Interest on EPCG differential duty barred without express authority; confiscation, redemption fine and penalty also failed after duty payment.

Interest cannot be levied on differential duty demanded for breach of EPCG notification conditions unless the statute or notification expressly authorises it, so the interest demand was set aside. Once the importer became liable for and paid the differential duty after failure to fulfil the export obligation, confiscation of the capital goods, redemption fine and penalty were held not to survive, and those consequences were also set aside. The duty demand itself remained undisturbed.

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Issues: (i) Whether interest was chargeable on the differential duty demanded for breach of the EPCG notification conditions. (ii) Whether confiscation of the imported capital goods, redemption fine and penalty could survive after payment of differential duty.

Issue (i): Whether interest was chargeable on the differential duty demanded for breach of the EPCG notification conditions.

Analysis: The demand of duty arose from non-fulfilment of the export obligation attached to the exemption notification. The relevant customs enactment and the notification did not contain any provision authorising levy of interest on duty recovered for breach of the condition. The Tribunal followed its earlier view that, where the duty demand is sustained under the notification but no statutory basis exists for interest, interest cannot be imposed.

Conclusion: The demand of interest was not sustainable and was set aside in favour of the assessee.

Issue (ii): Whether confiscation of the imported capital goods, redemption fine and penalty could survive after payment of differential duty.

Analysis: The goods had been imported under the EPCG scheme and became liable to differential duty upon failure to discharge the export obligation. Once that duty was paid or sustained, the importer was treated as having gone out of the scheme. In that situation, confiscation under Section 111(o) of the Customs Act, redemption fine under Section 125 and penalty under Section 112(a) were held not to survive.

Conclusion: Confiscation, redemption fine and penalty were not sustainable and were set aside in favour of the assessee.

Final Conclusion: The duty demand remained undisturbed, but the additional liability to interest and the penal consequences attached to confiscation were annulled.

Ratio Decidendi: Interest cannot be levied on duty demanded for breach of an exemption notification unless the statute or the notification expressly authorises it, and confiscation or penalty will not survive once the differential duty liability under the EPCG scheme is enforced and discharged.

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