2006 (3) TMI 164 - HC - Customs

Court upholds interest demand under Customs Act for delayed duty payment, directs recalculation

The court upheld the demand for interest from 26th August, 1995, as legal under Section 28AA of the Customs Act, 1962. It determined that the liability to ... Interest on delayed payment of duty - Construction of 'fails to pay' in Section 28AA - Proviso to Section 28AA - concession to make payment within three months of commencement - Recalculation of interest and credit for interim deposit - Application of notified interest rates under Section 28AAInterest on delayed payment of duty - Construction of 'fails to pay' in Section 28AA - Proviso to Section 28AA - concession to make payment within three months of commencement - Liability to pay interest under Section 28AA arose from 26th August, 1995. - HELD THAT: - The Collector of Customs had determined duty on 28th January, 1994 such that the petitioner was chargeable with duty within the meaning of Section 28(2) prior to the commencement of Section 28AA. When Section 28AA came into force on 26th May, 1995, the petitioner had three months' time under the proviso to discharge that liability; failure to do so renders the person liable to interest. The expression 'fails to pay such duty' is to be understood as non-payment (whether by inability or choice) and does not require proof of positive or deliberate default. The pendency of appeal or an interim order in favour of the petitioner does not prevent the statutory operation of Section 28AA once it has commenced; hence interest is leviable from the date immediately after the expiry of three months from commencement, i.e. from 26th August, 1995. [Paras 12, 13, 14]The petitioner is liable to pay interest under Section 28AA from 26th August, 1995.Recalculation of interest and credit for interim deposit - Application of notified interest rates under Section 28AA - The departmental calculation of interest communicated on 25th August, 2005 is improper and must be reworked. - HELD THAT: - The demand communicated by respondent No.4 computed interest on the full duty amount from 26th August, 1995 but did not give credit for the interim deposit of Rs. 50,00,000/- made by the petitioner on 22nd April, 1995 and subsequently refunded. At least for the period from 26th August, 1995 until the refund of that deposit, interest cannot be charged on the deposited amount. Further, the interest rate to be applied must conform to the notifications issued by the Central Government under Section 28AA from time to time. Consequently, the impugned calculation is set aside and the department is directed to re-calculate interest excluding the deposited sum for the relevant period and applying the proper notified rates. [Paras 15, 16]The calculation is set aside; respondent No.4 shall re-calculate interest from 26th August, 1995 excluding interest on the interim deposit until its refund and applying the rates notified under Section 28AA.Final Conclusion: The writ petition is disposed: the demand for interest from 26th August, 1995 is held legal and valid, but the departmental computation is set aside; respondent No.4 is directed to re-calculate interest excluding the interim deposit until its refund and applying the interest rates as per notifications under Section 28AA. Issues Involved:1. Liability to pay interest on delayed payment of duty under Section 28AA of the Customs Act, 1962.2. Proper calculation of the interest amount demanded by the respondent.Issue-Wise Detailed Analysis:Re: Question OneLiability to Pay Interest on Delayed Payment of Duty:1. Background and Facts:- M.J. Exports imported 53 Haemodialysis Machines and claimed exemption under notification No. 208/81-cus.- The Customs Department issued show-cause notices for exporting the machines without processing and evading customs duty.- The Collector of Customs determined a duty of Rs. 2,94,42,867/- and imposed a penalty of Rs. 1,00,00,000/- on 28th January, 1994.- M.J. Exports appealed to CEGAT, which allowed the appeal, but the Supreme Court later restored the Collector's order on 14th August, 2001.2. Legal Provisions:- Section 28AA of the Customs Act, 1962, inserted by Act 22 of 1995, mandates interest on delayed payment of duty if not paid within three months from the date of determination.- The proviso to Section 28AA allows a concession period of three months from the date the section came into force (26th May, 1995).3. Arguments:- Petitioner's Argument: M.J. Exports argued that the liability to pay duty was suspended during the pendency of their appeal and interim orders, and thus, interest should only be levied from three months after the Supreme Court's decision on 14th August, 2001.- Respondent's Argument: The respondent contended that the duty was determined on 28th January, 1994, and since M.J. Exports failed to pay within three months of Section 28AA coming into force, they are liable to pay interest from 26th August, 1995.4. Court's Analysis:- The court noted that the duty was determined by the Collector of Customs on 28th January, 1994, and the liability existed despite the interim orders and the appeal.- The expression 'fails to pay such duty' was interpreted to mean non-payment within the concessional period, irrespective of the reasons for non-payment.- The court concluded that since M.J. Exports did not pay the duty within three months from 26th May, 1995, they are liable to pay interest from 26th August, 1995.5. Conclusion:- The demand of interest from 26th August, 1995, is legal and valid as per Section 28AA of the Customs Act, 1962.Re: Question TwoProper Calculation of the Interest Amount:1. Background:- The respondent demanded Rs. 4,67,02,251/- as interest on unpaid duty from 26th August, 1995.- The calculation was based on the duty amount of Rs. 2,94,42,867/-.2. Arguments:- Petitioner's Argument: M.J. Exports had deposited Rs. 50,00,000/- on 22nd April, 1995, under an interim order, which should be considered in the interest calculation.- Respondent's Concession: The respondent acknowledged that interest should not be charged on the Rs. 50,00,000/- from 26th August, 1995, until its refund.3. Court's Analysis:- The court agreed that the calculation of interest should exclude the period during which Rs. 50,00,000/- was deposited.- The interest rate should be as per the notifications issued by the Central Government under Section 28AA.4. Conclusion:- The initial calculation of interest was set aside.- The respondent was directed to re-calculate the interest, excluding the period Rs. 50,00,000/- was deposited and applying the correct interest rates.Final Order:1. The demand of interest from 26th August, 1995, is upheld as legal and valid.2. The initial calculation of interest is set aside.3. The respondent is directed to re-calculate the interest, excluding the period Rs. 50,00,000/- was deposited and applying the correct interest rates.4. No costs are awarded.