Full Judgment Text
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PETITIONER:
PRATIBHA PROCESSORS & ORS.
Vs.
RESPONDENT:
UNION OF INDIA & ORS.
DATE OF JUDGMENT: 11/10/1996
BENCH:
S.P. BHARUCHA, K.S. PARIPOORNAN
ACT:
HEADNOTE:
JUDGMENT:
WITH
CIVIL APPEAL NOS. 13097-l3l00 OF 1996
(Arising out of S.L.P.(Civil) Nos. 6015/93, 6016/93,
6017/93, 6018/93)
AND
Civil Appeal Nos. 2416-18/93, 2419/93, 2420-25/93,
2426-28/93, 2429-32/93, 2433-38/93
------------------------------------------------------------
J U D G M E N T
Paripoornan.J.
Leave granted in all the special leave petitions.
In this batch of at appeals a common question of law
arises for consideration. It is regarding the interpretation
to be placed on Section 61(2) of the Customs Act
(hereinafter referred to as the ‘Act’). The High Court of
Bombay dismissed a batch of 36 writ petitions in the matter
by a common judgment dated 19th November, 1932. The question
that arose for consideration was posed, thus:-
"On importation of goods under OGL
if the importers had kept the same
in the warehouse under Section 59
of the Act and after expiry of
statutory period of three months if
they clear the goods under the
Advance Licence issued under DEEC
Scheme, whether such importers are
liable to pay interest on the
amount of duty which was assessed
and ascertained on the date of
warehousing until the goods is
cleared under Section 68 of the Act
(excluding the free period of three
months)."
3. Writ Petition No. 1854 of 1991 was treated as the main
case. The facts in the said case were adverted to in detail.
The judgment in the said case was followed in all other
cases, including writ Petition Nos. l908 of 1991, 1958 of
1991 and 3145 of 1991. The three appeals C.A. Nos. 2416-2418
of 1993 are preferred against the judgments in the said writ
petitions. For convenience sake the facts relevant to Writ
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Petition No. 1854 of 1991 (the main judgment) will be
adverted to since the facts are almost identical in all the
other cases.
4. There are two petitioners in Writ Petition No. 1854 of
1991. The first petitioner is a public limited company
incorporated under the Companies Act, 1956 The second
petitioner is a shareholder. The company is engaged in the
business as Importers, Exporters and Manufacturers. The
first respondent is Union of India and the second and third
respondents are officials of Customs Department. The
petitioners imported Polyester Filament Yarn of Taiwan
origin. The said goods were shipped by the foreign suppliers
from the port of shipment Keelung and on removal of the
goods the petitioners filed 6 Bills of Entry for
warehousing. The goods were allowed to be warehoused under 6
Bonds all dated 4th December, 1990 expiring on 3rd March,
1991. On or about 9th May 1991, the petitioners filed 6
Bills of Entry for Ex-Bond clearance for the home
consumption, Copies of these Bills of Entry for Ex-bond are
Exhibits B-1 to B-6. In view of the Advance Licence produced
by the petitioners, they were entitled to clear the goods
under Exemption Notification read with Duty Exemption
Entitlement Certificate (DEEC). Respondents accordingly
assessed these Bills of Entry to" Nil" duty but they
endorsed thereon to recover interest at 18% on duty from 4th
March, 1991 till clearance, although the duty assessed is
nil duty. The petitioners cleared the goods under DEEC
Advance Licence.
5. The action of the respondents to recover interest e per
annum was challenged by the petitioners. According to them,
no duty was payable a fortiori, no interest is also payable.
The action is challenged as unauthorised, arbitrary and
illegal. section 01(2) of the Act, as it stood at the
relevant time, is relied on to substantiate the plea. The
thrust of the plea is that the goods cleared were duty free
and if no duty was recoverable on the imported goods at the
time of clearance, no interest can be charged much less at
under Section 61(2) of the Act.
