Electronics and Controls Ltd Vs. Union of India and others  INSC 358 (4 March 2008)
S.B. SINHA & V.S. SIRPURKAR CIVIL APPEAL NO. 1730 OF 2008 (Arising out of SLP (C) No. 3934 of 2007) S.B.
1. Leave granted.
2. Interpretation of the provisions of Section 127A read with Section 127H
of the Customs Act is involved in this appeal which arises out of a judgment
and order dated 27th September, 2006 passed by the High Court of Judicature at
Bombay in Writ Petition Nos. 6238 and 6242 of 2006
3. Appellant herein is an exporter. It was issued two licences under Export
Promotion Capital Goods (EPCG) Scheme for CIF value of Rs.26,81,750/- and
Rs.27,41,669/- respectively. It imported capital goods against the
aforementioned licences availing the benefit of the Notification dated 20th
April, 1992. It presented bills of entry at Mumbai Customs for there clearance.
Pursuant to or in furtherance of the said licences the appellant was required
to export goods worth US $ 3,40,000 and US $ 3,47,600 respectively within a
period of five years from the date of issuance thereof. Appellant, however,
could not meet its export liability and the value of the exports made by it was
to the extent of US $ 2,79,210 and US $ 2,80,450.83 respectively. In terms of
the aforementioned Notification the appellant was required to furnish a bond
and undertaking before the Director General of Foreign Trade, an authority
created under the Foreign Trade (Development and Regulation) Act, 1992.
Appellant had also undertaken to pay interest on the differential amount.
4. On the appellant's failure to meet its export obligations in terms of the
said licences as also the Scheme aforementioned, a demand notice was issued for
payment of duty of 6,03,400/- and Rs.4,30,184/- respectively alongwith 15%
interest per annum payable to the Revenue from the date of clearance of the
capital goods till the date of payment of the duty demanded.
5. On receipt of the said notices, the appellant filed two applications
before the Settlement Commission for settlement of its cases on 10th November,
2005 and 30th January, 2006. By an order dated 29th June, 2006 the case of the
appellant was settled by the Settlement Commission with a direction to pay the
total duty amount of Rs.2,16,610/- and Rs.3,41,493/- respectively together with
interest @ 15% per annum while granting immunity from prosecution and penalty
to the appellant.
6. Questioning the direction of the Settlement Commission to pay interest @
15 % per annum, two writ petitions were filed by the appellant before the
Bombay High Court which, by reason of the impugned judgment, have been
7. Mr. Jay Savla, learned counsel appearing on behalf of the appellant
submitted that the order of the Settlement Commission was inconsistent/self-
contradictory in so far as on the one hand payment of interest under the bond
could not have been held to be contractual in nature and on the other, it will
be subjected to any direction by the Court.
8. Since interest payable under the bond, Mr. Savla, would submit, have a
direct nexus with the payment of excise duty, the Settlement Commission had the
requisite jurisdiction to waive the whole or a part of interest payable under
the bond also.
9. The learned Solicitor General, appearing on behalf of the respondents, on
the other hand, urged that having regard to the Scheme of Settlement, the
Settlement Commission had absolutely no jurisdiction in the matter.
10. The Customs Act, 1962 (the Act) was enacted to consolidate and amend the
law relating to customs.
Indisputably on import of goods, customs duty is payable. The Central
Government, however, issued a Notification bearing No.160/92-Cus.
dated 20th April, 1992 in terms whereof an undertaking was required to be
furnished before the Directorate General of Foreign Trade inter alia on the
following terms :- "(viii).That the payment of the amount demanded by the
government under this agreement will not affect the liability of the party to
any other action, including the initiation of legal proceedings for confiscation
of the imported material and refusal of further licences, and all other
liabilities, penalties and consequences under the provisions of the Foreign
Trade (Development and Regulation) Act, 1992, and the Orders and Rules made
thereunder, that may be decided by the Government.
