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TMI Blog1992 (4) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1983. 2. Whether the interest should be calculated on the basis of the amount of duty payable computed in accordance with the rate of duty which prevailed as on the date of deposit of goods in the warehouse or on the basis of the higher rate of duty which prevailed on the date from which the petitioner became liable to pay interest or on the basis of still higher rate of duty, which was prevailing as on the date of clearing the goods from the warehouse? 2. In order to bring forth the precise dispute between the parties, in the first instance it is necessary to make a brief survey of the relevant provisions of the Customs Act under which the liability of the petitioner to pay interest to the respondent arose and the circumstances in which the liability arose. (i) The Customs Act, 1962, (for short 'the Act') is an Act to consolidate and amend the law relating to customs, enacted by the Parliament. Section 12 is the charging section. The said Section provides that the duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into or exported from India. In this case, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charges in cases where the importer fails to clear the goods from the warehouse within the time allowed. (ii) In the present case, the writ petitioner - M/s. Bangalore Wire Rod Mills, imported goods on which customs duty is leviable under the Act and left them in a warehouse in terms of Section 46 of the Act on 11-11-1982 and cleared the goods from the warehouse on 9-9-1988. According to the writ petitioner, the demand notice calling upon the writ petitioner to pay customs duty was issued on 7-3-1985 and 15 days' time was given for making payment of customs duty and on failure to pay the customs duty to pay interest on the said amount in terms of Section 59 of the Act. It so happened that the rate of customs duty as on the date on which the goods were kept in the warehouse was 40%, whereas on 9-9-1988, on which date the goods were cleared from the warehouse, the rate of customs duty had been increased to 90 per cent. The increase to 90% was with effect from 1-3-1988. Even so, the respondent demanded interest on the amount of customs duty computed at 90% of the value of the goods from 11-11-1983 to 9-8-1988 for nearly five years and compelled the writ petitioner to pay the said am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Act, Rules and the Regulations in respect of the goods. On 13-5-1983 Government of India issued notification prescribing that the rate of interest payable in respect of the goods kept in a warehouse was 12% per annum on the amount of duties of customs claimable by the Union of India. According to the provisions of Section 61(1) of the Act, as it stood at the relevant point of time, the maximum period during which the imported goods could be kept in the warehouse was three years in the case of non-consumable stores and one year in respect of other goods. The petitioner failed to pay the duties of customs and clear the goods from the warehouse within or at the end of the prescribed period. Section 61(b)(ii) of the Act, both before and after its amendment, empowered the Collector and the Board to extend the period of bonding in respect of any goods which are not likely to deteriorate for a limited period and by the Board for such further period as it may deem fit. No maximum period beyond which the bonding period could be extended by the Board was prescribed. It appears that on account of certain practical difficulties, in particular the shortage of electric power in other S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit of Bill of Entry - HM/AE No. Shipping Bill No. 1366 dt. 12-11-82. Short collection of customs duty - Reg. Ref: Your Bond No. 1/82. Whereas it appears the customs duty amount to Rs. 2,95,97,549.80 (Rupees two crores ninety five lakhs ninety seven thousand five hundred forty nine and paise eighty only) was not levied/short levied/erroneously refunded in respect of the above consignment for reasons stated below: The warehousing period of the above bond has expired on 11-11-1983. And whereas you are chargeable with the aforesaid duty, you are requested to show cause within 15 days of the receipt of this notice to the Assistant Collector of Customs, Customs Division, No. 41, Miller Road, Bangalore - 560 052, why the amount specified above should not be paid by you. Any representation oral or in writing made by you should be accompanied by supporting documentary evidence. You are also requested to state if you would like to be heard in person. If no representation is received within the aforesaid period or if you fail to turn up on the date on which the case may be posted for hearing order will be passed in accordance with the provisions of Section 28(2) of the Customs Act, with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Collector calling upon the petitioner to clear the goods on payment of duty at the rate of 90% that was in force in March, 1988 and also interest at the rate of 12% on the amount of duty computed on the basis of the said higher rate of duty for the entire period commencing from 11-11-1983 and also informing the petitioner that if the petitioner failed to clear the goods by making the necessary payment, the goods would be disposed of. Thereafter the goods were cleared from the warehouse by the petitioner only on 9-9-1988 by paying the amount of duty and interest as demanded. The total amount of interest which the petitioner was compelled to pay by the respondents was as follows : (1) For the period commencing from 10-11-1983 to 31-8-1988,1752 days at 12% per annum Rs. 