest Liability:

The court examined the interest liability imposed by the Settlement Commission, which quantified the interest payable as Rs. 1,12,98,488/-. The petitioner had already paid Rs. 70,60,790/-, leaving a balance of Rs. 42,37,698/-. The court scrutinized the applicability of Notification No.46/2013-Cus, which was intended to limit the interest component to not exceed the amount of customs duty payable. The court found that the Settlement Commission's determination of interest was inconsistent with the amended notification and public notice, which allowed for regularization of defaults without exceeding the duty amount. Consequently, the court set aside the Settlement Commission's order requiring additional interest payments.

Conclusion:

The court allowed the petition, finding that the Settlement Commission's order was inconsistent with the relevant notifications and public notices. The court emphasized that the intention of the Commerce Ministry, as reflected in Public Notice No.22(RE-2013)/2009-2014, was not limited to bonafide defaults, and the interest liability should not exceed the customs duty payable. The writ petition was allowed, and the connected miscellaneous petition was closed.