(ix). That this agreement shall remain in full force until all the
obligations of the party are fulfilled to the full and final satisfaction of
the government as specified above and till such satisfaction is communicated to
(x) That the party irrevocably undertakes that in the event of his default
in meeting the aforesaid export obligation/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. Indisputably the appellant could not meet its obligations in terms of
the said undertaking. The customs duty, therefore, became payable. If customs
duty is not paid, interest is payable in terms of Section 28AA of the Act,
which reads thus :- 28AA. Interest on delayed payment of duty:
Subject to the provisions contained in section 28AB where a person,
chargeable with the duty determined under sub-section (2) of section 28, fails
to pay such duty within three months from the date of such determination, he
shall pay in addition to the duty, interest at such rate not below ten percent
and not exceeding thirty percent.
per annum, as is for the time being fixed by the Board, on such duty from
the date immediately after the expiry of the said period of three months till
the date of payment of such duty: Provided that where a person chargeable with
duty determined under sub-section (2) of section 28 before the date on which
the Finance Bill, 1995 receives the assent of the President, fails to pay such
duty within three months from such date, then, such person shall be liable to
pay interest under this section from the date immediately after three months
from such date, till the date of payment of such duty.
Explanation 1. -Where the duty determined to be payable is reduced by the
Commissioner (Appeals), Appellate Tribunal or, as the case may be, the court,
the date of such determination shall be the date on which an amount of duty is
first determined to be payable.
Explanation 2. -Where the duty
determined to be payable is increased or further increased by the Commissioner
(Appeals). Appellate Tribunal or, as the case may be, the court, the date of
such determination shall be.-
for the amount of duty first
determined to be payable, the date on which the duty is so determined;
for the amount of increased duty, the
date of order by which the increased amount of duty is first determined to be
for the amount of further increase of
duty, the date of order on which the duty is so further increased.
(2) The provisions of sub-section (1) shall not apply to cases where the
duty or the interest becomes payable or ought to be paid on and after the date
on which the Finance Bill, 2001 receives the assent of the President."
12. For non-payment of duty, the interest, which would be payable in terms
of Section 28AA of the Act, a proceeding may be initiated under Section 28 of
13. Bond has been executed by the appellant in favour of a different
authority. In case interest is payable in terms of the said bond and not in
terms of the statutory scheme, department would not be able to proceed in terms
of Section 28 of the Act. Interest in terms of the provisions of the Act would
be payable if the assessee or the importer fails to pay the amount of duty
determined to be payable within a period of three months.
14. The statutory scheme envisaged under the aforementioned Notification
dated 20th April, 1992 is, however, completely different.
15. Keeping in view the aforementioned back drop, we may notice the
provisions governing settlement of cases.
Chapter XIVA of the Act provides for settlement of cases. It was inserted by
Finance Act, 1998 (Act 21 of 1998). Section 127B of the Act provides for filing
of an application for settlement of cases wherein a full and true disclosure of
the applicant's duty liability which had not been disclosed before the proper
officer, the manner in which such liability had been occurred, the additional
amount of customs duty accepted to be payable by the applicant and such other
particulars, as may be specified by rules including the particulars of such
dutiable goods in respect of goods whereof the applicant admits short levy on
account of misclassification or otherwise of the goods before the Settlement
Commissioner to have his cases settled.
The procedures laid down therefor are required to be followed by the
Settlement Commission. In the event, the Settlement Commission accepts the said
application and passes an order thereupon, the applicant becomes entitled to
immunity from prosecution and penalty as laid down in Section 127H of the said
Act which reads as under:- 127H. Power of Settlement Commission to grant
immunity from prosecution and penalty. - (1) The Settlement Commission may, if
it is satisfied that any person who made the application for settlement under
section 127B has co-operated with the Settlement Commission in the proceedings
before it and has made a full and true disclosure of his duty liability, grant
to such person, subject to such conditions as it may think fit to impose,
immunity from prosecution for any offence under this Act or under the Indian
Penal Code (45 of 1860) or under any other Central Act for the time being in
force and also either wholly or in part from the imposition of any penalty,
fine and interest under this Act, with respect to the case covered by the
Provided that no such immunity shall be granted by the Settlement Commission
in cases where the proceedings for the prosecution for any such offence have
been instituted before the date of receipt of the application under section
(2) An immunity granted to a person under sub- section (1) shall stand
withdrawn if such person, fails to pay any sum specified in the order of the
settlement passed under sub-section (7) of section 125fC within the time
specified in such order or within such further time as may be allowed by the
Settlement Commission, or fails to comply with any other condition subject to
which the immunity was granted and thereupon the provisions of this Act shall
apply as if such immunity had not been granted.
