1 Mgn IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2540 of 2008 Union of India ) represented by the Director of Revenue ) Intelligence in the Ministry of Finance, ) Department of Revenue, Mumbai Zonal ) Unit, having office at 13, Sir Vithaldas ) Thackersey Marg, Old UTI Building, ) New Marine Lines, Mumbai-400 020. )..PETITIONER Vs. 1.Valecha Engineering Limited ) a Company incorporated under the ) provisions of the Indian Companies Act, ) 1956 having its registered office at ) Valecha Chambers, 7th Floor, New Link ) Road, Andheri (West), Mumbai-400 053 ) 2.The Settlement Commission, Additional ) Bench, Customs & Central Excise, Utpad ) Shulk Bhavan, Bandra-Kurla Complex ) Bandra East, Mumbai-400 051. )..Respondents Mr. P.S. Jetly with Mr. Suresh Kumar for the Petitioners 2 V.Sreedharan with Mr. P.D.Shah and Mr.Uday P. Warunjikar, for the Respondents. WRIT PETITION NO.1106 of 2009 Commissioner of Customs (Import) ) New Customs House, Ballard Estate, ) Mumbai-400 001. )..PETITIONER Vs. 1.M/s.Valecha Engineering Limited ) and M. Venkata Rao (Joint Venture) ) Valecha Chambers, 7th Floor, Plot No.B-6,) Andheri New Link Road, Andheri (West), ) Mumbai-400 053 ) 2.The Settlement Commission, Additional ) Bench, Customs & Central Excise, Utpad ) Shulk Bhavan, Bandra-Kurla Complex ) Bandra East, Mumbai-400 051. )..Respondents Mr. P.S. Jetly with Mr. Suresh Kumar for the Petitioners Mr.Uday P. Warunjikar, for the Respondents. WRIT PETITION LODGING NO.1387 of 2009 Union of India ) represented by the Director of Revenue ) Intelligence in the Ministry of Finance, ) Department of Revenue, Mumbai Zonal ) Unit, having office at 13, Sir Vithaldas ) 3 Thackersey Marg, Old UTI Building, ) New Marine Lines, Mumbai-400 020. )..PETITIONER Vs. 1.M/s.Navayuga Engineering Co.,Limited ) a Company incorporated under the ) provisions of the Indian Companies Act, ) 1956 having its registered office at ) 48-9-17, Dwarakanagar, Vishakapatnam- ) 530016. ) 2.The Settlement Commission, Additional ) Bench, Customs & Central Excise, Utpad ) Shulk Bhavan, Bandra-Kurla Complex ) Bandra East, Mumbai-400 051. )..Respondents Mr. P.S. Jetly with Mr. A.S. Rao, Mr. R.B. Pardeshi and Mr. Suresh Kumar for Petitioners Mr. V. Sreedharan with Mr.Prakash Shah, Mr. Sujay Katawala, Mr. Jas Sanghavi and Mr. Uday Warunjikar for Respondent No.1 in WP No.2540/08 and WP No.1106/09. CORAM : FERDINO I. REBELLO & D.G. KARNIK, JJ. DATED : 29th August, , 2009. JUDGMENT (PER FERDINO I. REBELLO, J.): 1. All these petitions are being disposed off by this common judgment as common questions of law arise. The necessary facts to the extent required in each of the petitions will be set out separately. 4 2. In Writ Petition No.2540 of 2008 a show cause notice dated July 20th 2007 came to be served on the petitioners under Section 124 read with Section 28 of the Customs Act, 1962.. Demand was for duty under the Customs Act along with interest. The show cause notice also set out as to why the bonds, undertakings filed at the time of import should not be enforced. The demand, included (1) recovery of customs duty and (2) interest and penalty. On receipt of the said show cause notice an application came to be filed by the petitioners under Section 127B of the Customs Act, 1962, hereinafter referred to as the Customs Act before the Settlement Commission on 17th December, 2007. In the application the petitioners have specifically given the details of the admitted duty liability, the interest thereon and the payment made. By the prayer clause the petitioners prayed for immunity from prosecution for any offence under the Customs Act 1962, imposition of any penalty under the Customs Act, 1962 and grant of immunity from imposition of any fine in respect of the goods under settlement and some other reliefs. There was no relief sought for refund of interest paid or for waiver of interest. 3. The Commission by its order of 25th April, 2009 after considering the contention that there is no power to waive interest was pleased to direct that interest which was paid could not be charged and has to be refunded within 30 days. It also passed some consequential orders with which we are really not concerned as the main relief in the petition is whether it was open to the Settlement Commission to direct refund of the interest when the petitioners themselves had voluntarily paid the interest as admitted amount and in the application had made no claim for refund though orally before the Commission it was contended that the amount is not due and payable. 5. In Writ Petition No.1106 of 2009 the application was filed after 1st June, 2007. 5 The assessee there approached the Settlement Commission after paying the duty liability, interest was not paid at all and in the application it was specifically prayed that interest is not payable. There was also no admission or acceptance of liability towards interest. The commission on adjudication of the matter held that interest is not payable. 6. In Writ Petition Lodging No.1387 of 2009, also an application was made after 1st June, 2007. In this case the Department had collected from the assessee even before the issue of show cause notice, duty along with interest. After issuing the show cause notice the assessee approached the Settlement Commission. In the application the assessee has specifically contended that interest is not payable under Section 28AB of the Customs Act as the said Section is not attracted to the facts of the case. In other words in the application itself a contention was raised about the non-liability to pay interest. The Commission by its order held that interest is not payable. It is that part of the order which is the subject matter of challenge before this Court in the petition. 