Custom, Excise & Service Tax Tribunal
Ravi Sanghi vs Mumbai on 6 September, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NOS: C/14 to 16/2003
[Arising out of Order-in-Original CA No: 366/2002/CAC/CC/RR dated 23/10/2002 passed by the Commissioner of Customs (Export Promotion), Mumbai.]
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.R. Chandrasekharan, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
Yes
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
Sanghi Industries Ltd.
Sudhir Sanghi
Ravi Sanghi
Appellants
Vs
Commissioner of Customs (Export Promotion)
Mumbai
Respondent
Appearance:
Shri T. Viswanthan, Advocate for the appellant Shri Sanjay Kalra, Authorised Representative (JDR) for the respondent CORAM:
Honble Shri Ashok Jindal, Member (Judicial) Honble Shri P.R. Chandrasekharan, Member (Technical) Date of hearing: 06/09/2011 Date of decision: 20/10/2011 ORDER NO: ____________________________ Per: P.R. Chandrasekharan:
These appeals are taken up for consideration and disposal in pursuance to the order dated 13/10/2010 of the Hon'ble High Court of Bombay in Customs Appeal No. 49 of 2006. In the said order the Honble observed and directed as follows:
Perused Appeal.
2. This Appeal, filed at the instance of the Revenue, is directed against the order dated 25.11.2005 passed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench at Banglore whereby and whereunder fine, penalty and interest imposed on the Respondent/Assessee were set aside pursuant to the adjudication of the show cause notice, for the reasons mentioned herein below:
On a careful consideration, we notice from the cited judgments that the Tribunal, in all the cited judgments, clearly held that fine, penalty and interest is not leviable in similar cases were the export obligation could not be fulfilled due to Global Economic crisis in Asia and particularly in South East Asia. All these judgments set aside the penalties, interest and fine. The prayer of the appellants for setting aside the same is allowed. The fine, penalty and interest are set aside in the light of the cited judgments on the same issue.
3. On the above canvas of the findings recorded by the Tribunal, the Revenue has raised a contention as to whether global crisis could be a ground to exonerate the Respondent from its export obligation.
4. The learned counsel appearing for the Respondent/ Assessee could not support the impugned order.
5. In our considered view, the view taken by the CESTAT quoted above is absolutely untenable and perverse. The view taken could not be said to be a legal and valid in absence of any foundation in support thereof. It was not a defence taken by the Respondent before either of the authorities below.
6. In the circumstances and also looking to the consensus between the parties, we are constrained to set aside the impugned order. We restore the Appeal to the file of CESTAT with direction to rehear the Appeal and adjudicate the same by a reasoned order in accordance with law following principles of natural justice. All rival contentions are kept open.
7. By consent of parties remanded proceedings are to be heard by the Bombay Bench of the Tribunal.
2. The facts arising for consideration in this case are as follows:
2.1. The appellant M/s. Sanghi Industries Ltd., Sanghi Nagar, Ranga Reddy District, A.P. are manufacturers of PVC coated fabrics. They obtained an EPCG licence No. 2101249 dated 09/12/1992 from the Directorate General of Foreign Trade, New Delhi and imported capital goods i.e., Rigid PVC Calendar making machine under Bills of Entry No. 2552/399 and 2552/400 dated 10/11/1993 for a CIF value of Rs. 9,08,61,287/-. The appellant availed a concessional rate of duty of 15% ad valorem on the said import under Notification No. 160/92-Cus dated 20/04/1992. The EPCG licence under which the machinery was imported specified an export obligation of PVC sheets worth US $ 1,14,39,200/- within a period of 5 years. It was, however, noticed that the appellant did not fulfill the stipulated export obligation but exported only a negligible extent of 7% of the export obligation by 08/12/1997 which was the last date for fulfilment of the export obligation under the above said licence. The appellant also failed to avail the benefit extended by the Ministry of Commerce vide Public Notice No. 5 dated 06/04/1999 for getting the export obligation period extended even though the same was intimated to the appellant by the DGFT vide letter F. No. 20/1004/93/EPCG/IV dated 10/05/1999. The DGFT vide letter of even No. dated 08/09/2000 informed the appellant that the import licence No. P/CG/2101249 dated 09/12/1992 was issued to them with export obligation of US $ 1,14,39,200/- to be completed within a period of 5 years from the date of first clearance of the imported machinery. They have not applied for extension of export obligation period as per Public Notice No. 5(RE-99) 1997-2002 dated 06/04/1999 with requisite Bank Guarantee as per the condition laid down therein. The letter also intimated the appellant that they are liable to pay the duty saved amount with 24% interest to be calculated right from the date of first clearance of the imported machinery.
