2025 (4) TMI 578 - HC - Customs

Imposition of interest penalty and redemption fine on IGST under Section 3(7) of the Customs Tariff Act 1975 in lieu of payment of IGST leviable under Section 3 (7) of the Customs Tariff Act 1975 - pre-import condition was not met - HELD THAT - Section 3 (12) of the Tariff Act prior to its amendment did not make applicable the provisions of the Customs Act relating to interest offences and penalties to integrated tax chargeable under Section 3 (7) of the Tariff Act. This issue is no longer res integra. In Mahindra Mahindra Limited 2023 (8) TMI 135 - SC ORDER this Court was interpreting Sections 3 (6) and 3A (4) of the Tariff Act which are pari materia to the unamended Section 3 (12) of the Tariff Act held that no specific reference was made to interest and penalties in Sections 3 (6) and 3A (4) of the Tariff Act which are substantive provisions and therefore imposing interest and penalty would be without the authority of law. In the present case the levy of IGST is under Section 3 (7) of the Tariff Act and Section 3 (12) of the Tariff Act which is applicable to the said levy is pari materia to Sections 3 (6) and 3A (4) of the Tariff Act as referred to in the case of Mahindra Mahindra Limited. In these circumstances the said decision is squarely applicable to the facts of the present case. The impugned Order to the extent that it levies interest and penalty is without the authority of law and is liable to quashed and set aside. Redemption fine - HELD THAT - Section 3 (12) of the Tariff Act after its amendment by Finance (No. 2) Act 2024 dated 16th August 2024 makes applicable the provisions relating to interest offences and penalties of the Customs Act to the Tariff Act. As already Section 3 (12) of the Tariff Act as amended is applicable only after 16th August, 2024 and is not applicable to the present case. Accordingly in the present case no confiscation could have been imposed. Further the Joint Director General of Foreign Trade by Trade Notice No. 7 of 2023-24 dated 8th July 2023 clarified that all imports made under the Advance Authorization Scheme on or after 13th October 2017 and upto and including 9th January 2019 which could not meet the pre-import condition may be regularized by making payments as prescribed in the Customs Circular No. 16/2023 Customs dated 7th June 2023. For this reason also no confiscation can be done nor any redemption fine can be imposed. Conclusion - i) It is declared that Circular No. 16 of 2023-Customs dated 7th June 2023 to the extent that it purports to levy interest upon the IGST payment is beyond the provisions of the Customs Tariff Act 1975 and is bad in law. ii) The impugned Order dated 1st August 2024 to the extent that it seeks to recover interest confiscate goods impose redemption fine and impose penalty is quashed and set aside. iii) It is declared that the amendment to the provisions of Section 3 (12) of the Customs Tariff Act 1975 by Finance (No. 2) Act 2024 dated 16 th August 2024 is prospective in nature and is applicable only from 16th August 2024 onwards. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the imposition of interest, penalty, and redemption fine on IGST under Section 3(7) of the Customs Tariff Act, 1975, is valid when the pre-import condition was not met.
• The applicability of the decision in Mahindra & Mahindra Limited to the present case, concerning the levy of interest and penalties under the Customs Tariff Act.
• Whether the amendment to Section 3(12) of the Customs Tariff Act, 1975, by Finance (No. 2) Act, 2024, applies retrospectively or prospectively.
• The validity of Circular No. 16/2023-Customs, which seeks to levy interest on IGST payments.
• The legality of confiscation and redemption fine under Section 111(o) of the Customs Act when the pre-import condition was not met.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Imposition of Interest, Penalty, and Redemption Fine

