Settlement Commission order requiring additional interest on export obligation default under EPCG License set aside as arbitrary

HC set aside Settlement Commission order requiring petitioner to pay additional interest on export obligation default under EPCG License. Court held that Public Notice No.22(RE-2013)/2009-2014 and Notification No.46/2013-Cus allowed regularization of export obligation defaults upon payment of customs duty plus interest not exceeding duty amount, without distinguishing bonafide defaults. Settlement Commission's interpretation requiring additional interest payments was deemed arbitrary and contrary to the policy framework. Deputy Commissioner's determination of defaulted interest component was ruled incorrect. Writ petition allowed.

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Issues Involved:

1. Validity of the Settlement Commission's order regarding the applicability of Notification No.46/2013-Cus and Public Notice No.22(RE-2013)/2009-2014.
2. Whether the default by the petitioner was bonafide or not.
3. Determination of interest liability and its compliance with the relevant notifications and public notices.

Issue-wise Detailed Analysis:

1. Validity of the Settlement Commission's Order:

The petitioner challenged the Settlement Commission's order, which denied the benefit of Notification No.46/2013-Cus dated 26.09.2013, read with Public Notice No.22(RE-2013)/2009-2014. The Settlement Commission had concluded that the petitioner's case did not qualify as a bonafide default, and thus, the benefits of the notification could not be extended. The court noted that the Settlement Commission's interpretation was contrary to the intention of the Commerce Ministry as expressed in Public Notice No.22(RE-2013)/2009-2014, which did not limit its applicability to bonafide defaults. The court found the Settlement Commission's decision arbitrary and set aside the impugned order to the extent it required further interest payments from the petitioner.

2. Bonafide Default:

The Settlement Commission had determined that the petitioner's default was not bonafide, citing the diversion of capital goods and the lack of exports even after nine years. The petitioner had imported sewing machines under the EPCG Scheme but failed to fulfill the export obligations. The court, however, focused on the language of the relevant notifications and public notices, which did not specify that only bonafide defaults could be regularized. Therefore, the court held that the Settlement Commission's conclusion on the nature of the default was not in line with the applicable legal framework.

3. Determination of Interest Liability:

The court examined the interest liability imposed by the Settlement Commission, which quantified the interest payable as Rs. 1,12,98,488/-. The petitioner had already paid Rs. 70,60,790/-, leaving a balance of Rs. 42,37,698/-. The court scrutinized the applicability of Notification No.46/2013-Cus, which was intended to limit the interest component to not exceed the amount of customs duty payable. The court found that the Settlement Commission's determination of interest was inconsistent with the amended notification and public notice, which allowed for regularization of defaults without exceeding the duty amount. Consequently, the court set aside the Settlement Commission's order requiring additional interest payments.

Conclusion:

The court allowed the petition, finding that the Settlement Commission's order was inconsistent with the relevant notifications and public notices. The court emphasized that the intention of the Commerce Ministry, as reflected in Public Notice No.22(RE-2013)/2009-2014, was not limited to bonafide defaults, and the interest liability should not exceed the customs duty payable. The writ petition was allowed, and the connected miscellaneous petition was closed.

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