6. In all these cases, the assessees have imported goods
under OGL and filed Bills of Entry under Section 59 for
warehousing. Accordingly, the imported goods were kept in
warehouse. It is also common premise that all these
importers have obtained Advance Licence under DEEC Scheme at
a later point of time. It is also common premise that after
expiry of three months period, these importers cleared the
warehoused goods against their respective licence without
payment of duty and refused to accede to the request made by
the respondents to pay interest on the duty assessed
(earlier) at the time of warehousing the goods.
7. The Division Bench of the Bombay High Court, after
referring to Sections 2(14), 2(15), 12, 15, 25(1) and (2),
59, 61 and 68, and the Exemption Notification (General
Exemption No.147) and Duty Exemption Entitlement Certificate
(DEEC) (pages 168-170 and 176 of the paper book), came to
the following conclusion in paragraph 20 of the judgment,
thus:
"....until goods were sought to be
cleared against Advance Licence
till then, duty under the Customs
Act was payable to the Respondents.
By reason of facility under the
DEEC scheme, the importers were
permitted to apply for Advance
Licence. The amount of interest
therefore started accruing and
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remained accumulated from the date
when goods were warehoused and
subject to statutory period of
three months as provided under
Section 61(1) (b) of the Act. In
our opinion, the interest started
automatically accruing to the
amount of duty after expiry of
period of three months till the
date of clearance of goods from the
ware house."
It further held thus:-
"We hold that the petitioners are
liable to pay interest on the
amount of duty payable at the time
when goods were warehoused till
they are cleared at the rate then
prevailing under Customs Tariff
Act."
(emphasis supplied)
It was concluded that the various assessees -- the
importers --- are liable to pay interest on the amount of
duty withheld by them in respect of warehoused goods after
the expiry of the period of three months till the date of
clearance.
8. We heard counsel.
9. The main facts, relevant statutory provisions, the
Notification and Scheme quoted hereinbelow are not in
dispute. The assessees imported goods under Open General
Licence and filed Bills of Entry under Section 59 for
warehousing. The goods were kept in the warehouse. The
assessees obtained Advance Licence under DEEC Scheme at a
later point of time. This was admittedly after the expiry of
the three months period stipulated under Section 61(1) of
the Act. At the time of clearance of the goods from the
warehouse against the respective licences, no duty was
payable. The question posed is :- Is it open to the Revenue
to demand interest from the assessees under Section 61(2) of
the Act? We should make it clear that in these cases it is
common ground that the assessees have paid the charges due
for the warehouses --- the charges like rent, etc. due for
the respective warehouses.
10. The following statutory provisions are relevant in
these cases:-
"2(14) "dutiable goods" means any
goods which are chargeable to duty
and on which duty has not been
paid;
(15) "duty" means a duty of customs
leviable under this act."
xxx xxxx
xxxxxx
"12. Dutiable goods -
(1) Except as otherwise provided in
this Act, or any other law for the
time being in force, duties of
customs shall be levied at such
rate as may be specified under the
Customs Tariff Act, 1975 (51 of
1975), or any other law for the
time being in force, on goods
imported into, or exported from
India.
(2) The provisions of sub-section
(1) shall apply in respect of all
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goods belonging to Government as
they apply in respect of goods not
belonging to Government."
xxx xxxx
xxxx
"15. Date for determination of rate
of duty and tariff valuation of
imported goods- (1) The rate of
duty and tariff valuation, if any,
applicable to any imported goods,
shall be the rate and valuation in
force,---
(a) in the case of goods entered
for home consumption under Section
40, on the date on which a bill of
entry in respect of such goods is
presented under that section;
(b) in the case of goods cleared
from a warehouse under Section 68
on the date on which the goods are
actually removed from the
warehouse;
(c) in the case of any other foods,
on the date of payment of duty;
Provided that if a bill of entry
has been presented before the date
of entry inwards of the vessel by
which the goods are imported, the
bill of entry shall be deemed to
have been presented on the date of
such entry inwards."
xxx xxx
xxx
"25. Power to grant exemption from
duty - (1) If the Central
Government is satisfied that it is
necessary in the public interest so
to do it may, by notification in
the public Gazette, exempt
generally either absolutely or
subject in such conditions (to be
fulfilled before or after
clearance), as may be specified in
the notification goods of any
specified description from the
whole or any part of duty of
customs leviable thereon.
