Steel Ltd. & Anr Vs. Union of India & Ors  Insc 335 (29 March 2007)
S. H. Kapadia & B. Sudershan Reddy
with Civil Appeal No. 179 of 2002 KAPADIA, J.
In these civil appeals the controversy lies on the interpretation of the
interim order dated 9.9.1991 passed by this Court in a stay application in
Civil Appeal Nos. 3152-53 of 1991 filed by the Department.
Essar Steel Limited ("the importer" for short) submitted the Bills
of Entry on which provisional assessment was made under Project Imports Regulations1986.
The declared value was DM 46.75 million on which the importer paid Rs. 7.93
crores as duty. This was not accepted by the Department.
They issued a show cause notice dated 24.10.1988. They made provisional
assessment based on total transaction value of DM 84.15 million. Thus, the
Department increased the transaction value from DM 46.75 million to DM 84.15
million, i.e., addition of DM 37.40 million. This increase was made by the
Department by loading the assessable value on account of certain technical
fees/ charges. Under the provisional assessment, the Department accordingly
called upon the importer to pay Rs. 13.95 crores. As stated above, the importer
had paid Rs. 7.93 crores, unconditionally, according to the declared value.
After loading they paid a further amount of Rs. 6.02 crores under protest.
Thus, the disputed amount of duty paid by the importer was Rs. 6.02 crores on
account of the increased transaction value of DM 37.40 million. The amount was
paid on 15/16.12.1988 by the importer. On payment, the goods were cleared on
The figures given in this judgment are rounded off to even numbers for the
sake of convenience.
The order was challenged by the importer before CEGAT ("the
Tribunal"). By judgment dated 13.2.1991 the Tribunal decided the appeal in
favour of the importer and directed refund of Rs. 6.02 crores. Aggrieved by the
decision of the Tribunal, the Department came to this Court by way of civil
appeal nos. 3152-53/91. At the time of preliminary hearing on 9.9.1991 the
following order was passed:
"On the application for stay, we think, it is not appropriate to order
stay of the refunds. The respondent shall be entitled to the refund subject to
the furnishment of a bank guarantee for the amount of the refund to the
satisfaction of the Collector of Customs (Preventive) Ahmedabad. A fresh bank
guarantee, in lieu of existing bank guarantee, shall be now furnished. The
respondent shall ensure that the guarantee shall be for the entire period of
the pendency of these appeals if necessary by renewal from time to time. The
guarantee shall be strictly subject to this condition.
The refund shall be made within two weeks from the date of the furnishment
of the bank guarantee or within a period of 6 weeks whichever is later. If the
appellants succeed in appeals, the amount of refund obtained pursuant to order
shall be made good and restituted back to the appellants by the respondent
together with interest thereon @ 18% per annum from the date of the
Finally, by judgment and order dated 19.11.1996, this Court disposed of the
Department's civil appeal nos.
3152-53/91. It was held that fees paid by the importer to the foreign
supplier for theoretical and practical training of engineers outside India was
not includible in the assessable value of the plant. It was further held that
engineering and consultancy fees paid to the foreign company was not fully
includible in the value of the plant. That, only the expenditure incurred for
dismantling the plant was includible. In short, out of the addition of DM 37.40
million in the assessable value for technical fees/ charges, this Court
excluded DM 23 million in favour of the importer and included DM 14.3 million
(in favour of the Department). In other words, the assessee substantially
succeeded in the appeal. This Court set aside additions to the extent of DM 23
After the decision of this Court, ultimately the final assessment order was
passed by the Department on 16.2.2001. This order has been passed after the
impugned judgment of the High Court dated 6.2.2001. Under the final assessment
order dated 16.2.2001, on account of deletion of additions to the extent of DM
23 million the differential duty payable by the importer stood reduced to Rs.
10,63,39,665/- According to the final assessment order the importer had already
paid Rs. 9,44,29,850/- leaving the balance of Rs. 1,19,09,815/-, which stands
paid by the importer. In other words, the entire account stands settled.
The Department now contends that the importer under the interim order dated
9.9.1991 was liable to pay interest @ 18% p.a. on Rs. 6.02 crores between the
period 28.10.1991 to 10.7.1997; that under the said interim order passed by
this Court it was stipulated that if the Department succeeds in the civil appeal
nos. 3152-53/91 the importer was liable to restore the refunded amount to the
Department with 18% interest.
The entire controversy revolves round this interim order.
In our opinion, this litigation was totally unwarranted and time consuming.
On one hand, the importer contended that under the Customs Act, 1962,
as it stood at the relevant time, there was no provision for levy of interest
on provisional assessment. According to the importer, the Department could have
levied interest only on final assessment. According to the importer, the
present case related to imports during the period September to November, 1988.
According to the importer at that time there was no provision for levying of
interest on provisional assessment. According to the importer, section 47(2)
was not applicable to the present case. According to the importer, at the
relevant time, interest was payable only in a case where the importer fails to
pay import duty under section 47(1) at the time of clearance within 5 days from
the date on which the bill of entry is returned to him for payment of duty and
that too on the amount of duty demanded at that stage by the Department.