2.2. Inasmuch as the appellant did not fulfill the conditions of the EPCG licence and Notification No. 160/92-Cus, a show cause notice dated 22/02/2001 was issued to the appellants asking them to show cause as to why differential customs duty amounting to Rs. 1,81,72,257/- should not be demanded from the appellant in terms of the legal undertaking and the declarations furnished by the appellant to the Assistant Collector of Customs under Notification No. 160/92-Cus dated 20/04/1992. The show cause notice also proposed to demand interest @ 24% on the differential duty as per the legal undertaking executed by them with DGFT. The show cause notice further proposed to confiscate the imported capital goods valued at Rs. 9,08,61,287/- under the provisions of Section 111(o) of the Customs Act, 1962 and also to impose a penalty under Section 112(a) of the said Customs Act.
2.3. The case was adjudicated by the Commissioner of Customs (Export Promotion), Mumbai vide order dated 04/10/2002 wherein the said Commissioner,-
i) confiscated the capital goods valued at Rs. 9,08,61,287/- under Section 111(o) of the Customs Act, 1962. However, he gave the appellant an option to redeem the same on payment of fine of Rs, 1,80,00,000/-.
ii) confirmed the demand for differential duty of Rs. 1,81,72,257/- for non-fulfillment of the conditions of Notification No. 160/92-Cus in terms of the legal undertaking and declaration furnished by them under the Notification.
iii) confirmed the demand for interest @ 24% on the differential duty confirmed starting from 15/11/1993 until the date on which differential duty is paid by the appellant.
iv) imposed a penalty of Rs. 1,00,00,000/- on the appellant under Section 112(a) of the Customs Act and a penalty of Rs. 20 lakhs each on Shri Ravi Sanghi, Managing Director of the appellant firm and Shri Sudhir Sanghi Director of the appellant firm under Section 112(a) of the Customs Act.
2.4. The appellant preferred an appeal before this Tribunal and this Tribunal passed a final order No. 1991 to 1993/2005 dated 25/11/2005. Before the Tribunal, the appellant urged that they have deposited the differential duty and complied with the terms of the order and are seeking for setting aside the interest and penalty and the redemption fine. After considering the submissions made by the appellants, this Tribunal passed the order holding that fine, penalty and interest is not leviable where export obligation could not be fulfilled due to global economic crisis in Asia and particularly in South Asia and accepting this plea, the prayer of the appellants for setting aside the penalty, interest and fine were allowed.
2.5. Aggrieved by the said order of this Tribunal, the Revenue preferred an appeal before the honble High Court of Bombay and the High Court passed the order cited supra.
3. The learned counsel for the appellants makes the following submissions:
3.1. When the goods were imported under the aforesaid Bills of entry, the assessments were made provisional as can be seen from the Bills of Entry available on record. The impugned order has been passed by the learned Commissioner without finalising the assessments and, therefore, it is not sustainable. He relied on the judgment of this Tribunal in ITC Ltd. Vs. CCE reported in 2004 (170) ELT 33 (LB) which was affirmed by the Hon'ble apex court in 2006 (203) ELT 532. He also relied on a similar decision of this Tribunal in Nitco Tiles Ltd. Vs. CC (Export Promotion) case decided on 20-8-2008.
3.2. The next contention of the appellant is that interest being a substantive liability is not automatic but should be authorised by law. It is their contention that Section 28AA of the Customs Act providing for interest on short-levy was brought into the statute w.e.f. 12/05/1995 by the Finance Act, 1995 and Section 28AB providing for interest in cases where the short-levy or non-levy is due to fraud, collusion, suppression, willful mis-statement, etc. came into the statute book in 1996 and the said Section was amended vide Finance Act, 2001 w.e.f. 11/05/2001 providing for levy of interest in all cases. Interest under Section 28AB or 28AA can be levied only when duty amount is determined under Section 28 and, therefore, no interest can be demanded from the appellant under the aforesaid provisions in the instant case.
3.3. The learned counsel further argues that in the present case the imports were made in 1993. The Customs Notification No. 160/92-Cus did not provide for payment of customs duty along with interest in case the importer did not fulfill the export obligation. After the introduction of Section 28AA and 28AB, the Government amended various Notifications granting export incentives in or around 19/09/1995 providing for recovery of interest along with duty as a term of the bond wherever the importer did not fulfill the export obligation. In the instant case, no bond was furnished to the Customs Department undertaking to pay interest in case the export obligation was not fulfilled and, therefore, the demand for interest confirmed by the learned Commissioner is not sustainable in law. The counsel places reliance on the judgment of the Hon'ble apex Court in the case of J.K. Synthetics Ltd. vs. Commercial Tax Officer 1994 (4) SCC 276 to support his argument that provisions for interest is substantive in nature and, therefore, has to be spelt out in the corresponding provisions of law for recovery of differential duty. In the absence of such specification, interest cannot be automatically levied wherever there is a short-levy or a non-levy. He also relies on the judgment of the apex Court in the case of India Carbon vs. The State of Assam 1997 (6) SCC 479 in support of the above contention. In the light of the above, the learned counsel submits that the provision for payment for interest is a substantive provision and interest cannot be levied based on an act which is merely borrowed/referred to levy and collection of tax. The advocate also relies upon the judgment of this Tribunal in the case of Sterlite Industries India Ltd. reported in 2008 (223) ELT 633 wherein it was held that in respect of provisional assessments resorted to prior to July, 2006, but finalised after July, 2006, interest is not leviable.
