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TMI Blog2006 (2) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard in the matter and that a demand was raised only after it failed to respond to or avail of that opportunity. There has thus been no violation of either the provisions of Section 28 or the requirement of principles of natural justice on which the said provision is based. Section 28AB deals with interest on delayed payment of duty in special cases and inter alia provides that where any duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 28, shall, in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is fixed by the Central Government by notification. It is, thus, evident that duty determined as payable would earn interest in the event of a delay in the payment of the same. But for the exemption from payment of duty under the EPCG scheme, the petitioner would have been liable to pay the duty at the rate stipulated for the imports made by it. A concessional rate was, however, applied to the said imports subject to the petitioner's satisfyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently reduced to 15% differential duty amount instead of 24% as is evident from the demand notice dated 12th November, 2003, issued by the Deputy Commissioner of Customs, Mumbai. According to the petitioner, the demand for payment of the amount aforementioned is legally untenable inasmuch as there was no constitutional or statutory sanction for such a demand. It is contended that service of a show cause notice upon the petitioner in terms of the mandatory requirement under Section 28 of the Customs Act, 1962 (for short the Act ) was a condition precedent for any demand on account of interest or otherwise against the petitioner. No such notice having been served on the petitioner, the demand raised by the respondents is untenable in law. Before we deal with the twin grounds of challenge urged on behalf of the petitioners, we may briefly summarise the facts in the backdrop. 2. The petitioner-company is engaged in the business of manufacturing wheat and rice gluten, glucose syrup, starches, etc. besides chemical used for industrial and manufacturing purposes. Before its take over by the NRI Management sometime in the year 1986 it was a Government of Punjab owned and operated sick in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 003. 3. The petitioner claims to have made representations to various authorities, seeking waiver of the interest primarily, on the ground that its failure to meet the export obligation was for reasons beyond its control. These representations did not evoke any response. On the contrary, the petitioner was placed on what is known as the Denied Entity List , suspending its IEC number and thereby disabled it from conducting any import or export whatsoever under the EXIM Policy with effect from 9th May, 2002. It was only later on that the said suspension letter was withdrawn though only for a period of six months. Around the same time, the petitioner also received a response to its representation, stating that the Policy Relaxation Committee of respondent No. 1 has declined the petitioner's request for payment of interest on differential customs duty demanded by the respondents. The petitioner has, in that background, filed the present writ petition challenging the demand made by the respondents. 4. The respondents, have filed a counter affidavit, inter alia, stating that the EPCG Scheme allows import of capital goods with duty concession to enable production of export product at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he time of clearance of the said capital goods shall make a declaration before the Assistant Commissioner of Customs or Deputy Commissioner of Customs. In such form as he may specify, binding himself to pay on demand an amount equal to the duty leviable on such capital goods but for the exemption contained herein in respect of which the conditions specified in column (2) of the Table have not been complied with. TABLE S. No. Description of importer Rate of duty (1) (2) (3) 1 Importer undertaking an export obligation equivalent to three times the CIF value of the said capital goods over a period of four years under paragraph 38 of the Policy 25% ad valorem 2 Importer undertaking an export obligation equivalent to four times the CIF value of the aforesaid capital goods over a period of five years under paragraph 38 of the Policy 15% ad valorem 7. Para 45 of the Export and Import Policy referred to in Condition No. 2 supra reads as under: 45. The importer shall be required to execute with the licensing authority a Legal Undertaking supported by a bank guarantee wherever necessary for the fulfilment of the export obligation. The details in this regard are specified in the Handbook of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d export obligations/conditions, they shall pay an amount equal to 24% interest per annum on the amount of customs duties saved from the date of import of the first consignment till the date of payment. 11. The petitioner had, apart from the undertaking given in terms of the provisions of the policy, the license and the Handbook of procedure, also to furnish bank guarantees in terms whereof the amount guaranteed by the bank concerned was payable to the Government in case the conditions contained in the license including the export obligations mentioned therein was violated. 12. Two questions in the above background arise for our consideration. These are : (1) Whether the demand for payment of interest has been raised in violation of the provisions of Section 28 of the Customs Act, 1962 or the principles of natural justice encapsulated in the same? and (2) Whether the demand for payment of interest is legally sound and enforceable against the petitioner? We shall deal with the questions ad seriatim: Regarding Question 1: 13. Section 28 of the Customs Act, 1962 inter alia provides that when any duty has not been levied or has been short-levied or erroneously refunded, or interest has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said provision is based. Regarding Question No. 2: 15. There are two facets of this question that call for an examination. The first aspect that needs to be examined is whether this court ought to interfere at the instance of a party who has unequivocally and unconditionally undertaken to pay the duty amount saved on the import of equipment together with interest at the agreed rate in the event of its failure to discharge the export obligations. The second aspect relates to the chargeability of interest on duty which was payable but was not paid in view of an exemption granted subject to fulfilment of the conditions prescribed for such exemption. 16. In so far as the first aspect is concerned, there is no dispute that the petitioner had unequivocally undertaken to pay the differential amount of duty saved on the import, if it failed to comply with its export obligations. The provisions of para 105 of the Handbook and the legal undertaking/agreement executed by the petitioner created in no uncertain terms a legal and enforceable obligation against the petitioner to pay interest on the amount of duty saved by it on the import of the equipments. That position was not disputed before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia provides that where any duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 28, shall, in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is fixed by the Central Government by notification. It is, thus, evident that duty determined as payable would earn interest in the event of a delay in the payment of the same. But for the exemption from payment of duty under the EPCG scheme, the petitioner would have been liable to pay the duty at the rate stipulated for the imports made by it. A concessional rate was, however, applied to the said imports subject to the petitioner's satisfying the requirements stipulated for the said benefit. No sooner it is found that the petitioner has failed to perform its export obligation which was one of the conditions for applying a concessional rate of duty, the exemption would cease to be effective and the liability to pay the duty at the rate ordinarily applicable re-emerge. Consequently non-payment of the differ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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