(3) An immunity granted to a person under sub- section(1 )may, at any time,
be withdrawn by the Settlement Commission, if it is satisfied that such person
had, in the course of the settlement proceedings, concealed any particulars,
material to the settlement or had given false evidence, and thereupon such
person may be tried for the offence with respect to which the immunity was
granted or for any other offence of which he appears to have been guilty in
connection with the settlement and shall also become liable to the imposition
of any penalty under this Act to which such person would have been liable, had
no such immunity been granted. "
16. The core question which, therefore, arises for consideration is as to
whether the term "interest" used therein would include within its
fold interest payable under the bond furnished by the appellant before the
Director General of Foreign Trade.
17. The statutory scheme for the purpose of approaching the Settlement
Commission and the mode and manner in which appropriate order is to be passed
thereupon, are governed by Chapter XIVA of the Act. With a view to enable the
Settlement Commission to pass an order, an applicant is required to make a full
and true disclosure of his liability. As noticed hereinbefore, in the event his
application is accepted, an immunity is granted from prosecution of any offence
under the Customs
Act or under the Indian Penal Code or under any other Central Act for the
time being in force and also either wholly or in part from imposition of any
penalty, fine and interest under the said Act, with respect to the cases
covered by the settlement. The same has nothing to do with payment of any
interest under any other Act. If any interest became payable under the Act,
indisputably the Settlement Commission, will have the requisite jurisdiction to
grant immunity in respect thereof either wholly or in part. All penalties, fine
and interest, it goes without saying, must, however, be enforceable under the
Act. The Scheme for charging interest under the Act has been noticed by us
hereinbefore. No other provision has been brought to our notice in terms
whereof interest is payable under the Act.
17. We, therefore, agree with the High Court that interest payable under the
bond is not an interest payable under the Act.
18. Mr. Savla has drawn our attention to a decision of the Bombay High Court
in Pratibha Syntext Ltd. vs. Union of India : 2003 (157) E.L.T. 13 141 (Bom.).
The fact involved therein is not similar to the one before us.
There, the Commission, apart from directing the petitioner therein to
deposit the amount, directed adjustment thereof from and out of the deposit
made by the petitioner during the course of investigation. While, however,
granting immunity a direction to pay interest @ 10 % on the amount of duty for
not complying with the declaration given as per the Exemption Notification
No.204/92 dated 19-5-1992 was issued. A contention was raised therein that the Customs Act
does not make any provision for levy of interest on the duty amount payable in
respect of goods cleared during the period 1994-1996. In was in the
aforementioned situation, it was held :-
16. Exemption Notification No. 204/92 issued under Section 25 of the Customs Act
clearly provides that before clearance of the imported goods, the petitioners
shall produce proof of having executed a bond or a legal undertaking before the
concerned Licensing Authority, for complying with conditions of the said
Therefore, the terms and conditions of bond and legal undertaking executed
before the Licensing authorities agreeing to pay customs duty with interest in
case of breach, became part and parcel of the conditions of the exemption
notification issued under Section 25 of the Customs Act, 1962.
Since, there was breach of the terms of the Exemption Notification, the customs
authorities were entitled to recover the duty with interest. Merely, because
the Commission erroneously or otherwise had not levied interest in his order,
it cannot be said that the Customs authorities had no jurisdiction to recover
interest. If the petitioners were satisfied with the order of the Commissioner
of Customs, there was no need for them to approach the Settlement Commission.
Once the petitioners have voluntarily chosen the jurisdiction of the entire
issue by the Settlement Commission afresh, in the light of the disclosure made
by them it was open to the Settlement Commission to direct the petitioners to pay
the customs duty with interest. Although the Settlement Commission has levied
interest at a percentage, much less than what was agreed to pay by the
petitioners in their bond and legal undertaking, the same being not an issue in
this petition, we are not expressing any opinion in that behalf. Therefore, we
have no hesitation in holding that once the petitioners committed breach of the
terms of the exemption Notification No. 204/92, the Customs authorities were
entitled to enforce the declaration with bond and legal undertaking given by
the petitioners and recover customs duty with interest. If the customs
authorities were entitled to recover duty with interest then no fault could be
found with the Settlement Commission in directing the petitioners to pay customs
duty with interest."