3.4. The next argument of the learned counsel is that at the time of importation of the goods, bonds were executed before the DGFT and it is in the bond executed before the DGFT the condition for payment of interest @ 24% was stipulated. Inasmuch as the condition relating to interest was not provided for under Notification No. 160/92-Cus, the Customs Department cannot demand interest at all and if at all can be demanded, it can be done only by the DGFT under the provisions of FTDR Act, 1992 and under the said Act there was no provision for levy of interest on Customs duty saved on imported goods under the EPCG scheme.
3.5. Learned counsel also relies on the following judgments wherein it has been held that no interest is payable on Customs duty on account of non-fulfillment of export obligation:
a) Decap Electronics Pvt. Ltd. vs. Commissioner of Central Excise 2004 9174) ELT 241 (Tri.-Bang.)
b) Taurus Novelties Ltd. vs. Commissioner of Customs 2004 (173) ELT 100 (Tri.-Bang.
c) Philips India Ltd. vs. Commissioner of Customs 2001 (137) ELT 697 (Tri.-Mum)
d) Meirs Pharma (India) Pvt. Ltd. vs. Commissioner of Customs 2004 (167) ELT 53 (Tri.-Chennai)
e) Dyna Lamps & Glass Works Ltd. vs. Commissioner of Customs 2003 (157) ELT 73 (Tri-Chennai)
f) Fal Industries Ltd. vs. Commissioner of 2003 (159) ELT 215 (Tri-Chennai)
g) South India Corpn. vs. Commissioner of Customs 2009 (244) ELT 581 (Tri.)
h) Rajshri Plastiwood 2001 (130) ELT 295 (Sett. Comm.) 3.6. With regard to the confiscation of the goods, the learned counsel argues that the confiscation under Section 111(o) of the Act is not sustainable in law. Section 111(o) is applicable only when condition of exemption is violated by the importer. As per Notification No. 160/92, the condition stipulated is as follows:
The importer at the time of clearance of the said capital goods shall make declaration before the Assistant Collector of Customs, in such form as he may specify, binding himself to pay on demand an amount equal to the duty leviable on such capital goods but for the exemption contained herein in respect of which the conditions specified in column (2) of the Table have not been complied with. According to the counsel there are two options given to the importer, i.e., either he can fulfill the export obligation or on failure to do so, he can pay the duty. Thus by paying the duty, the appellant has fulfilled the condition of Notification No. 160/92-Cus. Hence there is no violation and consequently the goods are not liable to confiscation under Section 111(o) of the Act.
3.7. As regards penalty, the counsel for the appellant submits that inasmuch as the provisions of Section 111(o) is not attracted, penalty under Section 112 is not imposable. Consequently, where imposition of penalty under Section 112(a) is not possible, confiscation under Section 111(o) is also not possible as the two Sections are closely interconnected and form an integrated code. It is further submitted that the fact that the appellant paid part of the duty payable only in 2011 cannot be a ground to hold that the appellants are liable to pay interest and also penalty. He relies on the judgment of the Hon'ble apex Court in the case of Dr. T.A. Querishi vs. Commissioner of Income Tax (2006) 287 ITR 547 in this regard.
4. The learned AR appearing for the Revenue made the following submissions:
4.1. The Hon'ble High Court has set aside the plea of global economic crisis as a ground for non-payment of interest and non-imposition of fine and penalty. Therefore, this ground cannot be pleaded again and the appellant cannot be allowed to plead a new case at the appellate stage and relies on the following judgments in this regard:
(a) Warner Hindustan Ltd. vs. Commissioner of Central Excise 1999 (113) ELT 24 (SC)
(b) A.M. Handicraft vs. Union of India 2007 (212) ELT 315 (Del.)
