Madras High Court
M/S.Fal Industries Limited vs Directorate General Of Foreign Trade on 21 August, 2013
IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 21.08.2013 Coram The Honourable Mr.Justice S.NAGAMUTHU W.P. No.44020 of 2002 M/s.FAL Industries Limited Represented by Company Secretary and Senior Manager-Legal Mr.K.Rafee Ahammed Perungudi Chennai-600 096. .. Petitioner -vs- 1.Directorate General of Foreign Trade Udyog Bhavan New Delhi-110 011. 2.Deputy Director General of Foreign Trade Udyog Bhavan New Delhi-110 011. 3.Foreign Trade Development Officer New Delhi. 4.State Bank of India Commercial Branch 232, N.S.C.Bose Road Chennai-600 001. .. Respondents Writ Petition filed under Article 226 of the Constitution of India, to issue a Writ of Certiorari, to call for the records of the second respondent culminating in communication F.No.20/66/93/EPCG.III, dated 26.11.2002 passed by the second respondent herein and quash the same. For Petitioner : Mr.S.Murugappan For Respondents : Mr.D.Vijayakumar Additional Central Government Standing Counsel for R.1 to R.3 Mr.N.Vijayaraj for R.4 ORDER
In exercise of the powers conferred by sub-section (1) of Section 25 of the Customs Act, 1962, in the public interest, the Central Government issued a notification exempting capital goods, when imported into India by an importer specified in column (2) of the notification, from so much of the duty of customs leviable thereon which is specified in the First Schedule to the Customs Tariff Act, 1975, as is in excess of amount calculated at the rate specified in the corresponding entry in column (3) of the said notification and the whole of the additional duty leviable thereon under Section 3 of the Customs Tariff Act, subject to certain conditions.
2. One such condition enumerated in the notification is that the importer, at the time of clearance, shall produce to the Assistant Commissioner of Customs or Deputy Commissioner of Customs a certificate from the licensing authority for having executed a bond under paragraph 45 of the Policy.
3. The term, "Licensing Authority", has been explained in the very same notification, which reads as follows:-
"(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), or the Director General of Foreign Trade appointed under the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992) or an officer authorised by him to grant a licence under the said Act."
4. The term, "Export and Import Policy" also has been explained in the same notification as follows:-
"(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, as amended from time to time."
5. Yet another condition of the said notification is that the importer, at the time of clearance of the said capital goods shall make a declaration before the Assistant Commissioner of Customs or Deputy Commissioner 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 notification have not been complied with.
6. As per the above said notification, an importer has to fulfil his export obligation within the time prescribed in the licence. The petitioner is a Company, by name, "M/s. FAL Industries Limited", who was manufacturing various products, including Typewriters and Air Purifiers. The petitioner Company was also involved in export of the above products. The petitioner Company obtained licence from the first respondent/Directorate General of Foreign Trade, bearing No.P/CG/2100700, dated 27.08.1992, under the Scheme, known as, "Export Promotion Capital Goods Scheme" (hereinafter referred to as, "The Scheme"). As per the terms of the licence, the petitioner Company could import goods worth CIF value of Rs.64,27,044/-. As per the terms of the licence, the machinery to be imported would be eligible for concessional rate of interest at 15%, in terms of the Customs Notification No. 160/92, dated 20.04.1992.
7. In terms of the above licence, admittedly, the petitioner Company imported materials under Bill of Entry No.44076, dated 22.12.1992, for a CIF value of Rs.59,59,050/- and paid concessional customs duty of Rs.8,68,724/-. As per the terms of the licence and notification, the petitioner duly executed a bond, thereby undertaking to pay interest at the rate of 24%, in the event of failure to fulfil the export obligation in terms of the licence. Admittedly, the petitioner Company did not fulfil the above export obligation as per the terms of the licence. Therefore, the second respondent/Deputy Director General of Foreign Trade, by his proceedings in F.No.20/66/93/EPCG.III, dated 26.11.2002, demanded interest at the rate of 24%, which works out to Rs.64,87,912/-. The said order of the second respondent is under challenge in this Writ Petition.
