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2017 (7) TMI 9 - HC - CustomsLiability of interest - The assessee s one and only contention before us is that, at the relevant time, there was no statutory provision in place for levy of interest and, therefore, the provisions in the bond executed by it, which provided for payment of interest, upon failure to fulfill export obligation could not to be enforced under the provisions of Customs Act, 1962 - whether, the customs authorities could enforce the bond and recover the interest? - Held that - This is a case, where Section 28AB, if at all, would have given the right to the Revenue to demand interest, provided the imports had been made after the Section was brought on to the Statute book. Because of the failure to fulfill the export obligation by the Assessee, the Assessee s case would have, if at all, fallen within the ambit of Section 28AB, which, inter alia, imposes a liability on an Assessee to pay interest, where any duty has not been levied or paid, or has been short-levied or short-paid or erroneously refunded. Therefore, Section28AA, to our minds, would not be applicable in the instant case. Interest, as is well known, is payable, broadly, in three circumstances. First, where the statute provides for the same. Second, where there is a contract or agreement in place for payment of interest. Third, where it is payable by usage of trade having the force of law - the assessee could not have been called upon to pay interest by the customs authorities, by taking recourse to the provisions of the 1962 Act, as it obtained at the relevant time i.e., in and about, February, 1995. Whether the Supreme Court in REXNORD ELECTRONICS AND CONTROLS LTD 2008 (3) TMI 8 - SUPREME COURT has stated anything to the contrary? - Held that - The Supreme Court held that under the provisions of 28AA, the customs authority, for non payment of duty, would seek payment of interest, by initiating proceedings under Section 28 of the 1962, Act. Insofar as the interest on bond was concerned, the Court went on to observe that, since, the bond had been executed in favour of a different authority i.e. DGFT, and, it was payable in terms thereof and not in terms of the statutory scheme, the customs authorities would not be able to proceed, in terms of Section 28 of the Act. Appeal allowed - decided in favor of assessee.
Issues Involved:
1. Statutory provision for levy of interest. 2. Enforcement of bond by Customs Authorities. 3. Applicability of judgments relied upon by the Tribunal. Issue-wise Detailed Analysis: 1. Statutory Provision for Levy of Interest: The primary contention of the assessee was that, at the relevant time, there was no statutory provision in place for the levy of interest under the Customs Act, 1962. The provision for interest was inserted only on 20.08.1996 via Section 62 of the Finance (No.2) Act, 1996. The assessee argued that since the import occurred on 08.02.1995, prior to the insertion of Section 28AB, the provision could not be applied retrospectively. The court agreed, stating, "goods were imported by the assessee under two (2) advance licenses on 08.02.1995, which is the date, clearly, prior to the insertion of Section 28AB. Therefore, quite clearly, in our view, the provisions of Section 28AB, would not be applicable." 2. Enforcement of Bond by Customs Authorities: The assessee argued that the bond was furnished to the licensing authority, i.e., the Director General of Foreign Trade (DGFT), and not to the Customs authorities, thus there was no privity of contract between the assessee and the Customs authorities. The court noted, "the bond was executed by the assessee in respect of which, again, there is no dispute, in favour of the licensing authority i.e. DGFT." The court concluded that the Customs authorities could not enforce the bond and recover the interest, as it was a contractual obligation outside the statutory framework of the Customs Act, 1962 at the relevant time. 3. Applicability of Judgments Relied Upon by the Tribunal: The Tribunal had relied on the judgments of the Supreme Court in REXNORD ELECTRONICS AND CONTROLS LTD. and the Bombay High Court in PRATHIBHA SYNTEXT LTD. The court held that the Tribunal misread the ratio of these judgments. In REXNORD ELECTRONICS AND CONTROLS LTD., the Supreme Court stated that interest was payable under the bond furnished to the DGFT and not under the statutory scheme of the Customs Act. The court observed, "the Judgment, clearly, hold that the liability to pay interest, emanating from a bond, falls in the realm of a contractual bargain and the authority, which can enforce the bond, if at all, would be the licensing authority i.e. DGFT." Similarly, the court found the judgment in PRATHIBHA SYNTEXT LTD. to be inapplicable as it arose from an order passed by the Settlement Commission, which was not the case here. Conclusion: The court concluded that the assessee could not be called upon to pay interest by the Customs authorities under the provisions of the Customs Act, 1962 as it stood in February 1995. The substantial questions of law framed were answered in favor of the assessee and against the Revenue. The impugned judgment and order of the Tribunal were set aside, and the appeal was disposed of accordingly. Final Order: The appeal was allowed, the Tribunal's judgment was set aside, and the questions of law were answered in favor of the assessee. The pending application was closed with no order as to costs.
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