TaxTMI 
TaxTMI 
1992 (4) TMI 44
X X X X Extracts X X X X
X X X X Extracts X X X X
....e interest should be calculated on the basis of the amount of duty payable computed in accordance with the rate of duty which prevailed as on the date of deposit of goods in the warehouse or on the basis of the higher rate of duty which prevailed on the date from which the petitioner became liable to pay interest or on the basis of still higher rate of duty, which was prevailing as on the date of clearing the goods from the warehouse? 2. In order to bring forth the precise dispute between the parties, in the first instance it is necessary to make a brief survey of the relevant provisions of the Customs Act under which the liability of the petitioner to pay interest to the respondent arose and the circumstances in which the liability arose. (i) The Customs Act, 1962, (for short 'the Act') is an Act to consolidate and amend the law relating to customs, enacted by the Parliament. Section 12 is the charging section. The said Section provides that the duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into or exported from India. In this case, we are concerned with t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es in cases where the importer fails to clear the goods from the warehouse within the time allowed. (ii) In the present case, the writ petitioner - M/s. Bangalore Wire Rod Mills, imported goods on which customs duty is leviable under the Act and left them in a warehouse in terms of Section 46 of the Act on 11-11-1982 and cleared the goods from the warehouse on 9-9-1988. According to the writ petitioner, the demand notice calling upon the writ petitioner to pay customs duty was issued on 7-3-1985 and 15 days' time was given for making payment of customs duty and on failure to pay the customs duty to pay interest on the said amount in terms of Section 59 of the Act. It so happened that the rate of customs duty as on the date on which the goods were kept in the warehouse was 40%, whereas on 9-9-1988, on which date the goods were cleared from the warehouse, the rate of customs duty had been increased to 90 per cent. The increase to 90% was with effect from 1-3-1988. Even so, the respondent demanded interest on the amount of customs duty computed at 90% of the value of the goods from 11-11-1983 to 9-8-1988 for nearly five years and compelled the writ petitioner to pay the said amount....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Act, Rules and the Regulations in respect of the goods. On 13-5-1983 Government of India issued notification prescribing that the rate of interest payable in respect of the goods kept in a warehouse was 12% per annum on the amount of duties of customs claimable by the Union of India. According to the provisions of Section 61(1) of the Act, as it stood at the relevant point of time, the maximum period during which the imported goods could be kept in the warehouse was three years in the case of non-consumable stores and one year in respect of other goods. The petitioner failed to pay the duties of customs and clear the goods from the warehouse within or at the end of the prescribed period. Section 61(b)(ii) of the Act, both before and after its amendment, empowered the Collector and the Board to extend the period of bonding in respect of any goods which are not likely to deteriorate for a limited period and by the Board for such further period as it may deem fit. No maximum period beyond which the bonding period could be extended by the Board was prescribed. It appears that on account of certain practical difficulties, in particular the shortage of electric power in other Sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... M/s. Bangalore Wire Rod Mills, Whitefield Road, Bangalore - 560 048. Sub: Audit of Bill of Entry - HM/AE No. Shipping Bill No. 1366 dt. 12-11-82. Short collection of customs duty - Reg. Ref: Your Bond No. 1/82. Whereas it appears the customs duty amount to Rs. 2,95,97,549.80 (Rupees two crores ninety five lakhs ninety seven thousand five hundred forty nine and paise eighty only) was not levied/short levied/erroneously refunded in respect of the above consignment for reasons stated below: The warehousing period of the above bond has expired on 11-11-1983. And whereas you are chargeable with the aforesaid duty, you are requested to show cause within 15 days of the receipt of this notice to the Assistant Collector of Customs, Customs Division, No. 41, Miller Road, Bangalore - 560 052, why the amount specified above should not be paid by you. Any representation oral or in writing made by you should be accompanied by supporting documentary evidence. You are also requested to state if you would like to be heard in person. If no representation is received within the aforesaid period or if you fail to turn up on the date on which the case may be posted for hearing ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the say of the petitioners that the import was done as 'Project Import' is correct. This is not disputed by the learned Counsel for the respondent. Further the interest was calculated from 11-11-1983, though according to Section 59 interest becomes payable only from the specified date in the demand notice for paying the amount of duty. Whatever that may be, the fact remains that owing to certain practical difficulties faced by the petitioner-industry, set out in the reply, even after the receipt of the above notice the petitioner failed to pay the duty and to get the goods cleared from the warehouse. On 2-3-1988, a final notice was issued by the Assistant Collector calling upon the petitioner to clear the goods on payment of duty at the rate of 90% that was in force in March, 1988 and also interest