1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION jmi WRIT PETITION NO. 2190 OF 2006. The Union of India & Anr. ..petitioners. v/s. M/s. Crest Animation Studios Ltd. & Anr. ..Respondents. .... Mr. M.I. Sethna, Senior Counsel, a/w. A.M. Sethna, for Petitioners. Mr. Naresh Thacker, a/w. Mr. Sushant Murthy, for respondents. .... CORAM : V.C. DAGA & S.J. KATHAWALLA, JJ. DATE : 15TH JUNE 2010. P.C. By the above Writ Petition, the petitioners (Directorate of Revenue Intelligence) have challenged the order passed by the Settlement Commission dated 27th January, 2005 and 26th July, 2005 (Exhibits ‘M’ and ‘O’ to the Petition, respectively) to the extent of granting immunity from payment of interest on the counter veiling duty to the Respondents. 2. Facts :- The respondent no.1 was issued an EPCC license on 14th July, 1994 for importing capital goods worth Rs.8,17,50,947/- (CIF) with an obligation to export goods having value four times more 2 than that of the CIF value of the goods imported. The respondent no.1 imported capital goods under EPCG scheme at a concessional rate paying duty @ 15% in terms of notification no. 160/92 by filing 17 Bills of Entry. The export obligation was to be completed by July 1999. The respondent No. 1 claimed to have completed export obligation only to the extent 4.57 % upto July, 1999. 3. After investigation, a letter dated 10th November, 2000 was issued by the petitioners to the respondent No.1 asking the respondents to pay the duty amount quantified in the sum of Rs. 1,85,68,211/- with interest @ 24% p.a. from the date of import till the date of payment. respondent No.1 vide its letter dated 17th November, 2000, respondent paid by DD Rs.1,85,68,211/- towards their duty liability under protest. The respondent no.1 treated the the said letter dated 10th November, 2000 received from the petitioners as a show cause notice and approached the Settlement Commission for settlement of their case on 8th January, 2001. 4. On being noticed, petitioner-Revenue approached before the Settlement Commission and during the course of hearing submitted that the differential duty involved is Rs.3,94,98,014/- and not Rs.1,85,68,211/- as was shown in the notice. After certain orders were passed by this Court in the proceedings filed by the respondent no.1, the final hearing before the Settlement Commission was held on 4th January, 2005. In the course of the said hearing, the 3 Advocate for the respondent no.1 admitted on behalf of respondent no.1 that the total duty liability was of Rs.3,94,98,014/- for the imported capital goods classified under Customs Tariff Heading 84 : 71 : 99 out of which it had already deposited Rs.1,85,68,211/- with the Revenue. It was submitted that the remaining amount can be recovered from the bank guarantee of Rs.4.66 crores given to the petitioners by the respondent no.1. 5. The Settlement Commission vide its final order dated 27th January, 2005 held that the Customs duty payable by the respondent was in the sum of Rs.3,94,98,014/- with interest liability at 10%, which was recovered from and amount of bank guarantee furnished by the petitioners. However, in respect of the duty relating to CVD, it granted full immunity from interest by observing that the same would have become available to respondent no.1 as Modvat immediately on payment thereof. 6. Thereafter, the Petitioner no.1 filed Misc. application dated 18th March, 2005 for rectification of mistake in the final order dated 27th January, 2005 on the ground that at the material time, the Respondents were availing exemption from Central Excise duty under notification no.48/94 and therefore were not eligible to avail Modvat credit. In support of the said contention, the relevant extracts of the Central Excise Tariff and Central Excise Rules, 1944 were submitted alongwith a letter dated 17th February, 2005 from 4 the jurisdictional Assistant Commissioner of Central Excise reporting that the Respondents were not registered with the Central Excise Department were also filed. During the course of hearing dated 6th July, 2005 a letter dated 5th April, 2005 from the respondent no.1 addressed to the Deputy Director, Mumbai stating that they were never under the supervision and/or control of the Central Excise was also submitted in support of the plea that the grant of the immunity in respect of the interest liability on the ground that they could have availed Modvat was totally unfounded. By its order dated 6th July, 2005 issued on 26th July, 2005, the Settlement Commission rejected the said Misc. Application filed by the petitioners by observing that since the relief prayed for is the withdrawal of immunity granted by it, the same cannot be entertained as it would amount to review of the grant of immunity earlier accorded under section 127H(1) of the Customs Act, 1962. 7. Submissions :- It is submitted on behalf of the petitioners that the Settlement Commission has erred in granting immunity from payment of interest on CVD to the respondent no.1. The demand of duty is for the period 14th February, 1995 to 14th August, 1995. During this relevant period, admittedly, the Respondents were not entitled for Modvat credit under the relevant erstwhile Modvat Credit Rules, 2002 inter-alia on the ground that the respondent no.1 was not registered with the Central Excise Authorities at any time from 5 January, 1995 though registration with the Central Excise Authorities was a pre-requisite for availing Modvat credit. Further, recorded video cassettes containing tapes not exceeding 15 MM and manufactured from unrecorded video cassettes were admittedly exempted under notification no. 48/94 dated 1st March, 1994 and as such, no Modvat was admissible in respect of the capital goods used for the manufacture of such exempted goods. Therefore, even if the respondent no.1 was registered with the Central Excise Authorities, they were still not eligible and/or entitled to avail the Modvat credit in respect of the said capital goods. 