2022 (10) TMI 212 - HC - Customs

Court quashes Settlement Commission's interest and penalty orders, directs refund and cancels bank guarantee.

The court quashed the Settlement Commission's orders imposing interest and penalties on the petitioner, directing the refund of the penalty amount and ... Levy of interest on delayed payment of customs duty - imposition of penalty as an additional tax - charging section for additional duty (CVD), special additional duty (SAD) and surcharge - application of procedural/machinery provisions by incorporation - scope of judicial review of Settlement Commission orders for contravention of statute - limits of Settlement Commission's power to determine terms of settlementLevy of interest on delayed payment of customs duty - imposition of penalty as an additional tax - application of procedural/machinery provisions by incorporation - Interest and penalty cannot be levied on surcharge, additional duty equal to excise duty (CVD) or special additional duty (SAD) in the absence of substantive charging provisions in the enactments imposing those duties. - HELD THAT: - The Court held that interest and penalty are substantive liabilities and require a specific statutory charging provision. Sub-section (6) of Section 3 and sub-section (4) of Section 3A of the Customs Tariff Act, 1975 and Section 90 of the Finance Act, 2000 make procedural provisions of the Customs Act applicable only insofar as they relate to matters like refunds, drawbacks, exemptions, non-levy, short-levy and appeals, but do not expressly borrow provisions creating liability for interest or penalty. Jurisprudence establishes that penalty partakes of the character of an additional tax and interest on delayed payment is substantive; therefore machinery provisions cannot be read down to create substantive liabilities where the charging enactment is silent. The legislative amendment that inserted express reference to interest and penalties in Section 9A(8) for anti-dumping duty (by Finance (No.2) Act, 2004) but did not make similar insertions in Section 3(6) or Section 3A(4) demonstrates legislative intent to limit borrowing of interest/penalty to certain duties only. Consequently, imposition of interest at 10% and the specified penalties on amounts relating solely to surcharge, CVD and SAD was without authority of law and liable to be quashed. [Paras 31, 34, 36, 37, 40]Order of the Settlement Commission to impose interest and penalty on the portions of demand attributable to surcharge, CVD and SAD is quashed and set aside.Charging section for additional duty (CVD), special additional duty (SAD) and surcharge - application of procedural/machinery provisions by incorporation - The charging sections for surcharge, CVD and SAD are Section 90(1) of the Finance Act, 2000 and Sections 3(1) and 3A(1) of the Customs Tariff Act, 1975 respectively, and not Section 12 of the Customs Act, 1962. - HELD THAT: - The Court rejected the contention that Section 12 of the Customs Act, 1962 is the charging section for surcharge, CVD and SAD. While Section 12 levies duties at rates specified in the Customs Tariff Act, the statutory scheme and language of Sections 3, 3A and 90 show that those sections themselves create independent charges for CVD, SAD and surcharge. The rates and the charging mechanism for these duties are specified in their own provisions and in some cases are not linked to the First or Second Schedules; hence they constitute separate charging sections. This distinction supports the conclusion that substantive liabilities (such as interest and penalty) cannot be imported from Section 28AB of the Customs Act to these independent charging provisions where the latter do not expressly provide for them. [Paras 33, 35, 36]Section 90 of the Finance Act, 2000 and Sections 3 and 3A of the Customs Tariff Act, 1975 are the charging provisions for surcharge, CVD and SAD respectively; they do not subsume those duties under Section 12 for the purpose of creating ancillary liabilities absent express provision.Limits of Settlement Commission's power to determine terms of settlement - scope of judicial review of Settlement Commission orders for contravention of statute - The Settlement Commission cannot, by exercise of inherent or settlement powers, impose interest or penalty beyond what is expressly provided by the relevant charging enactments; its orders are subject to judicial review where they contravene statutory provisions. - HELD THAT: - Having applied the principle that orders of the Settlement Commission are examinable to the extent they