Interest demand before 13.07.2006 under Section 28AB Customs Act struck down for violating natural justice principles

The CESTAT allowed the appeal, holding that interest demand prior to 13.07.2006 under Section 28AB of the Customs Act, 1962, is unsustainable as the show-cause notice did not propose such interest, violating natural justice principles. Post 13.07.2006, no interest is payable since the appellant paid the differential duty before finalization of provisional assessment, resulting in no duty liability upon final assessment, consistent with SC and HC precedents. Consequently, no penalty could be imposed. The impugned order confirming interest and penalty demands was set aside.

---

---

ISSUES:

Whether interest under Section 18(3) of the Customs Act, 1962 is payable on provisional assessments finalized prior to 13.07.2006.Whether interest under Section 28AB of the Customs Act, 1962 can be demanded for the period prior to 13.07.2006 when it was not invoked in the show-cause notice.Whether interest under Section 18(3) of the Customs Act, 1962 is payable when differential duty has been deposited prior to finalization of provisional assessment.Whether penalty under Section 117 of the Customs Act, 1962 is sustainable when no interest is payable.Whether the omission to mention specific charging provisions in the show-cause notice vitiates the adjudication proceedings.

RULINGS / HOLDINGS:

The provisions of Section 18(3) of the Customs Act, 1962, introduced on 13.07.2006, are substantive and not clarificatory, and therefore, "cannot be applied retrospectively" to provisional assessments finalized before that date; hence, no interest is payable for the period prior to 13.07.2006 under Section 18(3).Demand of interest under Section 28AB for the period prior to 13.07.2006 is not sustainable as it was not proposed in the show-cause notice; reliance on such provision beyond the scope of the notice amounts to transgression and is bad in law.No interest is payable under Section 18(3) where the differential duty has been deposited prior to finalization of provisional assessment; since the duty was paid before finalization, interest demand is not sustainable.Since no interest is payable, imposition of penalty under Section 117 of the Customs Act, 1962 is not sustainable.Omission to specify exact charging provisions in the show-cause notice does not vitiate the proceedings if the party was put on clear notice of the nature of the charge and had opportunity to defend; wrong or non-quoting of specific sections does not invalidate adjudication.

RATIONALE:

The Court applied the statutory framework of the Customs Act, 1962, specifically the amendment introducing Section 18(3) on 13.07.2006, and held that substantive provisions imposing new liabilities cannot be given retrospective effect based on established principles of statutory interpretation and precedent.Judicial precedents from various High Courts and the Tribunal were relied upon, including the principle that procedural provisions may apply to pending proceedings but substantive liabilities cannot be imposed retrospectively (e.g., decisions in M/s Century Pulp & Paper, Cisco Systems Pvt. Ltd., Sterlite Industries India Ltd., and Jaswal Neco Ltd.).The Court distinguished between the cause of action arising at importation and the liability arising upon payment of duty, emphasizing the causality ("consequent to finalization") rather than mere chronology, thereby supporting the non-applicability of interest when duty was paid prior to finalization.The Court noted the pari materia nature of Section 18(3) of the Customs Act and Rule 7(4) of the Central Excise Rules, 2002, and relied on authoritative decisions (e.g., CEAT Ltd. v. Commissioner) holding that interest liability arises only on amounts payable consequent to final assessment and not where duty is paid before finalization.The Court affirmed the settled legal position that interest demands must be grounded in the show-cause notice and that invoking provisions not mentioned therein violates principles of natural justice and statutory scheme (as held in Ballarpur Industries Ltd.).The Court rejected arguments conflating interest with tax liability, clarifying that interest is a distinct charge and can only be levied as per statutory provisions.

---