(2) If the Central Government is
satisfied that it is necessary in
the public interest so to do, it
may, by special order in each case,
exempt from the payment of duty,
under circumstances of an
exceptional nature to be stated in
such order, any goods on which duty
is leviable."
xxx xxx
xxx
"59. Warehousing bond - (1) The
importer of any goods specified in
sub-section (1) of Section 61 which
have been entered for warehousing
and assessed to duty under Section
17 or section 18 shall execute a
bond binding himself in a sum equal
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to the amount of the duty assessed
on such goods--
(a) to observe all the provisions
of this Act and the rules and
regulations in respect of such
goods;
(b) to pay on or before a date
specified in a notice of demand,--
(i) all duties, and interest, of
any, payable under sub-section (2)
of Section 61.
(ii) rent and changes claimable on
account of such goods under this
Act, together with interest on the
same from the date so specified at
the rate of six per cent per annum
or such other rate as is for the
time being fixed by the Board; and
(c) to discharge all penalties
incurred for violation of the
provisions of this Act and the
rules and regulations in respect of
such goods."
xxx xxxxxxx
xxxx
"61. Period for which goods may
remain warehoused.
(1) Any warehoused goods may be
left in the warehouse in which they
are deposited or in any warehouse
to which, they may be removed --
(a) in the case of --
(i) non-consumable store; or
(ii) goods intended for supply to a
foreign diplomatic mission; or
(iii) goods intended for use in any
manufacturing process or other
operations in accordance with the
provisions of section 65; or
(iii) goods intended for use in any
hundred percent export oriented
undertaking; or
(v) goods which the Central
Government may, if it is 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 one year:
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;
(b) in the case of any other goods,
till the expiry of three months,
after the date on which the proper
officer made an order under section
60 permitting the deposit of the
deposit of the goods in a warehouse
Provided that --
(1) in the case any goods which are
likely to deteriorate, the
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aforesaid period of one year or
three months, as the case may be,
may be reduced by the Collector of
Customs to such shorter period as
he may deem fit;
(ii) in the case of any goods which
are not likely to deteriorate, the
aforesaid period of one year or
three months, as the case may be,
may, on sufficient cause being
shown be extended by the collector
of Customs for a period not
exceeding six months and by the
Board for such further period as it
may deem fit:
Provided further that when the
licence for any private warehouse
is cancelled, the owner of any
goods warehoused therein shall,
within seven days from the date on
within seven days from the date on
which notice of such cancellation
is given or within such extended
period as the proper officer may
allow, remove one goods from such
warehouse to another warehouse or
clear them for home consumption or
exportation.
(2) Where any warehoused goods
remain in a warehouse beyond the
period of one year or three months
specified in clause (a) or clause
(b) of sub-section (1) by reason of
the extension of the aforesaid
period or otherwise, interest at
such rate, not exceeding eighteen
per cent per annum as is for the
time being fixed by the Board shall
be payable on the amount of duty on
the warehoused goods for the period
from the expiry of the period of
one year or, as the case may be,
three months, till the date of
clearance of the goods from the
warehouse.
Provided that the Board may, if it
considers it necessary so to go in
the public interest, waive, by
special order and under
circumstances of an exceptional
nature to be specified in such
order, the whole or part of any
interest payable under this sub-
section in respect of any
warehoused goods."
