2009 (4) TMI 92 - HC - Customs

DEPB Scheme: Duty-Paid Goods Subject to Interest for Delayed Clearance

The Court held that goods cleared under the DEPB Scheme are considered duty-paid, requiring the appellant to pay interest under Section 61(2) of the ... Delay in clearance from warehouse - Whether as per Circular No.26/07, interest is chargeable on duty paid by way of debit in DEPB on goods cleared from the warehouse after 90 days – Held yes - the goods cleared under DEPB Scheme cannot be treated an exempted goods, but they can only be treated to be duty-paid goods and therefore, the interest is payable as per Section 61(2) – debit of any amount under the DEPB Scheme is a mode of payment of duty on the imported goods and cannot be treated as exempted goods, unlike the goods under DEEC Scheme Issues Involved:1. Legality of Customs Circular No. 26/07, dated 20.7.2007.2. Liability of the appellant to pay interest under Section 61(2) of the Customs Act when no duty is paid in cash due to exemptions.3. Equivalence of adjustment of credit granted by the Government on export of goods in the DEPB towards import duty payable to payment of duty in cash.4. Implications of clearance of goods from the warehouse after 90 days on the payment of interest to the Government.Issue-wise Detailed Analysis:1. Legality of Customs Circular No. 26/07, dated 20.7.2007:The Customs Circular No. 26/07 addresses the issue of whether interest on warehoused goods is chargeable if the customs duty is paid by way of debit in DEPB. The Circular clarifies that goods cleared by debits through DEPB are not to be treated as exempted but duty-paid. It further states that interest is chargeable on duty paid by way of debit in DEPB on goods cleared from the warehouse, thereby affirming the legality of the Circular.2. Liability of the appellant to pay interest under Section 61(2) of the Customs Act when no duty is paid in cash due to exemptions:The appellant argued that since the goods were exempted from payment of duty at the time of clearance, no interest liability should arise. They relied on the Supreme Court judgment in Pratiba Processors vs. Union of India, which held that interest is linked to the duty payable. If the principal amount (duty) is nil due to exemption, interest is also nil. However, the respondent contended that the DEPB Scheme is different from the DEEC Scheme and that duty paid through DEPB should be treated as duty-paid, not exempted.3. Equivalence of adjustment of credit granted by the Government on export of goods in the DEPB towards import duty payable to payment of duty in cash:The Court examined whether the debits under DEPB are equivalent to payment of duty in cash. The DEPB Scheme allows exporters to use DEPB scrips for payment of customs duty, which is considered as duty-paid. The Court referred to the Foreign Trade Policy and Circular No. 59/2004-Cus., which clarified that debits under DEPB are not exempted but duty-paid. Thus, the adjustment of credit under DEPB is equivalent to payment of duty in cash.4. Implications of clearance of goods from the warehouse after 90 days on the payment of interest to the Government:The appellant cleared the goods beyond the interest-free warehousing period of 90 days. The Court held that since the goods were cleared under the DEPB Scheme, they are to be treated as duty-paid goods. Therefore, interest is payable as per Section 61(2) of the Customs Act for the period beyond the stipulated time. The Court distinguished between the DEEC and DEPB Schemes, noting that under DEPB, the duty is paid through scrips and not exempted, unlike DEEC where clearance is duty-free.Conclusion:The Court concluded that the goods cleared under the DEPB Scheme should be treated as duty-paid, and therefore, the appellant is liable to pay interest under Section 61(2) of the Customs Act for the delayed clearance from the warehouse. The civil miscellaneous appeals were dismissed, affirming the legality of Customs Circular No. 26/07 and the liability of the appellant to pay interest.