• Relevant Legal Framework and Precedents: The Customs Tariff Act, 1975, particularly Section 3(7) and the unamended Section 3(12), which did not explicitly include provisions for interest and penalties. The case of Mahindra & Mahindra Limited, which held that without specific provisions, the imposition of interest and penalties is without authority.
• Court's Interpretation and Reasoning: The Court found that the provisions of the Customs Act relating to interest and penalties were not applicable to IGST under the unamended Section 3(12) of the Tariff Act. The decision in Mahindra & Mahindra Limited was deemed applicable as it dealt with similar provisions.
• Key Evidence and Findings: The Court noted that the Respondents had themselves placed the matter in the call book pending the outcome of the Mahindra & Mahindra case, indicating their acknowledgment of its relevance.
• Application of Law to Facts: The Court applied the reasoning from Mahindra & Mahindra Limited, concluding that the imposition of interest and penalties was without legal authority.
• Treatment of Competing Arguments: The Respondents argued that the decision in Mahindra & Mahindra was not applicable, but the Court rejected this, finding the provisions in question to be pari materia.
• Conclusions: The Court held that the imposition of interest, penalties, and redemption fine was without authority and quashed the relevant parts of the order.

Issue 2: Applicability of the Amendment to Section 3(12)

• Relevant Legal Framework and Precedents: Section 3(12) of the Tariff Act, as amended by Finance (No. 2) Act, 2024, and the decision in Orient Fabrics Limited, which addressed the prospective application of amendments.
• Court's Interpretation and Reasoning: The Court interpreted the amendment to Section 3(12) as prospective, applying only from 16th August 2024 onwards, based on principles of statutory interpretation and precedent.
• Key Evidence and Findings: The amendment explicitly included provisions for interest and penalties, which were absent in the unamended section.
• Application of Law to Facts: The Court found that the amendment did not apply to the present case, as the events occurred before its effective date.
• Treatment of Competing Arguments: The Respondents' argument for retrospective application was rejected, as it contradicted established legal principles and precedent.
• Conclusions: The amendment was deemed prospective, and thus not applicable to the Petitioner's case.

Issue 3: Validity of Circular No. 16/2023-Customs

• Relevant Legal Framework and Precedents: The Customs Tariff Act, 1975, and the decision in Mahindra & Mahindra Limited.
• Court's Interpretation and Reasoning: The Court found that the Circular, to the extent it sought to levy interest on IGST, was beyond the provisions of the Tariff Act and thus invalid.
• Key Evidence and Findings: The Circular was issued based on the Supreme Court's judgment in Cosmos Films, but the Court found it inconsistent with the Tariff Act's unamended provisions.
• Application of Law to Facts: The Court applied the reasoning from Mahindra & Mahindra Limited to invalidate the interest levy in the Circular.
• Treatment of Competing Arguments: The Respondents' reliance on the Circular was rejected as it was deemed legally unsound.
• Conclusions: The Circular was invalidated to the extent it sought to levy interest on IGST payments.

Issue 4: Legality of Confiscation and Redemption Fine

• Relevant Legal Framework and Precedents: Section 111(o) of the Customs Act and the decision in Orient Fabrics Limited.
• Court's Interpretation and Reasoning: The Court held that confiscation and redemption fine were not applicable, as the amendment to Section 3(12) was prospective.
• Key Evidence and Findings: The Court noted that the Joint Director General of Foreign Trade had allowed regularization of imports by payment, negating the need for confiscation.
• Application of Law to Facts: The Court found that once IGST was paid, the exemption was effectively not availed, regularizing the issue.
• Treatment of Competing Arguments: The Respondents' argument for confiscation was rejected based on the prospective nature of the amendment and the regularization notice.
• Conclusions: Confiscation and redemption fine were deemed inapplicable and were set aside.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "In Mahindra & Mahindra Limited (supra), this Court held that no specific reference was made to interest and penalties in Sections 3 (6) and 3A (4) of the Tariff Act, which are substantive provisions and, therefore, imposing interest and penalty would be without the authority of law."
• Core Principles Established: The imposition of interest and penalties requires explicit statutory authority. Amendments to statutory provisions apply prospectively unless expressly stated otherwise.
• Final Determinations on Each Issue: The Court quashed the order imposing interest, penalties, and redemption fine. It declared the Circular invalid to the extent it levied interest. The amendment to Section 3(12) was deemed prospective.