According to the importer, as indicated by the facts above, the import duty was
paid within the stipulated period and, in the circumstances, section 47(2) was
not applicable. It was further contended on behalf of the importer that the
Department cannot call upon the importer to pay interest on the basis of the
interim order of this Court which ultimately got merged into the final judgment
dated 19.11.1996. On behalf of the importer it was lastly contended, that in
the present case, the final assessment order was passed only on 16.2.2001; that
during the period 28.10.1991 to 10.7.1997 there was no final assessment order;
that the importer had succeeded substantially in getting the assessable value
reduced and that the very fact that the law stood amended by Act 29 of 2006
with effect from 13.7.2006 vide section 18(3) under which interest could be
levied even on provisional assessment indicates that prior to 13.7.2006 there
was no provision in the Customs Act, 1962
to charge interest on provisional assessment except to the limited extent
mentioned in the proviso to section 47(2) which, on the facts of this case, is
not attracted. That, the doctrine of merger of the interim order in the final
order was not applicable in the present case.
According to the Department, on the other hand, the Tribunal had passed an
order of refund of Rs. 6.02 crores.
According to the Tribunal, the assessable value was not liable to be loaded
on account of technical fees/charges. The Department had filed civil appeal
nos. 3152-53/91 against the decision of the Tribunal granting the refund. At
the stage of preliminary hearing when the Department sought an order of stay of
the refund, the importer was allowed the refund of Rs.
6.02 crores subject to the importer giving a bank guarantee to the
satisfaction of the Collector. It was made clear in the interim order that Rs.
6.02 crores should be brought back by the importer if the Department succeeds
in the said civil appeals and in such an event the importer shall return Rs.
6.02 crores to the Department with interest at the rate of 18% p.a. from the
date of refund which, as stated above, in the present case, was on 28.10.1991.
The Department contended before us that in view of the above interim order, the
Department was entitled to interest on Rs. 6.02 crores commencing from
28.10.1991 to 10.7.1997 on which date the Department encashed the bank
guarantee given by the importer.
As stated above, the entire controversy in the present case is irrelevant.
The interim order passed by this Court was on the stay application made by the
Department. The importer was allowed to withdraw Rs. 6.02 crores. The importer
had undertaken to restore the amount if the Department succeeded in the appeal.
In the present case, it is necessary to keep in mind the conceptual difference
between the assessable value and the amount of duty payable thereon. As
indicated above, the declared value was DM 46.75 million. This was not accepted
by the Department. They increased the value from DM 46.75 million to DM 84.15
million. The Department included certain items. The importer objected to such
inclusion. The loading of the value was to the tune of DM 37.40 million. In the
final hearing, this Court disallowed the addition to the extent of DM 23 million
out of DM 37.40 million, therefore, the importer substantially succeeded in
getting the assessable value reduced. The duty amount of Rs. 6.02 crores was
based on the loading of certain items to the tune of DM 37.40 million which
this Court did not accept.
Duty is derived from the assessable value. As can be seen from the order of
final assessment, the differential duty stood substantially reduced from Rs.
13.95 crores to Rs. 10.63 crores (approx.). The final assessment order has
given a complete break-up of the amounts paid during the interregnum by the
importer. When the litigation was going on the Department has recovered Rs.
6.02 crores on 10.7.1997; it has recovered Rs. 2.17 crores on 1.11.2000; the
importer has paid Rs. 50 lacs on 6.1.2001 and the importer has paid Rs. 75 lacs
on 10.2.2001. In all, an amount of Rs. 9.44 crores (approx.) got collected/
paid and the balance amount was Rs.
1.19 crores. This amount has also been paid. In the circumstances, the
Department cannot seek to recover interest on the full amount of Rs. 6.02
crores which is the duty amount calculated on the increased/ loaded assessable
value of DM 37.40 million. The Department has failed in its appeal in loading
the assessable value by DM 37.40 million. The addition to the extent of DM 23
million is disallowed. In the circumstances, the question of charging interest
under the interim order of this Court for the aforesaid period does not arise.
We do not wish to go into larger controversy regarding chargeability of
interest under the Customs Act, 1962
as it stood in 1988.
Before concluding, we may state that the importer and the Department have
both come in appeal to this Court against the impugned judgment of the Gujarat
High Court dated 6.2.2001 in Special Civil Application No. 12661/2000.
In fairness to the High Court, we may state that the final assessment order
came to be passed on 16.2.2001 which is after the impugned judgment. In the
impugned judgment, it has been stated that the parties should have moved this
Court for clarification of interim order dated 9.9.1991. We have clarified and
explained the position. We do not wish to expand the controversy. Justice has
been done in the matter.
Accounts have been settled. Accordingly, we set aside the impugned judgment.
For the aforestated reasons, without going into the wider controversy,
keeping the question of law open, we hold that the Department was not entitled
to interest at the rate of 18% p.a. on Rs. 6.02 crores during the period
28.10.1991 to 10.7.1997 under the interim order dated 9.9.1991 of this Court,
Accordingly, both the appeals are disposed of with no order as to costs.