at the rate of 12% on the amount of duty computed on the basis of the said higher rate of duty for the entire period commencing from 11-11-1983 and also informing the petitioner that if the petitioner failed to clear the goods by making the necessary payment, the goods would be disposed of. Thereafter the goods were cleared from the warehouse by the petitioner only on 9-9-1988 by payin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regulations in respect of such goods. x x x x x x x x x x x Section 61(1) (prior to amendment after 13-5-83) 61. Period for which goods may remain warehoused. - (1) Any warehoused goods may be left in the warehouse in which they are deposited or in any warehouse to which they may be removed, - (a) in the case of - (i) non-consumable stores; or (ii) goods intended for supply to a foreign diplomatic mission; or (iii) goods intended for use in any manufacturing process or other operations in accordance with the provisions of Section 65; or (iv) goods intended for use in any hundred per cent export-oriented undertaking; or (v) goods which the Central Government may, if it is satisfied that it is necessary or expedient so to do, by notification in the Official Gazette, specify for the purposes of this clause, till the expiry of three years. Explanation. - For the purposes of sub-clause (iv), "hundred per cent export-oriented undertaking" has the same meaning as in Explanation 2 to sub-section (1) of Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944), (b) in the case of any other goods, till the expiry of One Year, after the date on which th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....applicable, for the reason the goods were entered for warehousing prior to the amendment of sub-section (1) of Section 61. 7. The only controversy, however, has been whether the goods in question are non-consumable stores as contended for the petitioner and therefore the period during which the goods could be left in the warehouse was 3 years or they are not non-consumable stores and therefore the maximum period during which the goods could be left in the warehouse was only 1 year. 8. We shall therefore, dispose of this controversy, in the first instance. The learned Counsel for the petitioner contended that the goods in question come under the category of non-consumable stores and therefore the period during which the goods could be kept in the warehouse was 3 years. The learned Counsel for the Central Government, however, pointed out that according to the definition of the 'stores' contained in Section 2(38) of the Act, the contention of petitioner is untenable. The said definition reads: '2(38) - "stores" means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting;" As can be seen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by the competent authority or otherwise, as far as the interest is concerned, the importer would become liable to pay interest at the prescribed rate with effect from the date of expiry of the period specified in sub-section (1) of Section 61, i.e., for a period of one year in the case of non-consumable stores and after the expiry of 3 months in the case of other goods. The proviso to Section 61(2) however confers the power on the competent authority to waive the interest. As the petitioner had been compelled to pay interest on the excise duty levied at 90%, as that was the enhanced rate of excise duty as on the date on which the goods were cleared from the warehouse, the petitioner made a representation to the Central Board of Excise and Customs, under the proviso to Section 61 of the Act requesting for waiving the interest and for direction to refund the amount collected. In this context, the Board examined as to whether the provisions of Section 59 was applicable to the case of the petitioner or sub-section (2) of Section 61. The Board was of the view that, as the goods were left in the warehouse when sub-section (1) of Section 61 before its amendment was in force and bond had ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the respondents took the stand that it was Sec. 59 of the Act which was applicable and in accordance with the provisions of the said Section, the petitioner was liable to pay interest on the amount of duty which was payable on the basis of the rate in force as on the date on which the goods were cleared from the warehouse and that under Sec. 59 also the interest was payable from 11-11-1983, i.e., the date on which period of one year specified in Sec. 61(1) expired. 10. The learned Judge accepted the stand taken by the respondents to the effect that Section 59 of the Act was attracted to the present case. He, however, was of the view that sub-section (1) of Section 61 as it stood earlier to amendment, no interest could be levied for a period of 3 years from the date on which the goods were kept in the warehouse and therefore the interest should be recomputed from the date on which the period of 3 years from the date on which the goods were left in the warehouse expired and the excess of interest recovered should be refunded to the petitioner. The learned Judge did not accept the contention of the petitioner that the interest was payable only on the amount of duty calculated at t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....yment of duty and getting the goods cleared from the bonded warehouse. In order to meet the contention of the petitioner that the interest becomes payable only from the date specified in the demand notice issued under Section 59, which is fully supported by the language of the section, the learned Counsel for the Central Government took a stand contrary to the one taken in the statement of objections and submitted that even in respect of cases in which bond had been executed under Section 59 of the Act earlier to the coming into force of sub-section (2) of Section 61 of the Act, the said sub-section gets attracted and therefore the petitioner became liable to pay interest immediately after the expiry of one year and not from the date specified in the demand notice. 