8. I have heard Mr. S.Murugappan, the learned counsel appearing for the petitioner; Mr.D.Vijayakumar, the learned Additional Central Government Standing Counsel for the respondents 1 to 3; and Mr.N.Vijayaraj, the learned counsel appearing for the fourth respondent for the fourth respondent and I have also perused the records carefully.
9. The main contention of the learned counsel for the petitioner is that under the Customs Act, there is no provision for levying interest for failure to comply with the export obligation in terms of the licence. The learned counsel would further contend that in the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade (Regulation) Rules, 1993 also, there is no provision which empowers the second respondent to demand interest for the failure to comply with or fulfil the export obligation in terms of the licence.
10. The learned counsel for the petitioner would, however, admit that a bond was duly executed in terms of the licence, under which, the petitioner Company agreed to pay interest at the rate of 24%. But, the learned counsel for the petitioner would contend that such condition, which has been imposed in the bond, is wholly without jurisdiction for want of sanction of law and therefore, the same is void. In such view of the matter, according to the learned counsel, the demand of interest made on the condition, which is void, is illegal and therefore, the impugned order is liable to be set aside.
11. In order to substantiate his contention, the learned counsel for the petitioner would rely on an unreported judgment of a Division Bench of this Court in Commissioner of Customs (Sea) vs. M/s.Meirs Pharma India Private Limited (C.M.A.No.3221 of 2004), dated 06.12.2010. The learned counsel further relies on an unreported judgment of a learned Single Judge of this Court in M/s.Gayathri Stickers vs. The Director General of Foreign Trade (W.P.No. 21948 of 2002), dated 30.10.2012. The learned counsel also relies on two other judgments of the Hon'ble Supreme Court in V.V.S.Sugars vs. Government of Andhra Pradesh and Others, reported in 1999 INDLAW SC 374 and India Carbon Limited and others vs. State of Assam, reported in 1997 INDLAW SC 2083. I will make discussion about these judgments at the appropriate stages of this order.
12. But, the learned Additional Central Government Standing Counsel appearing for the respondents 1 to 3 would vehemently oppose this Writ Petition. According to him, the interest demanded by means of the impugned order is not within the purview of the Customs Act. It is his contention that if any interest is to be demanded as per the provisions of the Customs Act, then, it is for the authority under the Customs Act, to make a demand by following the procedure established in the Customs Act itself. He would tacitly admit that the interest demanded in the impugned order is not in terms of the Customs Act. But, he would submit that the interest demanded in the instant case is on account of the contractual obligation between the second respondent and the petitioner herein. In other words, according to the learned standing counsel, the petitioner had executed a bond, thereby, undertaking to pay interest at the rate of 24%, in the event of failure to fulfil the export obligation. This creates a contractual obligation, under which, according to the learned counsel for the respondents 1 to 3, the petitioner is liable to pay interest at the rate of 24%.
13. The learned Additional Central Government Standing Counsel appearing for the respondents 1 to 3 would further very seriously refute the contention of the learned counsel for the petitioner that the said condition is void. According to the learned standing counsel, the demand for interest is legal and the condition is not void. For that proposition, the learned counsel would rely on Rule 6 of the Foreign Trade (Regulation) Rules, 1993. Under sub-rule (2)(b) of Rule 6 of the said Rules, the licensing authority has got power to demand execution of a bond by the applicant for complying with the terms and conditions of the licence. It is under this Rule, a bond was required to be executed by the petitioner and accordingly, the petitioner executed the bond. Therefore, according to the learned standing counsel, the execution of the bond incorporating the said clause for payment of interest cannot be stated to be void. For this proposition, the learned counsel relies on a judgment of the Hon'ble Supreme Court in Rexnord Electronics and Controls Limited vs. Union of India and others, reported in (2008) 12 Supreme Court Cases 156, wherein, the Hon'ble Supreme Court has held that the interest payable under the bond cannot be equated to the interest payable under the provisions of the Customs Act. The Hon'ble Supreme Court has further held that payment of interest under the bond is a contractual obligation and the Settlement Commission has no power to grant immunity to interest covered by such bonds. Eventually, the Hon'ble Supreme Court has held that such demand for payment of interest under a bond, which is on account of a contractual obligation can be sustained. In view of the above position, the learned standing counsel for the respondents 1 to 3, would pray for dismissal of this Writ Petition.