(c) Hindustan Lever Ltd. vs. Commissioner of Central Excise, Chandigarh 2001 (138) ELT 31 (P&H) 4.2. Learned AR further submits that though the goods were provisionally assessed at the time of importation, the assessment was finalised when the learned Commissioner passed the order in October, 2002. The order passed by the Commissioner wherein the duty demand has been confirmed is an order of assessment, finalizing the determination of duty. Therefore, the appellants plea that the order has been passed without finalising the assessment has no basis whatsoever and has to be rejected outright. The learned AR also submits that Notification No. 160/92-Cus dated 20/04/1992 prescribes a number of conditions. The condition (i) specifies that the capital goods are imported under EPCG scheme in terms of Exim Policy. Conditions (ii) and (iii) stipulate that the importer binds himself to pay on demand the duty leviable on such capital goods by executing a bond under para 45 of the Exim Policy. Para 45 of the said Policy read with Para 41 ibid and para 102(i)(a) of the Handbook of Procedures stipulates that in the case of non-fulfillment of export obligation, the importer has to pay duty with interest @ 24% per annum. In the bond executed by the importer, it has been stipulated that in the event of default in meeting the export obligation condition, the importer is liable to pay interest @ 24% per annum on the amount of duty saved from the date of import of first consignment till the payment of duty. Therefore, the importer cannot escape from the payment of interest when duty liability is confirmed. The learned AR relies on the following judgments in support of the above contentions:
(a) Parasrampuria Synthetics Ltd. vs. Commissioner of Customs 2004 (173) ELT 164 (Tri.-Del.) which has been upheld by the apex Court 2005 (179) ELT A265 (SC);
(b) Rai Agro Industries Ltd. vs. DGFT 2006 (206) ELT 123 (Del.) upheld by the apex Court in 2007 (207) ELT A135 (SC);
(c) Dhwani Fashions vs. DC Bangalore 2010 (251) ELT 173 (Kar.);
4.3. The Ld. AR submits that if any of the post-importation conditions are violated, such violations are actionable in terms of the bond executed and the Customs have jurisdiction to take action and relies on the judgment of this Tribunal in the case of King Rotors & Air Charter P. Ltd. vs. Commissioner of Customs (ACC & Import), Mumbai 2011 (269) ELT 343 (Tri.-Mum). Thus, the AR contends that duty and interest can be demanded in terms of the bond/undertaking executed by the appellant read with Notification No. 160/92-Cus.
4.4. The next contention of the learned AR is that the limitation of time in this case is not attracted as the demand for duty as well as interest have been made in terms of the provisions of the bond executed by the importer and therefore, there is no time limit for demand of duty for non-fulfillment of the conditions stipulated in the bond and relies on the judgment of this Tribunal in the following cases :-
(a) Sravani Impex P. Ltd. vs. ADG, DRI, Chennai 2010 (252) ELT 19 (AP);
(b) Endress + Hauser Flowtec (I) Pvt. Ltd. vs. Commissioner of Central Excise, Aurangabad 2009 (237) ELT 598 (Tri.-Mum);
(c) Magarpatta Township vs. Commissioner of Central Excise, Pune Order No. A/383/11/EB/C-II dated 21/04/2011 in Appeal No. E/1391/2007.
4.5. As regards confiscation, the learned AR submits that inasmuch as the importer has failed to comply with the conditions of the exemption Notification, he has rendered the imported goods liable for confiscation and relies on the following judicial pronouncements:
(a) Commissioner of Central Excise, New Delhi vs. Hari Chand Shri Gopal 2010 (260) ELT 3 (SC);
(b) Om Prakash Bhatia vs. Commissioner of Customs, Delhi 2003 (155) ELT 423 (SC).
4.6. Regarding imposition of redemption fine, the learned AR contends that once the goods are liable to confiscation, fine in lieu of confiscation can be imposed in view of the judgments of the Tribunal in the case of Parasrampuria Synthetics Ltd. and Rai Agro Industries vs. DGFT cited supra. In the instant case, redemption fine of Rs. 1.80 crores imposed is only 20% of the CIF value of the goods which is very reasonable.
4.7. In respect of penalty imposed, the learned AR submits that in the instant case the importer did not avail of the opportunity for extending the export obligation period offered by DGFT during May, 1999 and September, 2000. They also did not honour the interim order of the Settlement Commission for deposit of duty. After losing all the opportunities and also after losing the appeal in the Hon'ble High Court of Bombay, the appellant have paid the differential duty only on 05/09/2011. From the above sequence of events, it is amply clear that the importer had mala fide intention to evade payment of duty and, therefore, imposition of penalty of Rs. 1 crore on the importer and Rs. 20 lakhs each on the Directors of the company are fair and reasonable and needs to be upheld.
5. In his rejoinder, the learned counsel for the appellant submits that in the case of Parasrampuria Synthetics Ltd. relied upon by the Revenue, there was no provision for charging of interest at the time of import but the same was existing at the time of fulfillment of export obligation whereas in the instant case that is not so. In any case the said Tribunal decision is contradictory to many of their earlier decisions, and, therefore, no reliance can be placed on the said decision of the Tribunal. The learned counsel further submits that as regards the reliance placed by the department in the case of Dhwani Fashions (supra), the said decision pertained to availing exemption under Notification No. 110/95-Cus ad not under Notification No. 160/92-Cus and hence the judgment of the Tribunal is not relevant to the facts of the case. As regards the decision of the Hon'ble High Court in Rai Agro Industries (supra), it pertains to a writ under Article 226 of the Constitution where the assessee challenged the action of the DGFT in demanding interest in terms of the letter of undertaking executed by it with the DGFT and the demand in this case was made under Section 28 of the Customs Act. In that case the High Court sustained the levy of interest even though Section 28 would not apply and held the view that interest is leviable as the assessee has executed an LUT with the DGFT.