7. The main questions for consideration in these petitions may now be set out. (a) Interest to be payable, must be pursuant to a statutory provision under an enactment. If there is no provision in the enactment for interest under which duty is demanded then in that event no interest would be payable. (b) Section 28 of the Customs Act will not apply to a case where duty was exempt on the date of assessment, but duty became payable due to post importation violation of conditions of an exemption notification. In such a case duty is payable pursuant to Section 125 of the Customs Act. 6 (c) The charging Section for additional duty of customs is Section 3 of the Customs Tariff Act, 1975 and not Section 12 of the Customs Act. The provisions relating to interest under the Customs Act are not incorporated either under Section 3 or Section 3A of the Customs Tariff Act. Hence no interest can be levied on the portion of the demand pertaining to additional duties of customs as special additional duties of customs. 8. Before we proceed to consider these contentions we may briefly consider the provisions pertaining to settlement as they existed before 1st June, 2007 and after 1st June, 2007. Before 1st June, 2007 under Section 127D no application could be made unless additional amount of duty accepted by the applicant in his application exceeded two lakh rupees. There was no provision for payment of admitted amount of duty. However, under Section 127C on the Commission allowing the application to be proceeded with, payment had to be made of the additional duty which was admitted. Under Section 127C (9) every order passed under sub-section (7) had to provide for terms of settlement including any demand by way of duty, penalty or interest and the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective. Under Section 127H power was conferred on the Commission on an applicant satisfying the requirements of Section 127H(1) to grant immunity from prosecution or from the imposition of any penalty, fine and interest under the Act in respect of the case covered by the settlement. 9. The provisions pertaining to settlement underwent changes pursuant to the Finance Act, 2007 (22 of 2007) which came into effect from 1st June, 2007. By virtue of the proviso to Section 127B as substituted it is provided that no such application shall be made unless “the applicant has paid the additional amount of Customs duty accepted by him along with interest due under Section 28AB”. 7 It would thus be clear that to maintain an application after 1st June, 2007, the applicant has to pay the customs duty admitted and the consequential interest which becomes due under Section 28AB of the Customs Act. Amendments were also made to Section 127H. The earlier power of the Commission to waive imposition of interest was excluded by Finance Act, 2007. In other words if interest is payable under the provisions of the Act, then in that event the Settlement Commission which earlier had the power to waive interest subsequent to 1st June, 2007 ceased to have such powers. Section 127-C(5) would be relevant and it reads as under:- “127C(5) After examination of the records and the report of the Commissioner of Customs received under sub-section (3), and the report, if any of the Commissioner (Investigation) of the Settlement Commission under sub-section (4), and after giving an opportunity to the applicant and to the Commissioner of Customs having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Customs and Commissioner (investigation) under sub-section (3) or sub-section (4).” (emphasis supplied). 10. With the above background the scheme of assessment and collection of duty under the Customs Act, 1962 can be considered. It is now settled law that duty is payable only at the point the goods leave the Customs barrier. On importation the importer is required to file a bill of entry for home consumption under Section 46(1) of the Act. The proper officer of customs then under Section 17 inspects and 8 examines the goods and thereafter assesses them. The importer then pays the assessed duty. The proper officer then passes an order for permitting clearance for home consumption in terms of Section 47(1) of the Customs Act. If the goods are not cleared within the stipulated time the custodian is entitled to sell the imported goods after notice to importer in terms of Section 48 of the Customs Act. Thus the scheme of the Act as originally enacted is to ascertain all material and necessary facts for the assessment of goods and collect the duty before the clearance of the goods from the customs control. Section 28 is a specific provision which confers power on the proper officer of customs to levy duty by issuance of show cause notice in those cases where duty has not been levied or has been short levied or erroneously refunded or when any interest payable has not been paid, part paid or erroneously refunded. Under Section 28AB which was inserted by Finance Act, 1996, in cases covered by Section 28 in addition to duty, interest is liable to be paid as set out under the Section for the time being, in terms of the Notification as fixed by the Central Government. 