14. I have considered the above submissions.
15. At the outset, I have to state that there need not be any confusion between the powers of the authorities under the Customs Act and the powers of the authorities under the Foreign Trade (Development and Regulation) Act, 1992. Under the Customs Act, the demand for interest can be made under Section 28-AA of the Act, for the failure to pay the determined customs duty within a period of three months from the date of such determination. Such demand for payment of interest can be made by following the procedure contemplated in the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade (Regulation) Rules, 1993, by the customs authorities.
16. Here in the instant case, the interest has not been demanded by the authorities under the Customs Act, in terms of any of the provisions of the Customs Act. On the contrary, interest has been demanded by the second respondent viz., Deputy Director General of Foreign Trade. There is no controversy before this Court that under the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade (Regulation) Rules, 1993, there is no specific provision empowering the second respondent to demand interest for the failure of the exporter to fulfil his export obligation. It is on this ground, the learned counsel for the petitioner contended that the demand for interest in terms of the bond is illegal.
17. But, I find it very difficult to accept the said contention for more than one reason. Though, the Foreign Trade (Development and Regulation) Act, 1992, does not make a specific provision empowering the authority to demand interest in the event of failure of the licensee to fulfill his export obligation, under Rule 6(2)(b) of the Foreign Trade (Regulation) Rules, 1993, the second respondent has been empowered to require the licensee to execute a bond for complying with the terms and conditions of the licence. If only such a bond is executed, the second respondent could issue a licence. What are all the terms and conditions, which could be incorporated in the bond have not been elaborately dealt with in the Foreign Trade (Development and Regulation) Act, 1992. The Rule 6(2)(b) of the Foreign Trade (Regulation) Rules, 1993, says that the applicant for a licence shall execute a bond for complying with the terms and conditions of the licence. It is only in exercise of the said power conferred under Rule 6(2)(b) of the Foreign Trade (Regulation) Rules, 1993, before issuing licence to the petitioner, the second respondent required the petitioner to execute a bond. It is only in terms of the said Rule, the bond was executed. Therefore, it cannot be stated at any stretch of imagination that the execution of the bond has got no sanction of law. I hold that the execution of the bond has a legal backing of the Foreign Trade (Development and Regulation) Act, 1992 and the Foreign Trade (Regulation) Rules, 1993.
18. Admittedly, at the time when the petitioner applied for licence, he was required to execute a bond and accordingly, he executed the bond, thereby, undertaking to pay interest at the rate of 24%, in the event of failure to fulfil the export obligation. Admittedly, the petitioner had failed to fulfil the export obligation, though, he had imported goods by using the licence. It is also admitted that he paid less duty in terms of the licence by making use of the Scheme. When it is not in controversy that the petitioner had failed to fulfil the export obligation, then, the second respondent is entitled to enforce the terms of the bond.
19. In this regard, now, I may refer to the judgment of the Hon'ble Supreme Court in Rexnord Electronics and Controls Limited vs. Union of India and others, reported in (2008) 12 Supreme Court Cases 156, the case referred to above. That was also a case, where a bond executed in terms of the Customs Notification No. 160/92, dated 20.04.1992 (the notification, which is the subject matter in the present Writ Petition) was considered. In that case, the exporter had executed a bond, thereby, agreeing to pay interest in the event of his failure to fulfil the export obligation. But, he did not pay interest. In the meanwhile, he approached the Settlement Commission under Section 127-H of the Customs Act, for immunity from prosecution and for waiver of imposition of penalty, fine and interest under the Customs Act. The Settlement Commission accepted the said request of the exporter and granted waiver of payment of penalty, fine as well as interest. Aggrieved over the same, the matter was taken up to the Supreme Court. Before the Supreme Court, it was contended that the Settlement Commission, had not authority to waive the interest, which is leviable under the bond executed in terms of the Scheme. It was further contended that as per Section 127-H of the Customs Act, the interest, which is payable under the Customs Act alone could be waived by the Settlement Commission under Section 127-H of the Act. But, by the exporter, it was contended that the Settlement Commission had power to waive the interest payable both under the Customs Act or under the Scheme. But, the Hon'ble Supreme Court negatived the claim of the exporter. In that case, the Hon'ble Supreme Court has held that there was a vast difference between the interest payable under the Customs Act and the interest payable in terms of a bond executed as per the Scheme floated under the Foreign Trade (Development and Regulation) Act, 1992. The Hon'ble Supreme Court has further held that the Settlement Commission had power to waive the interest payable under the Customs Act. But, in the said case, since, the interest was demanded not under the Customs Act, but, in terms of the bond executed as per the Scheme, the Hon'ble Supreme Court has held that the Settlement Commission had no power to waive the interest, which was required to be paid in terms of the bond executed.