81,08,021.70 (2) For the period commencing from 1-9-1988 to 9-9-1988 11,603.30 Rs. The petitioner in all paid the sum of Rs. 2,24,99,998/- and got the goods released. As far as the rate of excise duty is concerned which had more than doubled, compared to the rate of excise duty prevailing on the date on which the goods were left in the warehouse and the date on which they were cleared i.e., from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s satisfied that it is necessary or expedient so to do, by notification in the Official Gazette, specify for the purposes of this clause, till the expiry of three years. Explanation. - For the purposes of sub-clause (iv), "hundred per cent export-oriented undertaking" has the same meaning as in Explanation 2 to sub-section (1) of Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944), (b) in the case of any other goods, till the expiry of One Year, after the date on which the proper officer made an order under Section 60 permitting the deposit of the goods in a warehouse." The only change brought about in S. 61(1) by the amendment was, the period during which goods may remain warehoused were changed, the period of 'three years' and 'one year' underlined above was changed to 'one year' and 'three months', respectively. Sub-section (2) of Section 61 inserted by Act 11 of 1983 reads : "(2) Where any warehoused goods remain in a warehouse beyond the period of one year or three months specified in clause (a) or clause (h) of sub-section (1) by reason of the aforesaid period or otherwise, interest at such rate, not exceeding eighteen per cent per annum as is for the time be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the goods could be kept in the warehouse was 3 years. The learned Counsel for the Central Government, however, pointed out that according to the definition of the 'stores' contained in Section 2(38) of the Act, the contention of petitioner is untenable. The said definition reads: '2(38) - "stores" means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting;" As can be seen from the language of the definition of the word "stores" it means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting. Admittedly the goods concerned in the case are not those meant for use in a vessel or aircraft. Therefore there is no substance in the contention of the petitioner that the goods in question though non-consumable, in that they are machinery for manufacturing certain items of steel products, constituted non-consumable stores. From this it follows that the period during which the petitioner could leave the goods in the warehouse was one year in accordance with sub-section (1) of Section 61 of the Act prior to its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board of Excise and Customs, under the proviso to Section 61 of the Act requesting for waiving the interest and for direction to refund the amount collected. In this context, the Board examined as to whether the provisions of Section 59 was applicable to the case of the petitioner or sub-section (2) of Section 61. The Board was of the view that, as the goods were left in the warehouse when sub-section (1) of Section 61 before its amendment was in force and bond had been executed in terms of the provisions of Section 59, the latter alone was attracted to this case and consequently the provisions of sub-section (2) of Section 61 was also not applicable. In order to confirm its view, the Board also referred the aforesaid questions of law to the Law Department of Union of India for its opinion. The Law Department, for detailed reasons recorded, gave the opinion that the view taken by the Board was correct, vide Annexure A. 10. In view of the stand of the Board that only Section 59 is applicable to this case, which was confirmed by the Law Department, the Board issued an endorsement dated 8-2-1989 (Annexure A. 41) to the petitioner rejecting its request for waiving the interest. The end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the date on which the goods were kept in the warehouse and therefore the interest should be recomputed from the date on which the period of 3 years from the date on which the goods were left in the warehouse expired and the excess of interest recovered should be refunded to the petitioner. The learned Judge did not accept the contention of the petitioner that the interest was payable only on the amount of duty calculated at the rate of duty which was payable as on the date specified in the demand notice issued under Section 59 of the Act and not on the amount of duty which was payable and actually paid on the date of clearing the goods. 11. The petitioner has therefore presented this writ appeal aggrieved by the Judgment of the learned Judge. Respondents have also presented the writ petition contending that the petitioner was liable to pay interest immediately after the expiry of one year from the date on which the goods were left in the warehouse and therefore the direction issued by the learned Judge for refund even to the extent granted should not have been granted. 