xxx xxx
xxx
68. Clearance of warehoused goods
for home consumption -- The
importer of any warehoused goods
may clear them for home
consumption, if --
(a) a bill of entry for home
consumption in respect of such
goods has been presented in the
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prescribed form;
(b) the import duty leviable on
such goods and all penalties, rent,
interest and other charges payable
in respect of such goods have been
paid; and
(c)............ "
(emphasis supplied)
The General Exemption and the Import-Export (Trade)
Policy, 1990-93 regarding the scheme of import of items in
advance of issue of licence (para 355) provide as follows:-
GENERAL EXEMPTION NO. 147
Exemption to goods imported against
advance licences -- In exercise of
the powers conferred by sub-section
(1) of section 65 of the Customs
Act, 1962 (52 of 1962) and in
supersession of the notification of
the Government of India in the
Ministry of Finance (Department of
Revenue) No. 116/88 - Customs
[G.S.R. No. 406 (E)] dated the 30th
March, 1988, the Central
Government, being satisfied that it
is necessary in the public interest
so to do, hereby exempts goods
imported into India against an
Advance Licence issued under the
Imports (control) Order. 1955,
being materials required to be
imported for the purpose of
manufacture of products
(hereinafter referred to as the
resultant products) or
replenishment of materials having
identical specifications and
technical characteristics as these
actually used in the manufacture of
the resultant products exported or
both, or for export as mandatory,
spares alongwith the resultant
products, for execution of one or
more export orders or for transfer
to another Advance Licence holder,
from the whole of the duty of
customs leviable thereon which is
specified in the First Schedule to
the Customs Tariff Act, l975 (51 of
1975) and from the whole of the
additional duty leviable thereon
under section 3 of the said Customs
Tariff Act, subject to the
following conditions, namely :-
(a) ..............
(b) the importer at the time of
clearance of the imported materials
makes-
(i) a claim in writing to the
Collector of Customs for such
exemption and executes a bond or
legal undertaking before such
authority as may be approved by the
Central Government for complying
with the conditions specified in
this notification :
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(ii) a declaration before the
Assistant Collector of Customs
binding himself to pay on demand an
amount equal to the duty leviable
but for the exemption, on the
imported materials in respect of
which the conditions specified in
this notification have not been
complied with:"
Explanation - in this notification
(i) .......................
(ii) .......................
(iii).........................
(iv) ...........................
(v) " Imported into India against
an Advance Licence" includes --
(a) goods imported under any
licence (including Open General
Licence) issued under the Imports
and Exports (Control) Act, 1947 (18
of 1947), for which at the time of
clearance out of Custom’s Control,
a valid Advance Licence is produced
by the importer;"
xxx xxx
xxx
"IMPORT - EXPORT (TRADE) POLlCY
1990-93. (Blue Book)
Import of items in advance of issue
of licence
355(1) Where the exporter is
otherwise eligible to import an OGL
item or other items against his own
licences and also claim duty
exemption benefits under this
Scheme, it will be open to him to
import such items in advance under
OGL or against his own licences and
keep the same in Customs Bond for
getting clearance against a valid
licence issued subsequently under
Duty exemption scheme. Clearance of
the items from the Customs Bonds
can, however, be effected after
obtaining the licence under the
said Scheme and without which the
benefit of duty exemption will not
be admissible. The declared
supporting manufacturer of the
applicant can also avail of this
facility by effecting imports OGL
items as an Actual User and get the
same cleared subsequently against a
valid licence issued under the said
Scheme in favour of the applicant,
provided the supporting
manufacturer holds a valid letter
of authority issued by the
applicant in his favour in terms of
para 352 above.
(2) The facility of the aforesaid
provision for import of items
against other licences will be
available subject to the condition
that the licence in question
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debited at the time of import will
not be re-credited after clearance
made against a licence issued
under Duty Exemption Scheme. It is,
however, clarified that in case
the applicant is already in
possession of a valid licence
issued under the said scheme on the
date of arrival of the consignment,
then such items will be cleared by
the Customs with duty exemption
benefits without insisting on
keeping the goods, in the Customs
Bond before clearance."