We are not concerned with such a case here.
19. We may, however, notice that a learned Single Judge of Calcutta High
Court in Commissioner of Customs (Port) vs. Settlement Commission, Customs
& Central Excise : 2005 (179) E.L.T. 386 (Cal.) held :- "21. As far as
the third point is concerned I have carefully examined the provision of Section
127H of the Act and it appears to me the power of the Settlement Commission is
relatable to waiver either partial or full amount of interest under the Act
only. In this case the importer was and is under obligation to pay interest not
under the provision of the Act, but under the bond at the rate of 24 per cent
in terms of exemption notification. I am of the view though Bond furnished in
terms of statutory decision, but then contractual character is not destroyed. I
am unable to comprehend how the learned Commission could overlook the
implication of bond in relation to payment of interest thereunder. It seems to
me it has wrongly equated payability of interest under the bond with the
expressed provision of the said Act. Unlike Civil Court the waiver either of
full or of partial interest in contractual bargain cannot be granted by the
Commission without consent of both the parties. To clarify the position had it
been a case of chargeability or payability of interest under expressed
provision of the Act the Commission would have jurisdiction. This point once
was brought for decision before Bombay High Court in the case of Pratibha
Syntex Ltd. v. Union of India [2003 (157) E.L.T. 141]. Their Lordships of the
Division Bench however did not deal with the same as the facts and situation of
the case did not warrant. In Paragraph 16 it was observed by their Lordships as
"..............although the Settlement Commission has levied interest
at a percentage, much less than what was agreed to pay by the petitioners in
their bond and legal undertaking, the same being not an issue in this petition,
we are not expressing any opinion in that behalf."
Although the Calcutta High Court referred to Pratibha Syntext Ltd. (supra), the distinct feature of the said case has not been noticed.
20. We agree with the Calcutta High Court that the power of the Settlement
Commission is relatable to waiver of partial or full amount of interest only
under the Act.
21. We may notice that after the decision was rendered in the instant case,
the same Division Bench in Tanu Healthcareltd. vs. Union of India : 2007 (207)
E.L.T. 641 (Bom.) observed :- "6. We had an occasion to refer to the
Commerce Ministry Circular dated 22nd May, 2003 in another matter which came
before us yesterday i.e. Writ Petition NO.6238 of 2006 with Writ Petition
NO.6242 of 2006 on the Appellate side in the case of Rexford Electronics &
Controls Ltd. v . the Union of India & others. We noted that the apart
from the Commerce Ministry circular, as far as the bond given by the party is
concerned, there is a Judgment of the Calcutta High Court in the case of
Commissioner of Customs (Port) v. Settlement Commission, Customs and Central
Excise, reported in 2005 (179) E.L.T. 386 (Cal.). The High Court has held that
payment of interest under the bond is a contractual obligation and the
Settlement Commission has no power to grant immunity to interest covered by such
22. A special leave petition filed thereagainst, being SLP (C) No. 3159 of
2007 has been dismissed by this Court by an order dated 12th March,2007.
23. We are, therefore, of the opinion that the there is no infirmity in the
24. Appellant having evaded from payment of duty was bound to pay the same
and furthermore was bound to pay interest in terms of the bond executed by it.
The Settlement Commission, therefore, could not have given any direction for
deduction in regard thereto. As the Settlement Commission, did not have any
jurisdiction to waive the amount of interest payable under the bond, we do not
see that any jurisdictional error has been committed by it in directing the
payment of the said amount which is otherwise payable. In any event the
appellant is not prejudiced thereby as irrespective of such direction, the
appellant was bound to pay the interest payable under the bond.
25. For the reasons abovementioned, there is no merit in this appeal, which
is dismissed accordingly. Counsel fee Rs.10,000/-.