12. In this appeal Smt. Nalini Chidambaram the learned counsel appearing for the petitioner/appellant urged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough, it is a somersault from the view taken by the Board and got confirmed from the law department, and the stand taken in the statement of objections, we proceed to consider the above contention urged by the Central Government Standing Counsel as it was urged with vehemence. In this behalf, .it should be pointed out that the Board has itself considered this aspect and he was of the view that sub-section (2) of Section 61 was not at all applicable to the case of the petitioner. According to the Board, as on the date on which the goods were left in the warehouse, sub-section (2) of Section 61 had not come into force and the period during which the goods could be kept in the warehouse was regulated by sub-section (1) of Section 61 of the Act, as it stood prior to amendment and as the petitioner was called upon to execute the bond as required under Section 59 of the Act and the bond had been executed, the demand of interest has been made by the respondents only under Section 59 of the Act and not under sub-section (2) of Section 61. As stated earlier, the Board had also taken the opinion of the Law Department in support of its view. In that view of the matter while rejecting the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y referred to the period referred to in sub-section (1) of Section 61. Instead, the opening words of sub-section (2) expressly refers to the period of one year and 3 months in sub-section (1) of-Section 61 i.e. as it stands after its amendment. Therefore, in our opinion, there can be no doubt that sub-section (2) of Section 61 gets attracted only to cases to which sub-section (1) of Section 61 as it stood after its amendment gets attracted. It is not even the case of the respondent that sub-section (1) of Section 61 as amended with effect from 13-5-1983 applies to cases where goods were deposited in a warehouse when the unamended subsection (1) of Section 61 was in force. In our opinion, when even according to the respondents sub-section (1) of Section 61 as amended has no application to the present case. Correct view to take as to the scope of sub-section (2) of Section 61 is it does not apply to the case of the petitioner. The resultant position is that the liability of the petitioner to pay interest arises under Section 59 of the Act, i.e., from the date specified in the demand notice. In fact it is because of this, the Legislature inserted Section 61(2) which created the liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it. It may not be wrong to say that such interest is compensatory in character and not penal." (Underlining by us) As could be seen from the above enunciation in tax law, interest is ordinarily claimed from a person who has withheld payment of any tax payable by him to the Government. Can it be said that the petitioner had withheld payment of duty computed at the rate of 90% for the entire period, prior to 1-3-1988 though the rate of duty at 90% came into force only on 1-3-1988. The answer must be in the negative? From this it follows, the interest could be calculated only on the amount of duty withheld from time to time. In order to understand what has been and what should have been done regarding computation of interest under Section 59 it is necessary to set out rate of duly in force from time to time. The particulars of the same as given by the learned Counsel at the time of the arguments are as below : DATE RATE OF EXCISE DUTY As on 22-3-1985 40% From 1-3-1986 45% plus 25% From 1-3-1987 45% plus 40% From 1-3-1988 45% plus 45% As on the date of payment of excise duty and clearing the goods from the warehouse, there is no controversy that the rate of excise duty p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the party to whom the notice is given should pay Customs duty claimable, if the goods are cleared from the warehouse on or before the date specified and if he failed to do so he should pay interest on the said amount of duty. Therefore, the demand notice dated 7-3-1988 served on the petitioner in terms of Section 59(l)(b) of the Act which called upon it to pay the amount of customs duty within 15 days, from the date of service of notice, clearly meant: (1) The petitioner should pay customs duty claimable, on or before 22nd March,1985. (2) The amount of customs duty would therefore be, the amount computed on the basis of the rate prevailing at that time. (3) On failure to pay duty the interest also had to be paid from 22-3-1985, on the amount of customs duty claimable, and withheld by the petitioner till the date of actual payment. As held by the Supreme Court in the case of ACC Ltd., the very concept of the word interest used in a tax law is that it is compensatory in character and therefore has to be computed on the amount payable by the petitioner concerned and was withheld. Therefore, when Sec. 59 requires that the petitioner should pay interest in addition to customs duty, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect import and the rate of duty applicable was lower. It is difficult to appreciate as to how and why such amount was specified in the notice as customs duty. Whatever be the mistake in specifying the amount of duty in the notice, the petitioner was liable to pay only the actual amount payable computed on the basis of the then prevailing rate of duty in respect of 'project import' which fact is not disputed by the respondents, and became liable to pay interest from 22-3-1985 on that amount. However, in the said notice interest was charged from 11-11-1983 to 7-3-1985 and the whole amount of interest claimed was Rs. 40,63,122.08. But in view of language of Section 59 which says that interest on the amount of duty demanded has to be paid from the date so specified, the petitioner had to pay customs duty within the period of 15 days from the date of service of notice, as specified in the demand notice and as the petitioner failed to pay customs duty on or before 22-3-1985 the petitioner became liable to pay interest from the said date. Having regard to the fact that the interest is compensatory in character, the only reasonable way of interpretation of Section 59 of the Act is that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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