2024 (12) TMI 416 - HC - Customs

Challenge to order of the Foreign Trade Development Officer (FTDO) - petitioner had defaulted in achieving the export target and the bank guarantee executed by the petitioner was thus enforced - remission of differential duty on the import of the machineries originally imported on concessional rate - HELD THAT - The binding in nature of the clauses under the Bond has come up for consideration in matters both before the Supreme Court in Rexnord Electronics and Controls Limited v. Union of India and Others 2008 (3) TMI 8 - SUPREME COURT as well as this Court. The Supreme Court, considering an identical question as arising in this matter, has crystallised the issue, as to whether the term ' interest ' will include within its fold interest payable under the bond furnished by the appellant before the DGFT at paragraph 16 of that judgment. In that case as well, there was a levy of interest for default of licence conditions. The issue was decided in favour of the revenue and against the assessee - The Supreme Court categorically held that evasion of duty is bound to result in payment not only of the duty, but also interest in terms of the Bond executed by the parties. There are nothing untoward in either the demand for interest or in the proposal under impugned communication dated 22.04.2002 for penal action under the provisions of Section 11(2) of the Foreign Trade (Development and Regulation) Act, 1992, in the event of failure to remit interest within 30 days from the date of issue of that order. It is declined to interfere in the impugned show cause notice dated 22.04.2002 - The order of the writ Court dated 30.10.2012 is reversed and this writ appeal is allowed.

Summary

Issues:
1. Challenge to order of Foreign Trade Development Officer (FTDO) dated 22.04.2002.
2. Demand of interest on differential duty for failure to achieve export target.
3. Interpretation of bond clauses regarding interest payment in case of default.

Analysis:
Issue 1:
The writ appeal was filed by the Director General of Foreign Trade challenging an order dated 30.10.2012, which was a writ of certiorari challenging an order of the Foreign Trade Development Officer (FTDO) dated 22.04.2002. The petitioner had imported various machineries under an import license issued under the Export Promotion Capital Goods Scheme, with a condition of achieving a designated export value. Due to default in meeting the export target, the bank guarantee was enforced, leading to a show cause notice demanding the payment of differential duty on the imported machineries at concessional rates.

Issue 2:
The petitioner contended that there was no provision for demanding interest under the Act or relevant notifications. However, the Customs Department relied on Circular No.131/95-CUS, which allowed for the levy of interest in case of non-fulfillment of export conditions. The petitioner ultimately paid the duty in full but challenged the show cause notice through the writ petition, arguing against the imposition of interest. The court referred to previous judgments and held that interest could be levied only if stipulated under the relevant notification or the Customs Act.

Issue 3:
The court examined the bond executed between the parties, which included a clause for the payment of interest at 24% in case of default in meeting license obligations/conditions. Referring to the Supreme Court judgment in Rexnord Electronics and Controls Limited v. Union of India and others, the court concluded that interest payable under the bond was binding. The court also cited a previous case, M/s.FAL Industries Limited v. Directorate General of Foreign Trade, where a similar issue was decided in favor of levying interest for default of license conditions. The court upheld the demand for interest and penal action under the Foreign Trade (Development and Regulation) Act, 1992, in case of non-payment within the specified period.

In conclusion, the court declined to interfere with the show cause notice dated 22.04.2002, reversed the writ court's order, and allowed the writ appeal without costs.