6. We have carefully considered the rival submissions.
6.1. As regards the contention of the appellant that the assessment at the time of importation of the capital goods was provisional and without finalizing the assessment, no duty liability can be fastened on the importer, this contention is fallacious. The goods in this case were imported subject to fulfillment of certain obligations which had to be completed within the prescribed period after importation. Inasmuch as the post importation conditions were not fulfilled, show cause notice was issued to the importer proposing to deny benefit of Notification No. 160/92-Cus and also demanding differential duty under the provisions of the said Notification itself and the adjudication order was passed vide order dated 04/10/2002. In the said adjudication order, the Commissioner denied benefit of the exemption under Notification No. 160/92-Cus and confirmed differential duty liability. In fact what the Commissioner has done is to finalise the provisional assessment resorted to at the time of importation of machinery and quantified / determined the duty liability on the import of the capital goods. Therefore, the contention that no duty liability can be fastened without finalising the assessment has no basis whatsoever and we reject the same outright.
6.2. The next issue relates to leviability of interest in the instant case. The appellants contention is that interest under Section 28AA or 28AB can be levied only when the short-levy is determined under the provisions of Section 28. In the instant case, duty has been confirmed and demanded under the provisions of Notification No. 160/92-Cus in terms of the bond and LUT executed by the appellant with the Customs and DGFT authorities. Since interest liability is not under the provisions of the Customs Act and such liability is a substantive liability, interest cannot be demanded under the provisions of the Notification or the bond and bank guarantee executed by the appellant before the authorities. The appellant has also relied on the judgment of the Settlement Commission in the case of Rajshri Plastiwood Ltd. 2001 (130) ELT 295 in support of the above contention. We are not impressed with this argument. In the case of Parasrampuria Synthetics Ltd, cited supra, this Tribunal while dealing with the imports under Notification No. 160/92-Cus held as follows:
we hold that as the Appellants have not fulfilled the export obligation they have to pay differential Customs duty. We, therefore, uphold the demand of duty made against them. The capital goods which were imported by availing exemption under Notification No. 160/92 are liable to confiscation as the condition of the Notification has not been fulfilled by the Appellants. .. Interest is chargeable from the appellants though there was no provision for charging interest at the time of import of the machinery. However, at the time when they were to fulfill the export obligation, the provision for charging the interest had come into effect. In 1998 when they failed to discharge their export obligation the provision of interest was very much on the statute book. Similarly in the case of Metropoli Overseas Ltd. Vs. Commissioner of Customs [2003 (154) ELT 86], while dealing with a case of import under EPCG scheme under notification No. 160/92-Cus, this Tribunal held as follows:-
Since the imports of machinery and capital goods are otherwise permissible without a licence on payment of full duty and no reason to contrary are pleaded, the differential duty as demanded along with interest in this case is upheld as the appellants admit that they cannot meet the export fulfillment contracts and for such purposes, the EPCG policy and the notification itself provides the recovery of duty with interest at the rate of 24%. We therefore confirm the liability of duty as arrived at along with interest of 24%. 6.3. In the instant case, the import took place in November, 1993 and the export obligation had to be fulfilled within a period of five years i.e., by November, 1998. Therefore, the liability to pay the differential duty arose in 1998, when the period for fulfilling the export obligation expired and the obligation was not fulfilled. Section 28AA and 28AB came into the statute book in 1996 itself and, therefore, in the light of the decision of this Tribunal in the case of Parasrampuria Synthetics Ltd. (cited supra) the provision for charging interest was in the statute book. Secondly, interest has been demanded not under the provisions of the above Sections, but in terms of the bond and LUT executed by the appellant before the Customs and the licensing authorities and in terms of the Policy provision governing EPCG scheme. At the relevant time, Export Promotion Capital Goods Scheme was governed by Chapter VI of the Export Import Policy 1992-97. The capital goods in the instant case have been imported under the said provision. Vide Para 45 of the Exim Policy 1992-97, the importer was required to execute with the licensing authority a legal undertaking supported by a bank guarantee wherever necessary for the fulfillment of the export obligation as per the details specified in the Handbook of Procedures. As per the para 102 of the said Handbook of Procedures, the requirements were as under:
102 Execution of Bank Guarantee and Legal Undertaking:
(i) Before clearance of goods through Customs, but not later than six months from the date of issue of the licence, the importer shall execute a Legal Undertaking and Bank Guarantee in the manner indicated below, for fulfilment of the export obligation with the licensing authority in whose jurisdiction the licensee is situated or the Export Obligation Cell II in the Directorate General of Foreign Trade, Udyog Bhawan, New Delhi:-
(a) A Legal Undertaking valid for six years for an amount equal to the value of the export obligation imposed plus the value of duty saved plus the interest at the rate of 24% per annum for a period of six years.
(b) A Bank Guarantee for an amount equal to 50% of the value of duty saved, for a period of three years, where the importer is not an Export House/Trading House/Star Trading House.
