By TIOL News Service

NEW DELHI, AUG 05, 2015: THE appellants carry on the business, inter alia, of importing old ships for the purpose of ship breaking and disposing of the scrap. In 1993, they imported a vessel called M.V . Pablo Metz and for clearance of these goods, filed the Bill of Entry under Section 46 of the Customs Act, 1962. Although the appellants contended that the said import was exempted from levy of 'additional customs duty' under an exemption Notification dated February 28, 1993, the Customs authorities, after hearing the appellants, felt it otherwise. An endorsement on the Bill of Entry was made for payment of additional customs duty of 52,20,000 in addition to the basic customs duty. The said endorsement was made under Section 47 read with Section 153 of the Customs Act and required the appellants to make payment of the amount assessed within 7 days, failing which interest was chargeable.

This levy was challenged by the appellants by means of a writ petition before the High Court of Calcutta, which was disposed of by the High Court with a direction to the appellants to submit a bank guarantee for 50% of the disputed amount and a personal bond for the balance 50%.

In the meanwhile the Government introduced the Kar Vivad Samadhan Scheme under which an assessee could make a payment of 50 per cent of the tax arrear to settle his dispute. The Scheme was not eligible In a case where show-cause notice or a notice of demand under any indirect tax enactment has not be issued.

The appellants opted to avail of the Scheme and filed a declaration accordingly. However, the designated authority passed the order dated February 13, 1999 thereon whereby he rejected the declaration on the ground that in the appellants' case, no show-cause notice/demand notice had been issued and, therefore, by virtue of Section 95(ii)(b), the Scheme did not apply.

The question here is whether the endorsement on the Bill of Entry is notice.

The Supreme Court noted,

When the Bill of Entry was filed by the appellants, after examining the matter, endorsement was made thereupon that additional duty in the sum of 52,20,000 is payable. The appellants contested the same. The question is whether it amounts to notice of demand. In this behalf, we have to keep in mind that the 1998 Act does not contain any specific provision prescribing the manner in which customs duty would be assessed or demanded in respect of goods imported under a Bill of Entry for home consumption. An endorsement on the Bill of Entry and return thereof to the importer asking the importer to pay the amount therein would amount to issuing a demand. On our specific query to the learned counsel for the Revenue that if the importer does not deposit the amount within the specified time on receiving the endorsement on the Bill of Entry, whether interest thereupon shall start accruing, the learned counsel for the Revenue was candid in answering the said question in the affirmative. In fact, that is the legal position contained in Section 46(1) read with Section 47(2) of the Customs Act. Under Section 46 (1) (as it then stood), there was an obligation on the part of the importer to present a Bill of Entry in such cases. Section 47(2) of the Customs Act provides that in case there is a failure to pay the import duty within a specified period from the date on which Bill of Entry is returned to the importer, it would attract interest until the date of demand. At the relevant time, the demand was required to be made within 7 days. Otherwise, interest was payable, which was to be fixed between 20% and 30% per annum. It may be mentioned that fundamentals of this provision still remain intact although rate of interest and the period within which the demand is to be paid has been amended from time to time {as per the amended provision which prevails now, the only difference is that the demand is to be met within 2 days, excluding holidays, failing which interest payable is at a rate between 10% and 36% per annum}.

Even, with reference to the provisions of the Scheme, this endorsement shall have to be treated as notice of demand. We have already reproduced the provisions of Section 87(m) of the 1998 Act which defines 'tax arrears'. It, inter alia, includes the amount of dues remaining unpaid as on the date of making a declaration under Section 88 of the 1998 Act. Indubitably, there was an amount of duty payable, which had remained unpaid on the date of making declaration by the appellants under Section 88. It would be absurd to hold that though there is a tax arrear, as the appellants were liable to pay the tax/duty demanded, and still the Scheme is inapplicable.

The appeals are allowed.

Held : the appellants shall be entitled to the benefit of Kar Vivad Samadhan Scheme.

(See 2015-TIOL-174-SC-CUS)