15. Though, it is a somersault from the view taken by the Board and got confirmed from the law department, and the stand taken in the statement of objections, we proceed to consider the above contention urged by the Central Government Standing Counsel as it was urged with vehemence. In this behalf, .it should be pointed out that the Board has itself considered this aspect and he was of the view that sub-section (2) of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ning words of sub-section (2) of Section 61 are very significant for answering the point arising for our consideration. The opening words of sub-section (2) of Section 61 are : "Where any warehoused goods remain in a warehouse beyond the period of one year or three months specified in clause (a) or clause (b) of sub-section (1) by reason of the extension of the aforesaid period or otherwise." From these words it is clear, sub-section (2) expressly refers to sub-section (1) of Section 61 as amended by Act 11/83. If the intention of the Legislature was that the provisions relating to computation of interest immediately after the expiry of the period specified in sub-section (1) of Section 61 as it stood prior to the amendment of that sub-section, sub-section (2) would have simply referred to the period referred to in sub-section (1) of Section 61. Instead, the opening words of sub-section (2) expressly refers to the period of one year and 3 months in sub-section (1) of-Section 61 i.e. as it stands after its amendment. Therefore, in our opinion, there can be no doubt that sub-section (2) of Section 61 gets attracted only to cases to which sub-section (1) of Section 61 as it stood afte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Supreme Court in the case of A.C.C. v. Commercial Tax Officer (AIR 1981 S.C. 1887), the relevant portion is at para-23. It reads : "23. We are concerned in this case with the liability of the assessee to pay interest on the amount of tax which had remained unpaid, Tax, interest and penalty are three different concepts, Tax becomes payable by the assessee by virtue of the charging provision in a taxing statute. Penalty ordinarily becomes payable when it is found that an assessee has wilfully violated any of the provisions of the taxing statute. Interest is ordinarily claimed from an assessee who has withheld payment of any tax payable by him and it is always calculated at the prescribed rate on the basis of the actual amount of tax withheld and the extent of delay in paying it. It may not be wrong to say that such interest is compensatory in character and not penal." (Underlining by us) As could be seen from the above enunciation in tax law, interest is ordinarily claimed from a person who has withheld payment of any tax payable by him to the Government. Can it be said that the petitioner had withheld payment of duty computed at the rate of 90% for the entire period, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted at the rate namely 90% which was prevailing on 1-3-1988 for the entire back period. 20. After giving our careful and anxious consideration to the submission made by the learned Counsel for the Central Government, we are of the view that the language of Section 59 which provides for levy of interest is not such as would permit the taking of the view that the interest payable pursuant to a notice of demand issued under Section 59 of the Act is on the total amount of excise duty computed at the rate which might prevail on a future date on which the goods might be cleared from the warehouse even if the rate of excise duty for the entire back period including as on the date specified in the notice, was lesser. On the other hand when Section 59(b) requires payment of Customs duty claimable on or before the date specified in the notice, it clearly means that the party to whom the notice is given should pay Customs duty claimable, if the goods are cleared from the warehouse on or before the date specified and if he failed to do so he should pay interest on the said amount of duty. Therefore, the demand notice dated 7-3-1988 served on the petitioner in terms of Section 59(l)(b) of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing nor issued demand notice till 7-3-1985. The demand notice was issued only on 7-3-1985 and the time given to the petitioner to pay customs duty and get the goods cleared was 15 days. Therefore, having regard to the language of Section 59, the interest began to run only from 22-3-1985. It is true that the authorities could have issued demand notice immediately after the expiry of one year from the date on which the goods were left in the warehouse, in which event interest would have accrued from the date specified in such notice. But the fact remains that the notice was issued only on 7-3-1985 and in the notice 15 days' time was given. No doubt, as pointed out by the learned Counsel for the petitioners, in the demand notice a huge amount of Rs. 2,95,97,549.80 was specified as the customs duty payable by the petitioner to the respondents for getting that it was project import and the rate of duty applicable was lower. It is difficult to appreciate as to how and why such amount was specified in the notice as customs duty. Whatever be the mistake in specifying the amount of duty in the notice, the petitioner was liable to pay only the actual amount payable computed on the basis of t....