2025 (4) TMI 578 - HC - Customs

Interest, penalty, and redemption fine cannot be imposed on IGST under Section 3(7) of Customs Tariff Act where pre-import conditions not met

A.R. Sulphonates Private Limited Versus Union of India, Commissioner of Customs (Adjudication) Mumbai, Commissioner of Customs, (Import-I), Mumbai, Commissioner of Customs, Gujarat, Commissioner of Customs, Kandla, The Deputy Commissioner of State Tax, Kalyan.

A.R. Sulphonates Private Limited Versus Union of India, Commissioner of Customs (Adjudication) Mumbai, Commissioner of Customs, (Import-I), Mumbai, ... 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:Whether the imposition of interest, penalty, and redemption fine on IGST under Section 3(7) of the Customs Tariff Act, 1975, is valid when the pre-import condition was not met.The applicability of the decision in Mahindra & Mahindra Limited to the present case, concerning the levy of interest and penalties under the Customs Tariff Act.Whether the amendment to Section 3(12) of the Customs Tariff Act, 1975, by Finance (No. 2) Act, 2024, applies retrospectively or prospectively.The validity of Circular No. 16/2023-Customs, which seeks to levy interest on IGST payments.The legality of confiscation and redemption fine under Section 111(o) of the Customs Act when the pre-import condition was not met.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Imposition of Interest, Penalty, and Redemption FineRelevant Legal Framework and Precedents: The Customs Tariff Act, 1975, particularly Section 3(7) and the unamended Section 3(12), which did not explicitly include provisions for interest and penalties. The case of Mahindra & Mahindra Limited, which held that without specific provisions, the imposition of interest and penalties is without authority.Court's Interpretation and Reasoning: The Court found that the provisions of the Customs Act relating to interest and penalties were not applicable to IGST under the unamended Section 3(12) of the Tariff Act. The decision in Mahindra & Mahindra Limited was deemed applicable as it dealt with similar provisions.Key Evidence and Findings: The Court noted that the Respondents had themselves placed the matter in the call book pending the outcome of the Mahindra & Mahindra case, indicating their acknowledgment of its relevance.Application of Law to Facts: The Court applied the reasoning from Mahindra & Mahindra Limited, concluding that the imposition of interest and penalties was without legal authority.Treatment of Competing Arguments: The Respondents argued that the decision in Mahindra & Mahindra was not applicable, but the Court rejected this, finding the provisions in question to be pari materia.Conclusions: The Court held that the imposition of interest, penalties, and redemption fine was without authority and quashed the relevant parts of the order.Issue 2: Applicability of the Amendment to Section 3(12)Relevant Legal Framework and Precedents: Section 3(12) of the Tariff Act, as amended by Finance (No. 2) Act, 2024, and the decision in Orient Fabrics Limited, which addressed the prospective application of amendments.Court's Interpretation and Reasoning: The Court interpreted the amendment to Section 3(12) as prospective, applying only from 16th August 2024 onwards, based on principles of statutory interpretation and precedent.Key Evidence and Findings: The amendment explicitly included provisions for interest and penalties, which were absent in the unamended section.Application of Law to Facts: The Court found that the amendment did not apply to the present case, as the events occurred before its effective date.Treatment of Competing Arguments: The Respondents' argument for retrospective application was rejected, as it contradicted established legal principles and precedent.Conclusions: The amendment was deemed prospective, and thus not applicable to the Petitioner's case.Issue 3: Validity of Circular No. 16/2023-CustomsRelevant Legal Framework and Precedents: The Customs Tariff Act, 1975, and the decision in Mahindra & Mahindra Limited.Court's Interpretation and Reasoning: The Court found that the Circular, to the extent it sought to levy interest on IGST, was beyond the provisions of the Tariff Act and thus invalid.Key Evidence and Findings: The Circular was issued based on the Supreme Court's judgment in Cosmos Films, but the Court found it inconsistent with the Tariff Act's unamended provisions.Application of Law to Facts: The Court applied the reasoning from Mahindra & Mahindra Limited to invalidate the interest levy in the Circular.Treatment of Competing Arguments: The Respondents' reliance on the Circular was rejected as it was deemed legally unsound.Conclusions: The Circular was invalidated to the extent it sought to levy interest on IGST payments.Issue 4: Legality of Confiscation and Redemption FineRelevant Legal Framework and Precedents: Section 111(o) of the Customs Act and the decision in Orient Fabrics Limited.Court's Interpretation and Reasoning: The Court held that confiscation and redemption fine were not applicable, as the amendment to Section 3(12) was prospective.Key Evidence and Findings: The Court noted that the Joint Director General of Foreign Trade had allowed regularization of imports by payment, negating the need for confiscation.Application of Law to Facts: The Court found that once IGST was paid, the exemption was effectively not availed, regularizing the issue.Treatment of Competing Arguments: The Respondents' argument for confiscation was rejected based on the prospective nature of the amendment and the regularization notice.Conclusions: Confiscation and redemption fine were deemed inapplicable and were set aside.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'In Mahindra & Mahindra Limited (supra), this Court held that no specific reference was made to interest and penalties in Sections 3 (6) and 3A (4) of the Tariff Act, which are substantive provisions and, therefore, imposing interest and penalty would be without the authority of law.'Core Principles Established: The imposition of interest and penalties requires explicit statutory authority. Amendments to statutory provisions apply prospectively unless expressly stated otherwise.Final Determinations on Each Issue: The Court quashed the order imposing interest, penalties, and redemption fine. It declared the Circular invalid to the extent it levied interest. The amendment to Section 3(12) was deemed prospective.