8. It is submitted that the order of Settlement Commission suffers from the vice of factual inaccuracy and patent failure to correctly appreciate and apply the provisions of Rule 57(R) r/w Rules 57(A), 57(C) and Rule 57(Q) of the erstwhile Central Excise Rules, 1944. It is submitted that the said provisions make it clear that though the respondent no.1 was not registered with the Central Excise Authorities at the relevant time, they have availed Nil rate of duty and hence, they were not entitled to any Modvat credit at the relevant time. 9. It is submitted that in fact it was never the claim of the respondent no.1 that at the relevant time it was eligible for Modvat credit of additional customs duty paid on the capital goods and that assuming without admitting that they have paid the additional duty 6 of customs, it would have been eligible for Modvat credit on that duty. In the light of the admitted position, it would be contrary to the law to grant immunity from payment of interest on additional duty of customs on CVD to the respondent no.1. It was further submitted on behalf of the petitioners that the impugned order of the Settlement Commission is contrary to the well-settled legal position laid down by this Court in the case of M/s. Pratibha Syntex Ltd. vs. Union of India, wherein it was categorically held that if the Customs Authorities were entitled to recover the duty with interest, in that case it would become incumbent to the Settlement Commission in directing the respondent to pay the Customs duty with applicable interest thereon in accordance with the law. 10. It is submitted that the issue as to whether Modvat was available to the respondent No.1 was not at all discussed before the Settlement Commission and a finding that the same is available to the respondent no.1 is for the first time found in the order of the Settlement Commission dated 27th January, 2005. 11. It is therefore, submitted on behalf of the petitioners that the orders passed by the Settlement Commission dated 27th January, 2005 & 26th July, 2005 to the extent these orders record the findings about immunity from payment of interest on the amount of CVD due and payable and consequential benefits given in fine and penalty in respect thereof, be set aside. 7 12. Per Contra :- It is submitted on behalf of respondent no.1 that since respondent no.1 is registered under the provisions of the Finance Act, 1994 as the provider of service, they are entitled to take credit of the duties including CVD paid by them on the inputs and the capital goods received by them. It is submitted that the Settlement Commission has after considering this submission waived payment of interest on CVD. 13. It is also submitted that the reliance on the provisions of Rule 57(R) r/w 57(A), 57(C) and 57(Q) of the erstwhile said Rules is uncalled for. The provisions of the Cenvat Credit Rules, 2004 is applicable to the case in hand and eligibility to the credit of duty paid, including CVD, on the capital goods imported by respondent no.1, cannot be denied. 14. It is further submitted that the date on which the Respondents paid the CVD, instant credit thereof is available to the Respondents. The eligibility to avail cenvat credit is based on the date of payment of CVD. As respondent No.1 isentitled to instant credit immediately upon payment of CVD, there is no loss to the Government, and hence, no interest. It is settled law that interest payment is compensatory in nature. As the whole exercise is revenue neutral, there is no loss to the Government and hence the Settlement Commission rightly computed the interest liability. 8 15. Conclusion:- The order of the Settlement Commission dated 27th January, 2005 grants full immunity so far as interest on CVD is concerned to the respondent no.1 by only recording the following :- “So far as the interest on CVD is concerned, we grant full immunity to the applicant as the same would have become available to the applicant as Modvat immediately on payment thereof since that CVD is being paid now, Modvat would also become available to the applicant belatedly. CVD is nothing but cash being paid by the applicant to be used immediately as Modvat.” 16. The submissions of the petitioners recorded hereinabove shows that the petitioners are seriously disputing the fact qua the availability of Modvat to the respondent no.1. The respondent no. 1 has denied and disputed the contention of the petitioners that Modvat was not available to them. The petitioners have contended that the issue as to whether Modvat was available to the respondent no.1 was not at all debated before the Settlement Commission and a finding that the same is available to the respondent no.1 is for the first time found in the order of the Settlement Commission 27th January, 2005. However, the fact remains that there is not an iota of discussion found in the order of the Settlement Commission qua the 9 availability of Modvat to respondent no.1. From a reading of the order, it appears that the issue pertaining to the availability of Modvat to the respondent no.1 was not raised at the time of the hearing before the Settlement Commission by the parties. Since it was not debated before the Settlement Commission, the petitioners did not get an opportunity to address the issue on this count. As such, the Settlement Commission could not have dealt with the said issue directly for the first time in its final order of 27th January, 2005. The Settlement Commission ought to have heard the parties on the issue pertaining to the availability of Modvat to the respondent no.1 instead of directly assuming the availability of Modvat in favour of the respondent no.1. In this view of the scenario, the impugned order is unsustainable in view of the breach of principles of natural justice for want of opportunity to the parties to canvass their contentions on this Count. 17. Under the circumstances, we set aside the order of the Settlement Commission dated 27th January, 2005 to the extent of the finding recorded therein granting immunity from payment of interest on the amount of CVD due and payable by the respondent no.1 and remand the matter back to the Settlement Commission for hearing the parties on the said issue relating to the grant of immunity to pay interest is concerned and pass fresh reasoned orders as regards the same following principles of natural justice, within a 10 period of eight weeks from the date of the receipt of this order. Rival contentions on this count are kept open. 18. Rule is made absolute in terms of this order, with no order as to costs. [ S.J. KATHAWALLA, J. ] [V.C. DAGA, J.]