11. In the case of M/s.Kamat Printers Pvt. Ltd. & Anr. vs. Union of India & Ors., Writ Petition No.2131 of 2003 decided on 12 th August, 2009 we have held that if duty is payable pursuant to a notice issued under Section 28, consequently interest becomes due and payable under Section 28AB by operation of law and it is open to the Settlement Commission to consider the issue of interest at the time of passing the order. If there be power in the proper Officer of Customs to waive and/or reduce interest, that power can also be exercised by the Settlement Commission. This was in the context of Section 127H as it then stood. Now that is power of the Settlement Commission has been excluded, to waive interest if otherwise interest was payable. The Supreme Court in Commissioner of Trade Tax vs. M/s. Kanhoo Ram The Kedar 2005 (185) E.L.T. 3 (S.C.) has taken the view that interest liability accrues automatically. 9 12. On behalf of Revenue it has been submitted that firstly the provisions of Section 28AB were clearly attracted as admittedly in all cases there was no payment or short payment of duty. It is secondly contended that under Section 127B(c), once an applicant files an application and admits the duty and interest payable and pays the same and seeks no relief in the matter of refund of interest, even if otherwise it could be so done, then it was beyond the jurisdiction of the Commission in an application for settlement of a case to have directed return of interest paid. Under Section 127F, when an application is moved for settlement before the Settlement Commission by virtue of Section 127F(2), the Settlement Commission shall during the pendency of the application and until an order is passed has exclusive jurisdiction to exercise the powers and perform the functions of any Officer of Customs and Central Excise Office under the Customs Act or the Central Excise Act, 1944, in relation to the case. Under Section 127H as it now stands after the amendment of Finance Act of 2007 there is no power in the Settlement Commission to waive interest. Reference is also made to Section 124 under which the Competent Officer can issue a notice for confiscation. Once an order of confiscation is passed under Section 125, it is open to the Competent Officer to release the goods on payment of fine. Section 125(2) makes it clear that a fine in lieu of confiscation is in addition to the duty and charges payable in respect of such goods. Reliance is placed in the judgment of the Supreme Court in Collector of Customs, Bombay vs. M.J. Exports Ltd., 2001 (132) E.L.T. 514 (S.C.) to contend that even in a case where goods have been imported by taking the benefit of exemption notification it is open to the authorities to exercise the power under Section 28. Reliance is also placed in the judgment of this Court in Shree Vindhya Paper Mills vs/ Union of India, 2005 (187) E.L.T. 442 (Bom.), that even if refund of interest is directed that would be subject to Section 27 of the Customs Act. Reliance is also placed in the judgment of the co-ordinate Bench of this Court 10 in the case of Krishnakant Sakharam Ghag vs. Union of India, 2006 (206) E.L.T. (1117 (Bom). 12. On behalf of the respondents their learned Counsel submits that no interest is chargeable if the Act or the Rules do not provide for the same. In the instant case it is submitted that at the highest duty is payable as notice was issued for confiscation by virtue of Section 125(2) of the Customs Act. Section 125 does not provide for any interest. Section 28 is not attracted and consequently Section 28AB would not be attracted. Reliance is placed on the judgment in the case of Commissioner of Customs (Import) Mumbai vs. Jagdish Cancer & Research Centre, 2001 (132) E.L.T. 257 (S.C). It is pointed out that the same has also been reiterated in the case of Commissioner of Customs, New Delhi vs. C.T. Scan Research Centre (P) Ltd. 2003 (155) E.L.T. 3 (S.C.). Reliance is also placed in the judgment in the case of Chhotabhai Jethabhai Patel and Co. vs. Union of India A.I.R. 1952 Nagpur 139 to contend that where an assessment is correct on the day it was made, but becomes incorrect due to an event occurring/taking place after removal of the goods from the factory, the same is not covered by Rule 10 of the Central Excise Rules, 1944, as it stood in 1951. Same analogy it is submitted would apply to Section 28 of the Customs Act, 1962. In support of this submission it is further contended that on the date the bill of entry was assessed considering the exemption, the assessment was correct as there was no error or omission nor short levy or wrong levy. Section 28, it is submitted, would not apply to cases, where duty is not levied at the time of clearance in view of correct extension of an exemption notification, but became payable due to subsequent violation of end-use condition of the said notification. In such cases, there is no short levy or non-levy when the assessment was made. For this purpose reliance is placed on Circular dated 6th May, 1965 of the Central Board of Revenue. Such assessment also not is provisional assessment. It is submitted that 11 in so far as exemption notifications are concerned, the importer or exporter has to furnish a bond and considering Section 142 (2) and the amount set out in the bond that could be recovered in the manner laid down under Section 142(1) without prejudice to any other mode of recovery. It is then submitted that the provisions of Section 3 and 3A of the Customs Tariff Act are not incorporated in the provisions of Customs Act, 1962. Under the Customs Act the charging Section is Section 12 whereas under the Customs Tariff Act it is Section 3. This position in law is settled by the judgment of the Supreme Court in Hyderabad