(emphasis supplied)
12. On a fair reading of the relevant provisions of the Act
and in particular Sections 15, 25, 59, 61 and 68 and the
General Exemption granted by the Notification (pages 169-170
of the paper book) and the Import-Export (Trade) Policy,
1990-93 (Blue Book) (page 176 of the paper book), we are of
the opinion that the entire Scheme is in a ’package’. In
allowing exemption to imported goods the Government had made
it clear that goods imported into India against the Advance
Licence includes goods imported under any licence (including
Open General Licence) for which at the time of clearance out
of Customs control a valid Advance Licence is produced by
the importer. It is open to the importer to import the items
in advance under Open General Licence and keep the same in
Customs Bond for getting a clearance against the valid
Licence issued subsequently under Duty Exemption Scheme.
When the notification granting the exemption and also the
Import Policy has totally liberalised the entire process,
the mere fact of warehousing the goods on an anterior date
and clearing the same on the basis of a subsequent Advance
Licence, validly obtained under Duty Exemption Scheme,
cannot by any stretch of imagination import the idea of levy
of interest for the period the goods were kept in the
warehouse. The liability of the assessee to pay the duty
arises only on clearance of the goods from a warehouse. The
assessee has no obligation to pay duty as long as the goods
were kept or remained in the warehouse It is only in cases
where the goods kept in the warehouse are exigible to duty,
and they are so kept in the warehouse for more than the
permitted period, and the said goods are cleared
subsequently and duty paid, interest is chargeable for the
period of delay in the clearance of the goods. Since the
goods warehoused are kept for a longer period such delay
details delayed payment of duty payable and to interest is
charged for such delayed payment of duty.
13. In fiscal Statutes, the import of the words -- "tax",
"interest", "penalty", etc. are well known They are
different concepts. tax is the amount payable as a result of
the charging provision. lt is a compulsory exaction of money
by a public authority for public purposes, the payment of
which is enforced by law. Penalty is ordinarily levied on an
assessee for some contumacious conduct or for a deliberate
violation of the provisions of the particular statute.
Interest is compensatory in character and is imposed on an
assessee who has withheld of any tax as and when it is due
and payable. The levy of interest is geared to actual amount
of tax withheld and the extent of the delay in paying the
tax on the due date. Essentially, it is compensatory and
different from penalty-- which is penal in character.
14. In the above backdrop, let us consider the scope and
content of Section 61(2) of the Act as it existed at the
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relevant time. Section 61(1) prescribes the period during
which the goods imported may remain in the warehouse. The
normal period in different cases are provided therein.
Extension of time in special cases is also provided. If the
goods imported remain in warehouse beyond the period
provided or extended under Section 61(1), the consequences
are specified in Section 61 (2) of the Act. As per the
provisions of the Act duty is payable (only) when the goods
are cleared . If the goods are not cleared within the time
granted under Section 61(1) of the Act, and the goods are
cleared later, the payment of duty exigible on the goods
gets automatically delayed. It is to meet the said
contingency Section 61(2) provides that if the goods
warehoused are cleared beyond the time specified or granted
under Section 61(1) of the Act, interest not exceeding 18%
per annum shall be payable on the amount of duty on the
warehoused goods. It is implicit from the language of
Section 61(2) of the Act that the interest shall be payable
on the amount of duty "payable or due on the warehoused
goods for the period from the expiry of period specified or
granted till the date of clearance of the goods from the
warehouse. In this case, on the date of clearance of the
goods, no duty is payable. The goods are not exigible to
duty at that time. Calculation of interest is always on the
principal amount. The interest payable under Section 61(1)
(2) of the Act is a mere "accessory of the principal and if
the principal is not recoverable, payable, so is the
interest on it. This is a basic principle based on common
sense and also flowing from the language of Section 61(1)
(2) of the Act. The principal amount herein is the amount of
duty payable on clearance of goods. When such principal
amount is nil because of the exemption, a fortiori, interest
payable is also nil. In other words, we are clear in our
mind that the interest is necessarily linked to the duty
payable. The interest provided under Section 61(2) has no
independent or separate existence. When the goods are wholly
exempted from the payment of duty on removal from the
warehouse, one cannot be saddled with the liability to pay
interest on a non-existing duty. Payment of interest under
Section 61(2) is solely dependent upon the exigibility or
factual liability to pay the principal amount, that is, the
duty on the warehouse goods at the time of delivery. At
that time, the principal amount (duty) is not payable due to
exemption. So, there is no occasion or basis to levy any
interest, either. We hold accordingly.
