1996 (10) TMI 88 - SC - Customs

Liability for duty arises only on warehouse clearance; no duty or interest under Section 61(2) if goods exempt at removal

SC held that liability to pay duty arises only on clearance from warehouse; no duty (and thus no interest under Section 61(2)) can be imposed where goods ... Scope and content of Section 61(2) - demand interest - Liability to pay interest on duty for warehoused goods cleared under Advance Licence after the statutory period - Held that:- The liability of the assessee to pay the duty arises only on clearance of the goods from a warehouse. The assessee has no obligation to pay duty as long as the goods were kept or remained in the warehouse. It is only in cases where the goods kept in the warehouse are exigible to duty, and they are so kept in the warehouse for more than the permitted period, and the said goods are cleared subsequently and duty paid, interest is chargeable for the period of delay in the clearance of the goods. Since the goods warehoused are kept for a longer period such delay entails delayed payment of duty payable and so interest is charged for such delayed payment of duty. In this case, on the date of clearance of the goods, no duty is payable. The goods are not exigible to duty at that time. Calculation of interest is always on the principal amount. The 'interest' payable under Section 61(1)(2) of the Act is a mere 'accessory' of the principal and if the principal is not recoverable/payable, so is the interest on it. This is a basic principle based on common sense and also flowing from the language of Section 61(1)(2) of the Act. The principal amount herein is the amount of duty payable on clearance of goods. When such principal amount is nil because of the exemption, a fortiori, interest payable is also nil. In other words, we are clear in our mind that the interest is necessarily linked to the duty payable. The interest provided under Section 61(2) has no independent or separate existence. When the goods are wholly exempted from the payment of duty on removal from the warehouse, one cannot be saddled with the liability to pay interest on a non-existing duty. Payment of interest under Section 61(2) is solely dependent upon the exigibility or factual liability to pay the principal amount, that is, the duty on the warehoused goods at the time of delivery. At that time, the principal amount (duty) is not payable due to exemption. So, there is no occasion or basis to levy any interest, either. We hold accordingly. It was not a case where the goods were exempt from the levy of duty on the date of clearance. The interest was payable on expiry of 15 days from the date of demand notice on the duty payable. The facts in the said case are clearly distinguishable and can have no application to a situation such as the one in the present case where the goods are not exigible to duty at all on the date of clearance from the warehouse being totally exempt from the levy. We are of opinion that the High Court erred in holding that the importers — assessees are liable to pay interest in the instant cases in respect of warehoused goods, though at the time of clearance the goods were exempt from payment of duty. Issues Involved:1. Interpretation of Section 61(2) of the Customs Act.2. Liability to pay interest on duty for warehoused goods cleared under Advance Licence after the statutory period.Detailed Analysis:1. Interpretation of Section 61(2) of the Customs Act:The core issue in this batch of 31 appeals is the interpretation of Section 61(2) of the Customs Act. The High Court of Bombay had dismissed a batch of 36 writ petitions, holding that importers who cleared goods under an Advance Licence issued under the DEEC Scheme after the expiry of the statutory warehousing period were liable to pay interest on the duty assessed at the time of warehousing. The Supreme Court was tasked with determining whether interest could be charged when the duty assessed at the time of clearance was nil due to the exemption.2. Liability to Pay Interest on Duty for Warehoused Goods Cleared Under Advance Licence After the Statutory Period:The petitioners, a public limited company and its shareholder, challenged the action of the customs authorities who demanded interest at 18% per annum on the duty assessed at the time of warehousing, despite the goods being cleared duty-free under an Advance Licence. The petitioners argued that no interest was payable since no duty was due at the time of clearance.The facts of the case were consistent across all appeals: the petitioners had imported goods under Open General Licence (OGL), warehoused them under Section 59, and later cleared them under an Advance Licence after the three-month statutory period had expired. The customs authorities demanded interest on the duty assessed at the time of warehousing, which the petitioners refused to pay.The Bombay High Court had concluded that interest started accruing after the expiry of the three-month period until the date of clearance, and that the petitioners were liable to pay interest on the amount of duty payable at the time of warehousing.Supreme Court's Judgment:The Supreme Court examined the relevant statutory provisions, including Sections 2(14), 2(15), 12, 15, 25, 59, 61, and 68 of the Customs Act, as well as the General Exemption Notification and the Import-Export (Trade) Policy, 1990-93. The Court noted that the entire scheme, including the exemption notification and the import policy, allowed importers to clear goods duty-free under a valid Advance Licence, even if the goods were initially warehoused under OGL.The Court emphasized that the liability to pay duty arises only at the time of clearance from the warehouse. Since the goods were cleared duty-free under the Advance Licence, no duty was payable at the time of clearance, and consequently, no interest could be charged on a non-existent duty. The Court held that interest under Section 61(2) is linked to the duty payable, and if no duty is payable, no interest can be charged.The Court distinguished the present case from the decision in Union of India v. Bangalore Wire Rod Mill, where interest was charged on goods that were exigible to duty at the time of clearance. In the present case, the goods were exempt from duty at the time of clearance, making the earlier decision inapplicable.Conclusion:The Supreme Court concluded that the High Court erred in holding that the importers were liable to pay interest on warehoused goods cleared duty-free under an Advance Licence. The judgment of the Bombay High Court was reversed, and all appeals were allowed with costs, including counsel fees of Rs. 5,000/- in each case.