(c) Where the export obligation has not been fulfilled atleast to the extent of 50% of the total export obligation imposed, within a period of two and a half years from the date of issue of the licence, the bank guarantee shall be enforced and forfeited unless the same is renewed for another three years by the licence holder on his own well before the expiry of the bank guarantee. 6.4. Further, Notification No. 160/92-Cus granted duty exemption to capital goods imported under the EPCG scheme subject to certain conditions which are reproduced below:
(i) the capital goods are imported under, and in accordance with, a licence under the Export Promotion Capital Goods (EPCG) Scheme, in terms of the Export and Import Policy (hereinafter referred to as the Policy;
(ii) the importer, at the time of clearance, shall produce to the Assistant Collector of Customs a certificate from the licensing authority for having executed a bond under paragraph 45 of the Policy; and
(iii) the importer at the time of clearance of the said capital goods shall make a declaration before the Assistant Collector of Customs, in such form as he may specify, binding himself to pay on demand an amount equal to the duty leviable on such capital goods but for the exemption contained herein in respect of which the conditions specified in column (2) of the Table have not been complied with.
TABLE S. No. Description of importer Rate of duty (1) (2) (3)
1. Importer undertaking an export obligation equivalent to three times the CIF value of the said capital goods over a period of four years under paragraph 38 of the Policy 25% ad valorem
2. Importer undertaking an export obligation equivalent to four times the CIF value of the aforesaid capital goods over a period of five years under paragraph 38 of the Policy 15% ad valorem Explanation. - In this notification, -
(i) capital goods means any plant, machinery, equipment or accessories required by an importer for manufacture of goods and shall includes machinery for packing goods, testing equipment and equipment required for Research and Development activity;
(ii) Export and Import Policy means the Export and Import Policy, 1 April 1992 - 31 March 1997 published vide Public Notice of the Government of India in the Ministry of Commerce, No. 1-ITC (PN) 92-97, dated the 31st March, 1992;
(iii) Licensing Authority means an authority competent to grant a licence under the Import (Control) Order, 1955, made under the Imports and Exports (Control) Act, 1947 (18 of 1947). 6.5. In the case of export promotion scheme, the Exim Policy and the Customs Notification form an integrated scheme as a whole and they have to be interpreted and applied in a harmonious manner so that the Policy objectives are achieved. At the relevant time while the importer was required to execute the bond and bank guarantee with the Customs for payment of duty, in case export obligations are not fulfilled, in respect of interest on the duty amount saved on failure to fulfill the export obligation, bond and bank guarantee was executed before the licensing authorities. Merely because two separate bonds and bank guarantees have been executed, one with the Customs authorities and another with the licensing authorities, it does not imply that these cannot be invoked together when there is a failure to fulfill the terms and conditions of the exemption. Further the DGFT vide letter dated 8-9-2000, had intimated the appellant that they are liable to pay the duty saved amount with 24% interest to be calculated right from the date of first clearance of the imported machinery, in respect of the imports made under the EPCG licence issued in the instant case. Thus both the authorities, DGFT and Customs have taken the necessary steps for the recovery of the duty amount saved along with interest @ 24% p.a. 6.6. A similar issue was considered extensively by the Hon'ble High Court of Delhi in Rai Agro Industries Ltd. vs. DGFT reported in 2006 (206) ELT 123( Del.) and the Hon'ble High Court held as follows:
15.?There are two facets of this question that call for an examination. The first aspect that needs to be examined is whether this court ought to interfere at the instance of a party who has unequivocally and unconditionally undertaken to pay the duty amount saved on the import of equipment together with interest at the agreed rate in the event of its failure to discharge the export obligations. The second aspect relates to the chargeability of interest on duty which was payable but was not paid in view of an exemption granted subject to fulfilment of the conditions prescribed for such exemption.
16.?In so far as the first aspect is concerned, there is no dispute that the petitioner had unequivocally undertaken to pay the differential amount of duty saved on the import, if it failed to comply with its export obligations. The provisions of para 105 of the Handbook and the legal undertaking/ agreement executed by the petitioner created in no uncertain terms a legal and enforceable obligation against the petitioner to pay interest on the amount of duty saved by it on the import of the equipments. That position was not disputed before us as indeed the same could not be disputed in the light of the terms of the policy and the provisions of the Handbook of Procedures to which it made a reference and the undertaking contained in the agreement executed between the parties. It is also not in dispute that the condition subject to which the petitioner could have availed of a reduced rate of duty, namely, performance of the export obligation has not been complied with. The question then is whether a party who has availed of a benefit on a solemn assurance and a legal undertaking that it shall perform certain acts necessary for the enjoyment of the benefit being extended in its favour could continue enjoying those benefits while the conditions subject to which the benefit was extended are violated. Our answer is in the negative. No party can avail of a benefit which was available subject to its performing conditions prescribed for the same, without performing such conditions. If the conditions fail, the party cannot retain the benefit. There is no equity in favour of a person who has availed of a benefit but failed to perform the obligation subject to which alone it could take such benefit. If that be so, as it indeed is, we see no reason why this court should come to the rescue of a party who fails to do equity in exercise of our equitable jurisdiction. It is trite that one who seeks equity must do equity. The petitioner having failed to discharge its part of the obligation despite the assurance and undertaking furnished cannot be granted any relief in the equitable jurisdiction of this court.
