Case: Pratibha Processors and Others Vs. Union of India and Others

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 Petitions Nos. 1908 of 1991, 1958 of 1991 and 3145 of 1991. The three appeals CAs Nos. 2416-2418 of 1993 are preferred against the judgments in the said writ petitions. For convenience sake the facts relevant to Writ Petition No. 1854 of 1991 (the main judgment) will be adverted to since the facts are almost identical in all the other cases4. There are two petitioners in Writ Petition No. 1854 of 1991. The first petitioner is a public limited company incorporated underthe Companies Act, 1956. The second petitioner is a shareholder. The company is engaged in the business as importers, exports 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 Bill of Entry for warehousing. The goods were allowed to be warehoused under 6 bonds all dated 4-12-1990 expiring on 3-3-1991. On or about 9-5-1991, the petitioners filed 6 Bills of Entry for ex-bond clearance for 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 4-3-1991 till clearance, although the duty assessed is nil duty. The petitioners cleared the goods under DEEC Advance Licence5. The action of the respondents to recover interest @ 18% 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 61(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 18% under Section 61(2) of the Act6, 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 goods7. 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 para 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 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 warehouse." *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." *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

Court's reasoning:
9. The main facts, relevant statutory provisions, the Notification and Scheme quoted hereinbelow are not in disputeWe 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 warehouses12. 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, validity 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 entails delayed payment of duty payable and so interest is charged for such delayed payment of duty13. In fiscal statues, 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. It 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 payment 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 characterIt 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) and (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 commonsense and also flowing from the language of Section 61(1) and (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 warehoused 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 accordinglyIn 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. It was further held that since the rate of duty on the goods was not 90% throughout the period from 22-3-1985 to 9-9-1988, 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 to 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 15 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 levy16. We are of opinion that the High Court erred in holding that the importers - assesses 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.