are contrary to statutory provisions, the Court found that the Commission's reliance on Section 127C (or its inherent authority) to include interest and penalty in settlement terms is misplaced insofar as those charges are not authorised by the enactments creating the relevant duties. The Commission must act within the limits of the statute; it cannot depart from the statute to create substantive liabilities like interest or penalty when the charging provisions do not provide for them. Therefore the Commission's imposition of interest and specified penalties in the settlement exceeded its statutory authority. [Paras 8, 14, 39, 40]Settlement Commission's orders to include interest and penalty beyond statutory authority are invalid and are quashed.Final Conclusion: The writ petition was allowed: the Settlement Commission's directions to pay interest at 10% and the specified penalties insofar as they related to surcharge, CVD and SAD were quashed and set aside; the penalty amount deposited was ordered refunded with interest and the bank guarantee cancelled and returned; the Rule made absolute and the petition disposed, without costs. Issues Involved:1. Leviability of interest and penalty on amounts payable as duty other than basic customs duty.2. Jurisdiction and authority of the Settlement Commission to impose interest and penalty.3. Applicability of Section 28AB of the Customs Act, 1962 to surcharge, additional duty (CVD), and special additional duty (SAD).Detailed Analysis:1. Leviability of Interest and Penalty on Amounts Payable as Duty Other Than Basic Customs Duty:The petitioner challenged the imposition of interest and penalty on differential customs duty other than basic customs duty. The court examined the relevant statutory provisions, including Section 3 and Section 3A of the Customs Tariff Act, 1975, and Section 90 of the Finance Act, 2000. These sections did not provide for the imposition of interest or penalty. The court referred to several precedents, including *J.K. Synthetics Ltd. v. Commercial Taxes Officer* and *India Carbon Ltd. v. State of Assam*, which established that provisions for charging interest or penalty must be substantive and explicitly stated in the statute. The court concluded that since the relevant sections did not explicitly provide for interest or penalty, the imposition was unwarranted.2. Jurisdiction and Authority of the Settlement Commission to Impose Interest and Penalty:The petitioner argued that the Settlement Commission (respondent no.2) acted beyond its jurisdiction by imposing interest and penalty. The court referenced the Supreme Court's judgment in *Jyotendrasinhji v. S.I. Tripathi and Ors.*, which held that the court should interfere if the Settlement Commission's order is contrary to the provisions of the Act. The court found that the Settlement Commission's reliance on Section 127C of the Customs Act, 1962, to impose interest was misplaced, as this section did not provide the authority to impose interest or penalty beyond the provisions of the Customs Act. The court ruled that the Settlement Commission's order was contrary to the provisions of law and thus invalid.3. Applicability of Section 28AB of the Customs Act, 1962 to Surcharge, Additional Duty (CVD), and Special Additional Duty (SAD):The court examined whether Section 28AB of the Customs Act, 1962, which provides for interest on delayed payment of duty, applied to surcharge, CVD, and SAD. The court noted that Section 28AB applied only to duties levied under Section 12 of the Customs Act, 1962, and not to duties under Section 3 or Section 3A of the Customs Tariff Act, 1975, or Section 90 of the Finance Act, 2000. The court cited precedents, including *Collector of Central Excise, Ahmedabad v. Orient Fabrics Pvt. Ltd.* and *Pioneer Silk Mills Pvt. Ltd. v. Union of India*, which held that interest and penalty could not be imposed without explicit statutory authority. The court concluded that Section 28AB did not apply to surcharge, CVD, or SAD, and thus, the imposition of interest and penalty was incorrect and without jurisdiction.Conclusion:The court quashed and set aside the Settlement Commission's orders imposing interest and penalties on the petitioner. It directed the respondents to refund the penalty amount deposited by the petitioner and to cancel the bank guarantee provided by the petitioner. The court emphasized that interest and penalties could only be imposed if explicitly provided for in the relevant statutory provisions, which was not the case here. The petition was disposed of with no order as to costs.