17.?That brings us to the second aspect of the matter, namely, whether there is any illegality in the demand made by the respondent for payment of interest on the amount of duty recoverable from the petitioner. The answer to that question is provided by Section 28AA, which deals with interest on delayed payment of duty and inter alia provides that where a person chargeable with duty determined under sub-section (2) of Section 28, fails to pay such duty within three months from the date of such determination, he shall pay, in addition to the duty, interest at such rate not below 10% and not exceeding 36% per annum from the date immediately after the expiry of period of three months till the date of payment of such duty. Section 28AB deals with interest on delayed payment of duty in special cases and inter alia provides that where any duty has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person who is liable to pay duty as determined under sub-section (2) or has paid the duty under sub-section (2B) of Section 28, shall, in addition to the duty, be liable to pay interest at such rate not below 10% and not exceeding 36% per annum, as is fixed by the Central Government by notification. It is, thus, evident that duty determined as payable would earn interest in the event of a delay in the payment of the same. But for the exemption from payment of duty under the EPCG scheme, the petitioner would have been liable to pay the duty at the rate stipulated for the imports made by it. A concessional rate was, however, applied to the said imports subject to the petitioner's satisfying the requirements stipulated for the said benefit. No sooner it is found that the petitioner has failed to perform its export obligation which was one of the conditions for applying a concessional rate of duty, the exemption would cease to be effective and the liability to pay the duty at the rate ordinarily applicable re-emerge. Consequently non-payment of the differential would attract payment of interest in terms of the statutory provisions referred to above. The provisions of the Handbook of Procedures would in such situations step in to provide for what may appear to be a grey area as to the period for which interest on such duty would be recoverable. A reading of para 105 of the Handbook which happens to be the stipulation incorporated even in the legal undertaking furnished by the petitioner would show that the liability to pay interest at the stipulated rate arises from the date of import of the first consignment till the date of payment. Regardless therefore of which, the failure of the export obligation is noticed or established against the importer, once a failure is established or admitted the obligation to pay the differential duty along with interest at the stipulated rate arises and the period for which such payment has to be made will be reckoned from the date when the first consignment was cleared till the date of actual payment. There is in that view sufficient legal sanction for the demand of interest raised against the petitioner on the amount of differential duty. Reliance upon the decisions of the Supreme Court in Indian Carbon Ltd. v. State of Assam, AIR 1997 SC 3054, JK Synthetics Ltd. v. Commercial Taxes Officer, AIR 1994 SC 2393, M/s. VVS Sugars v. Government of Andhra Pradesh and Others, AIR 1999 SC 2124 and York Knitwear Ltd. v. Asst. Collector of Customs & Ors., 2006 (206) E.L.T. 86 (Del.) = 2005 (117) DLT 554 are of no avail to the petitioner. Claim for interest, it is fairly settled, can arise either on the basis of a statute or a contract or trade usage. In the instant case, the claim for payment of duty is supported not only by the statutory provisions of Sections 28AA and 28AB, but also the terms of the statutory policy and the legal undertaking provided, by the petitioner in accordance with the same. 6.7. An appeal against the said decision of the Hon'ble High Court of Delhi before the Supreme Court was dismissed and, therefore, this decision of the Delhi High Court has attained finality and has the approval of the Hon'ble Supreme Court. Therefore, the contention of the appellant that they are not liable to pay any interest in the absence of statutory provisions in the Customs Act has no legal basis at all and accordingly we reject the same in toto. The appellants reliance on a number of judgments in this regard have been considered by the honble High Court of Delhi and thereafter, the honble High Court passed the order that interest is leviable @ 24% on the duty amount saved under the EPCG scheme, if the exporter did not fulfill the export obligation. In view of the clear and categorical finding on the issue by the honble High Court of Delhi which has been upheld by the hon'ble apex Court, we do not find any merit in the argument of the appellant that they are not liable to pay any interest in the instant case and accordingly, we reject the argument totally.