15. Counsel for the Revenue placed heavy reliance on the
decision of this Court in Union of India vs. Bangalore Wire
Rod Mill (1996 (83) ELT 251 (SC) ). That was a decision
rendered in appeal from the decision of the Karnataka High
Court reported in 1992 (61) FLT 37 (Kar.) In that case the
assessee -- M/s Bangalore Wire Rod Mill -- imported goods on
which customs duty was leviable under the Act, in the year
1982. On 11.11.1982 it warehoused the said goods without
paying the duty as contemplated by Sections 58 and 59 of the
Customs Act, 1902. On 7.3. 1985, the authorities issued
demand notice calling upon the assessee to clear the goods
from the warehouse within 15 days after paying duty due
thereon. On the date of warehousing the goods, the rate of
customs duty chargeable on the imported goods was 40% ad
valorem. Fore more than three years the assessee did not
clear the goods. On 9.9.1988 the assessee paid the duty of
Rs.1.40 crores and interest of Rs. 81.49 lakhs as demanded
by the authorities. On the date the goods were cleared from
the warehouse, duty was leviable on the goods and the rate
was 90%. The assessee contended that levy of interest can,
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if at all, be only after the period fixed or prescribed
under Section 61(1) (a). The said period was originally
three years but was reduced by amendment Act w.e.f.
13.5.1983 to one year. The High Court held that interest is
chargeable on expiry of 15 days from the date of notice
dated 7.3.1985, that is for the period 22.3.1985 to
9.9.1988. It was further directed that the interest shall be
calculated taking the rate of duty in force from time to
time during the said period. The Revenue pleaded that it is
entitled to interest from 11.11.1982 and the interest should
be charged calculating the duty at 90% for the entire
period, i.e., from 11.1 82 to 9.3.1988. The plea of the
Revenue was repelled. The High Court issued the following
directions:-
"(a) The respondents are directed
to re-compute the amount of
interest payable by the petitioner
at the prescribed rate with effect
from 22.3.1985 upto 9.9.1988 on the
basis of the amount of customs duty
which the petitioner would have
been liable to pay to the Central
Government at the rate, which was
prevailing during the different
period between 22.3.1985 to
9.9.1988;
(b) After computing the total
amount of interest payable for the
entire period as directed above,
the respondents shall refund the
balance of the amount of interest
collected from the petitioner."
In appeal, this Court affirmed the said decision. This
Court further held that according to the Act the duty
payable would be the duty in force on the date of clearance
of goods from the warehouse and not the one in force on the
date of import or on the date of warehousing and the
liability to pay interest arises only after the expiry of
the period of 15 days from the date of demand notice. lt was
further held that since the rate of duty on the goods was
not 90% through-out the period from 22.3.1985 to 9.9.1388,
but was varying, the direction of the High Court to take the
actual rate in force from time to time is reasonable. We
fail to see how the said decision is applicable in the
instant cases. That was a clear case where the goods were
exigible on duty on the date of clearance from the
warehouse. It was not a case where the goods were exempt
from the levy of duty on the date of clearance. The interest
was payable on expiry of 18 days from the date of demand
notice on the duty payable. The facts in the said case are
clearly distinguishable and can have no application to a
situation such as the one in the present case where the
goods are not exigible to duty at all on the date of
clearance from the warehouse being totally exempt from the
levy.
16. We are of opinion that the High Court erred in holding
that the importers -- assessees are liable to pay interest
in the instant cases in respect of warehoused goods, though
at the time of clearance the goods were exempt from payment
of duty. The common judgment of the Bombay High Court dated
19th November, 1992 is reversed. All the appeals are allowed
with costs, including counsel fee Rs. 5,000/- in each case.