2025 (1) TMI 962 - HC - Customs

Interest payable on CVD levied under Section 3 of the CT Act or on SAD levied under Section 3A of the CT Act - Constitutional validity of the Notification No. 18/2015-Cus dated 01.04.2015 - HELD THAT - The expression case is defined in Section 127A (b) of the Act to mean proceedings under the Act or any other Act for the levy assessment and collection of customs duty pending before an adjudicating authority on the date on which an application is made under Sub-section (1) of Section 127B of the Act. The proviso to Section 127A (b) of the Act also clarifies that any proceedings referred by any Court Appellate Tribunal or any other authority for a fresh adjudication or decision would not fall within the scope of proceedings within the meaning of the said Section and thus cannot be considered as a case. Section 127C of the Act provides for procedure to be followed on receipt of an application under Section 127B of the Act. In terms of Section 127C(1) of the Act the Settlement Commission is required to issue a notice to the applicant to explain why its application should be allowed. After taking into consideration the said explanation the Settlement Commission is required to pass an order either to proceed with the application or reject the same. A copy of the said order is required to be sent to the Principal Commissioner of Customs or Commissioner of Customs having the jurisdiction. The Principal Commissioner of Customs or the Commissioner of Customs as the case may be is required to furnish a report within thirty days on receipt of communication from the Settlement Commission. Sub- section (4) of Section 127C of the Act empowers the Settlement Commission to direct further enquiry or investigation if it considers apposite and records the reasons in writing. Sub-section (8) of Section 127C of the Act also expressly provides that an order passed under Sub-section (5) of Section 127C of the Act shall provide for terms of settlement including payment by way of duty penalty or interest and the manner in which the sums shall be paid - In the present case the impugned order expressly provides that the order would be void and immunities granted would be withdrawn if the petitioners fail to comply with the order. Admittedly the petitioners had not satisfied the conditions subject to which import of material had been permitted without payment of duties. Thus interest on such duties was payable as was stipulated in terms of the Notification dated 01.04.2015 - Admittedly the petitioners had bound themselves to the said conditions and had availed the benefit of the said Notification. In this view it cannot be accepted that the impugned order imposing interest on delayed payment of duties is contrary to law. Constitutional vires of the Notification dated 01.04.2015 - HELD THAT - The petitioners challenge to the Notification is insubstantial. The exemption was granted subject to the importer satisfying its export obligations. The petitioners do not challenge the grant of advance authorizations and permission to import the goods in question without payment of duties on the condition of fulfilling the export obligations. Clearly if the conditions were not satisfied the petitioner would be liable to pay the duties on the material imported - Admittedly such duties would be payable on the date of clearance of the goods and therefore stipulating that the interest would be payable on such dates if the conditions are not satisfied cannot by any stretch be stated to be arbitrary or unreasonable. Conclusion - The order of the Settlement Commission is a settlement that must be accepted in its entirety; interest can be imposed as a condition of duty exemption under a valid notification. There are no merit in the petition the same is accordingly dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment considers the following core legal questions:

• Whether the Settlement Commission's order imposing interest of Rs. 1,15,13,067/- on the delayed payment of duty warrants interference.
• Whether the interest imposed on Countervailing Duty (CVD) and Special Additional Duty (SAD) under the Customs Tariff Act is lawful.
• Whether the Notification No. 18/2015-Cus dated 01.04.2015 is constitutionally valid.
• Whether the Settlement Commission's order can be challenged on the grounds that it is contrary to the provisions of the Customs Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of Interest by the Settlement Commission

• Relevant legal framework and precedents: The imposition of interest is governed by Section 127C of the Customs Act, 1962, and the terms of the Notification No. 18/2015-Cus.
• Court's interpretation and reasoning: The court examined whether the Settlement Commission's order was in accordance with the provisions of the Customs Act and the Notification. It emphasized that the order of the Settlement Commission is a settlement, not an adjudication, and must be accepted in its entirety.
• Key evidence and findings: The court noted that the petitioners had accepted the duty liability but disputed the interest calculation. The Settlement Commission had settled the interest amount based on the Commissioner's report.
• Application of law to facts: The court found that the interest was imposed as per the conditions of the Notification, which the petitioners had accepted when availing the duty exemption.
• Treatment of competing arguments: The petitioners argued that interest on CVD and SAD was not statutorily supported. The court distinguished the present case from precedents like Mahindra & Mahindra Ltd., emphasizing the contractual nature of the Notification's conditions.
• Conclusions: The court concluded that the Settlement Commission's order, including the interest imposition, was lawful and in accordance with the Act.

Issue 2: Constitutional Validity of the Notification

• Relevant legal framework and precedents: The validity of the Notification is assessed under the powers conferred by Section 25 of the Customs Act.
• Court's interpretation and reasoning: The court held that the Notification was a valid exercise of the Central Government's power to impose conditions for duty exemptions.
• Key evidence and findings: The petitioners did not seriously contest the constitutional validity during the proceedings.
• Application of law to facts: The court found that the conditions, including the interest imposition for non-fulfillment of export obligations, were reasonable and not arbitrary.
• Treatment of competing arguments: The court dismissed the petitioners' challenge to the Notification as insubstantial.
• Conclusions: The Notification was held to be constitutionally valid.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "The applicant cannot be permitted to dissect the Settlement Commission's order with a view to accept what is favourable to them and reject what is not."
• Core principles established: The order of the Settlement Commission is a settlement that must be accepted in its entirety; interest can be imposed as a condition of duty exemption under a valid notification.
• Final determinations on each issue: The court dismissed the petition, upholding the Settlement Commission's order and the constitutional validity of the Notification.