6.8. The appellant has also raised a point that Section 111(o) of the Customs Act for confiscation of the goods is not invokable in the present case. The argument of the appellant is that under Notification 160/92-Cus, which is a conditional exemption Notification, there are two options given to the importer, namely, either to fulfill the export obligation or on failure, pay duty. Thus by paying the duty, the appellants have fulfilled the conditions of Notification No. 160/92 and, therefore, there is no violation and consequently the goods are not liable to confiscation under Section 111(o) of the Act. This argument is totally irrational and illogical. Demand of duty and confiscation of the goods are two totally different aspects under the Customs law. Demand of duty arises on importation of the goods and if goods have been imported at a concessional rate of duty subject to fulfillment of certain conditions and such conditions are violated, then the duty concession would not be available at all. In the case under consideration, the demand of duty has arisen under the Notification itself in terms of the bond executed by the importer at the time of importation of the goods. Confiscation of the goods arise under Section 111 of the Customs Act in certain specified situations. Section 111(o) reads as follows:
Any goods exempted, subject to any condition, from duty or any prohibition in respect of the import thereof under this Act or any other law for the time being in force, in respect of which the condition is not observed unless the non-observance of the condition was sanctioned by the proper officer. In such an eventuality, the goods imported shall be liable to confiscation. In the instant case the goods were imported availing a concessional rate of duty on the condition that the goods will be put to use for manufacture and export of certain products up to certain value within a specified period. When the importer failed to fulfill the condition by not exporting the goods of required value within the stipulated period, then he was no longer eligible for the concessional rate of duty and the duty liability has to be discharged in full without availing the benefit of the exemption. For the same conduct, the goods also became liable to confiscation under the provisions of Section 111(o). The duty liability arises on account of importation. The liability to confiscation or fine is for violation of the conditions of the importation. The act of importation and the conditions of importation are two different things and for violation of each of them, separate consequences would follow. In the instant case the duty liability has been imposed for the import of the goods and the goods have been confiscated for violating the terms and conditions of importation. Since the goods are liable to confiscation, the liability to penalty arises under Section 112 of the Customs Act. Penalty is an action (in personam) on the importer while the duty and fine are (action in rem) on the goods. As per Section 112 of the Customs Act, liability to penalty arises when a person who in relation to any goods acts or omits any act which act or omission would render the goods liable to confiscation under Section 111. Any person who abets or aids the commission of an act or omits to such an act (which renders the goods liable for confiscation) is also liable to penalty. Similarly when a person acquires possession or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other way dealing in goods which he knows or has reason to believe are liable to confiscation under Section 111 is also liable to penalty under section 112. In the instant case the appellant imported the goods subject to a condition that he would fulfill the export obligation which obligation he failed to fulfill. Therefore, the goods became liable to confiscation under Section 111(o). Since the goods are liable to confiscation under Section 111(o), penalty under section 112(a) is attracted. In this case, penalty has been imposed under Section 112(a) and there is no illegality or infirmity in imposing penalty apart from demanding differential duty and we hold accordingly. When the goods are liable to confiscation, the adjudicating authority has the power to allow the redemption of the goods on payment of fine in lieu of confiscation under section 125 of the Customs Act. The goods were released to the appellants at the time of importation under a bond executed by the appellant. The release of the goods was thus provisional. Therefore, when the assessment is finalized subsequently, even if the goods are not available for confiscation, redemption fine in lieu of confiscation can be imposed as has been held in a number of judicial pronouncements on the subject. Therefore the imposition of redemption fine in the instant case is fully justified and is quite legal and we hold accordingly.
6.9. We further note that in the instant case the duty liability was confirmed by this Tribunal vide order dated 25/11/2005. However, in spite of such confirmation the appellant failed to discharge differential duty liability and made payment towards duty liability only on 05/09/2011 after a period of more than six years from the date of passing of the order and after a period of 9 years from the date of order of the adjudicating authority and almost two decades after the importation of the goods. Such deliberate defiance of law needs to be dealt with in an exemplary manner so that respect for law is maintained and people do not take the law for granted.
6.10. In the instant case, we find that a fine of Rs. 1.8 crore have been imposed in lieu of confiscation on the goods imported and the assessable value of the imported goods was Rs. 9,08,61,287/-. Thus, the fine imposed works out to about 20% of the value of the goods. The goods were imported in 1993 and the final determination of duty on the goods and its confiscation was done in 2002. With the passage of time, the goods would have depreciated in value. Therefore, the fine imposed in lieu of confiscation appears on the higher side. Taking these factors into account, we reduce the redemption fine imposed from Rs. 1.8 Crore to Rs. 90 lakhs which works out to about 10% of the value of the goods.
6.11. Coming to the penalty, we notice that a penalty of Rs. 1 crore has been imposed on the importer M/s. Sanghi Industries Ltd and penalties of Rs. 20 lakhs each have been imposed on the Managing Director and Director of the appellant firm. We are of the view that separate penalties one on the importing firm and the other on the Directors of the company are not warranted in the facts and circumstances of the instant case. Considering the totality of the facts and circumstances, we reduce the penalty on the appellant firm to Rs. Fifty lakhs (Rs.50,00,000/-) and set aside the penalties on the Managing Director and Director of the appellant firm. Needless to say that the appellant is liable to discharge interest liability @ 24% starting from 15/11/1993 till the date on which the differential duty was discharged by the appellant firm.
6.12. In sum, we hold that the appellants are liable to pay interest @ 24% per annum on the differential duty amount of Rs. 1,81,72,257/- from 15-11-1993 till the date of payment of the said amount. The appellants are also liable to pay a redemption fine of Rs. 90 lakhs (Rs. Ninety lakhs only) in lieu of confiscation. The penalty on the appellant, imposed under section 112(a), is reduced to Rs. 50 lakhs (Rs. Fifty lakhs only) and the penalties on the Directors of the appellant firm are set aside.
7. The appeals are disposed of in the above terms.
(Pronounced in Court on 20/10/2011) (Ashok Jindal) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) */as 2