Industries Ltd. vs. Union of India, 1999 (108) E.L.T. 321 (S.C.). Reliance is also placed in the judgment of the Supreme Court in Collector of C.Ex., Ahmedabad vs. Orient Fabrics Pvt. Ltd., 2003 (158) E.L.T. 545 (S.C.) to contend that when there is no provision for penalty and confiscation, then no order providing for penalty or confiscation can be made. The Delhi High Court in Pioneer Silk Mills Pvt. Ltd. vs. Union of India, 1995 (80) ELT 507 (Delhi) had taken a similar view which has been affirmed by the Supreme Court in 2002 (145) ELT A74 (S.C.). It is specifically submitted that for non-payment of additional duty of customs under Section 3(1) of the Customs Tariff Act the provisions either of Section 28AA or Section 28AB cannot be made applicable considering Section 3(6) of the Customs Tariff Act, as at the highest by that sub-section the provision for notice, adjudication and recovery have been incorporated. It, however, does not incorporate the provisions of Section 28AB of the Customs Act. In answer to the contention raised on behalf of the petitioners that as the interest paid was voluntary and consequently the Tribunal had no jurisdiction it is submitted that the Settlement Commission on arriving at a finding that Section 28AB was not attracted, Settlement Commission did have jurisdiction in directing refund of the interest. 13. The Settlement Commission is a creature of statute with the powers as conferred under Chapter XIVA including Section 127C. Its jurisdiction under 12 Section 127C(5) is to decide the application in accordance with the provisions of the Act on matters covered by the application. It can also deal with a matter not covered by the application but relating to the case and referred to in the report of the Commissioner under sub-section (3) or sub-section (4). It, therefore, is a Tribunal of limited jurisdiction. It, therefore, normally cannot act as a Court of equity. It can regulate its own procedure. “Case” under Section 12A(b) means any proceedings under the Act or any other Act for the levy of assessment and collection of customs duty. In other words if there be a provision for levy of customs duty under the Customs Act or any other Act which would include the Customs Tariff Act, then it forms part of the case and consequently the Tribunal would be clothed with jurisdiction as if it was the subject matter of the application for settlement and not otherwise. 14. We may now consider the first and second questions as to whether interest could be demanded, if otherwise it is not payable under an enactment and further whether provision for interest under the Customs Act is not incorporated into the Customs Tariff Act. To understand the issue we may first refer to some of the decisions of the Supreme Court. The judgment of the Constitution Bench of the Supreme Court in J.K. Synthetics Ltd. Vs. Commercial Taxes Officer, (1994) 4 SCC 276, amongst others was considering the issue, whether in taxing statutes the provision empowering levy of interest forms part of machinery provisions and is substantive law. The Court observed that such cases should be construed applying the normal rule of interpretation so as to effectuate the object and purpose of the statute and should not be construed strictly. Charging provisions including penal provision should be construed strictly. We may gainfully refer to the following observations:- “9. Before we proceed further we must emphisise that penalty provisions in a statute have to be strictly construed and that is why we have pointed out 13 earlier that the considerations which may weigh with the authority as well as the Court in construing penal provisions would be different from those which would weigh in construing a provision providing for payment of interest on unpaid of tax which ought to have been paid. Section 3, read with Section 5 of the Act, is the charging provisions whereas the rest of the provisions provide the machinery for the levy and collection of the tax. In order to ensure prompt collection of the tax due certain penal provisions are made to deal with erring dealers and defaulters and these provisions being penal in nature would have to be construed strictly. But the machinery provisions need not be strictly construed. The machinery provisions must be so construed as would enable smooth and effective collection of the tax from the dealers liable to pay tax under the statute. Section 11B provides for levy of interest on failure of the dealer to pay tax due under the Act and within the time allowed. Should this provision be strictly construed or should it receive a broad and liberal construction, is a question which we will have to consider in determining the sweep of the said provision. We will do so at the appropriate stage but for the present we may notice the thrust of this Court's decision in the case of Associational Cement Co. Ltd.” Gainful reference may also be made to the following observations:- “16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict 14 construction is not extended to the machinery provisions which are construed like any other statute. The machinery provisions must, no doubt, be so construed as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. Commissioners of Inland Revenue , CIT v. Mahaliram Ramjidas , Indian United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay, and Gursahai Saigal v. CIT, Punjab. But it must also be realised that provision by which the authority is empowered to levy and collect interest even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be