Court Upholds Interest Demand in Export Obligation Default Case; Enforces Binding Interest Clause in Trade Regulation.

The HC reversed the writ court's order, allowing the writ appeal filed by the Director General of Foreign Trade. The court upheld the demand for interest and penal action under the Foreign Trade (Development and Regulation) Act, 1992, concluding that the interest clause in the bond was binding. The show cause notice dated 22.04.2002 remained valid, and the court declined to interfere, emphasizing that interest could be levied if stipulated under the relevant notification or the Customs Act. The decision reinforced the enforceability of interest payment clauses in cases of default on export obligations.

---

---

Issues:
1. Challenge to order of Foreign Trade Development Officer (FTDO) dated 22.04.2002.
2. Demand of interest on differential duty for failure to achieve export target.
3. Interpretation of bond clauses regarding interest payment in case of default.

Analysis:
Issue 1:
The writ appeal was filed by the Director General of Foreign Trade challenging an order dated 30.10.2012, which was a writ of certiorari challenging an order of the Foreign Trade Development Officer (FTDO) dated 22.04.2002. The petitioner had imported various machineries under an import license issued under the Export Promotion Capital Goods Scheme, with a condition of achieving a designated export value. Due to default in meeting the export target, the bank guarantee was enforced, leading to a show cause notice demanding the payment of differential duty on the imported machineries at concessional rates.

Issue 2:
The petitioner contended that there was no provision for demanding interest under the Act or relevant notifications. However, the Customs Department relied on Circular No.131/95-CUS, which allowed for the levy of interest in case of non-fulfillment of export conditions. The petitioner ultimately paid the duty in full but challenged the show cause notice through the writ petition, arguing against the imposition of interest. The court referred to previous judgments and held that interest could be levied only if stipulated under the relevant notification or the Customs Act.

Issue 3:
The court examined the bond executed between the parties, which included a clause for the payment of interest at 24% in case of default in meeting license obligations/conditions. Referring to the Supreme Court judgment in Rexnord Electronics and Controls Limited v. Union of India and others, the court concluded that interest payable under the bond was binding. The court also cited a previous case, M/s.FAL Industries Limited v. Directorate General of Foreign Trade, where a similar issue was decided in favor of levying interest for default of license conditions. The court upheld the demand for interest and penal action under the Foreign Trade (Development and Regulation) Act, 1992, in case of non-payment within the specified period.

In conclusion, the court declined to interfere with the show cause notice dated 22.04.2002, reversed the writ court's order, and allowed the writ appeal without costs.

---