By TIOL News Service

NEW DELHI, JULY 24, 2013: THE petitioner imported crude palm oil and at the time of payment of Customs duty had claimed benefit of notification No. 21/2002-CUS dated 1st March, 2002 as amended by notification No. 20/2004-CUS (NT) dated 16th January, 2004. As per the amending notification oils other than edible grade were exigible to ad valorem concessional duty at the rate of 20% provided condition No. 5 was satisfied. Condition No. 5 reads:

"5. If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996."

As mandated, the petitioner gave an undertaking that he would comply with the procedure mentioned in the 1996 Rules. Subsequently, the department came to know that the petitioner instead of using imported palm oil for manufacture of soap had diverted it into the local market. Accordingly, SCN was issued and it was alleged that the petitioner was liable to pay import duty of Rs.1,27,72,140/- along with interest under Rule 8 read with Section 28AB of the Act.

The petitioner settled his case before the Settlement Commission.

By final order the Bench directed the petitioner to pay Rs.1,27,72,140/- as representing full and true duty liability with interest payable thereon. The petitioner thereafter moved an application for modification of the order to the extent it was called upon to pay interest. This application was dismissed by the Settlement Commission and, therefore, the instant WP has been filed.

It is the contention of the petitioner that no interest can be levied for violation of post importation condition and the liability to duty has no relation to Section 28AB of the Customs Act, 1962 and arises solely under Section 125 of the Act. Reliance is placed on the decisions in Commissioner of Customs (Import), Mumbai versus Jagdish Cancer & Research Centre, (2002-TIOL-119-SC-CUS), Commissioner of Customs, New Delhi versus CT Scan Research Centre (P) Limited, (2003-TIOL-04-SC-CUS) and Commissioner of Customs (Import) versus Wockhardt Hospital And Heart (2006-TIOL-115-HC-MUM-CUS).

It is accordingly submitted that liability to pay "duty" would be under Section 125 of the Act and was not relatable to Section 28AB and, therefore, the petitioner is not liable to pay interest under Section 28AB. Reference was made to Rule 8 of the 1996 Rules and it was submitted that the rule itself was ambiguous and not clear. Section 28AB of the Act would be applicable to specific circumstances and when the pre-conditions therein were not satisfied and, therefore, the rate of interest specified in Section 28AB should not have been applied for computing interest under Rule 8 of 1996 Rules. A separate notification should have been issued under Rule 8. It is submitted that interest could be only charged if the statute specifically authorises charging of the said interest.

The High Court observed that the case laws cited are clearly distinguishable from the matter on hand inasmuch as they only dealt with the provisions of the statute applicable but not the 1996 Rules more so since these rules were not applicable to the imports involved.

After noting that the petitioner had not challenged the validity or vires of Rule 8, the High Court extracted the rule in question and held as under -

“11. The rule is clear and categorical; it stipulates where a manufacturer does not use the imported goods for the intended purpose, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise shall take legal action for recovery of the amount equal to the difference of duty, i.e., the duty which was actually leviable but for the exemption, along with interest at the rate fixed by notification issued under Section 28AB of the Customs Act, 1962. The period for which the interest was payable is also specified. It starts from the date of importation of goods on which the exemption was availed of and ends with the date of actual payment of the entire amount of the difference in duty.

12. Section 28AB of the Customs Act, 1962 was not invoked in the present case. It is not the case of the respondents that Section 28AB was applicable or conditions for invoking the said Section were satisfied. They rely upon Rule 8. Rule 8 does not incorporate Section 28AB. Rule 8 also does not make the pre-conditions mentioned in Section 28AB, part and parcel of the said Rule. Levy of interest for short levy of duty is prescribed by Rule 8 itself. Interest is chargeable because of the provisions of Rule 8 and not because of Section 28AB. Pre-conditions or the conditions mentioned in Section 28AB do not get incorporated in Rule 8. Rule 8 applies by its own force and on its own strength. Reference to Section 28AB in Rule 8 is only for the purpose of rate of interest. The rate of interest payable under Rule 8 was/is the rate of interest fixed by the notification issued under Section 28AB. It is to or for this limited extent reference is made to the notification issued under Section 28AB. Clearly, therefore, the petitioner was liable to pay interest under Rule 8 at the rate as was fixed by the applicable notification under Section 28AB.”

Holding that there was no merit in the Petition, the same was dismissed.

(See 2013-TIOL-574-HC-DEL-CUS)