20. While concluding so, the Hon'ble Supreme Court, in the said judgment i.e., Rexnord Electronics and Controls Limited vs. Union of India and others, reported in (2008) 12 Supreme Court Cases 156, had occasion to elaborately deal with the Scheme under the Foreign Trade (Development and Regulation) Act, 1992 and the customs duty payable under the Customs Act. In paragraph No.16 of the said judgment, the Hon'ble Supreme Court has framed the following question:-
"16. The core question which, therefore, arises for consideration is as to whether the term "interest" used therein would include within its fold interest payable under the bond furnished by the appellant before the Director General of Foreign Trade."
In paragraph No. 25 of the said judgment, the Hon'ble Supreme Court has held as follows:-
"25. The appellant having evaded payment of duty was bound to pay the same and furthermore was bound to pay interest in terms of the bond executed by it. The Settlement Commission, therefore, could not have given any direction for deduction in regard thereto. As the Settlement Commission, did not have any jurisdiction to waive the amount of interest payable under the bond, we do not see that any jurisdictional error has been committed by it in directing the payment of the said amount which is otherwise payable. In any event the appellant is not prejudiced thereby as irrespective of such direction, the appellant was bound to pay the interest payable under the bond."
21. In Rexnord Electronics and Controls Limited case (cited supra), the Hon'ble Supreme Court has referred to a Division Bench judgment of a Bombay High Court in Tanu Healthcare Limited vs. Union of India, reported in (2007) 207 ELT 641 (Bombay), wherein, the Bombay high Court has held that "6....payment of interest under the bond is a contractual obligation and the Settlement Commission has no power to grant immunity to interest covered by such bonds."
22. Thus, from the above judgment, it is crystal clear that the interest payable as per the terms of the Customs Act is different from the interest payable under the bond executed in terms of the Foreign Trade (Development and Regulation) Act, 1992. If any interest is to be levied under the terms of the Customs Act, undoubtedly, the procedure contemplated under the Customs Act is to be followed by the customs authority to demand customs duty together with interest. But, under the Foreign Trade (Development and Regulation) Act, 1992, though, there is no specific provision for demanding interest in case of violation of terms and conditions of the licence issued under the Act, in terms of the bond such interest could be demanded.
23. But, the learned counsel for the petitioner would rely on an unreported judgment of a Division Bench of this Court in Commissioner of Customs (Sea) vs. M/s.Meirs Pharma India Private Limited (C.M.A.No.3221 of 2004) (referred to above). I have carefully gone through the said judgment. In my considered opinion, the said judgment cannot be taken as a precedent in respect of the law, which is under discussion in the present judgment. In that case, the judgment of the Hon'ble Supreme Court in Rexnord Electronics and Controls Limited case (cited supra), was not at all brought to the notice of the Division Bench. It was also not argued before the Division Bench that interest could be levied under a bond, which is outside the scope of the Customs Act. The whole gamut of argument of the Customs Department before the Division Bench was that, as per the provisions of the Customs Act, interest could be demanded for the failure of the exporter to fulfil the licence conditions issued under the Foreign Trade (Development and Regulation) Act, 1992. The Division Bench, after having elaborately dealt with the provisions of the Customs Act, ultimately held that for such failure to fulfil the export obligation in terms of the licence, the customs authority has got no power to demand interest. Regarding that proposition laid down by the Division Bench, I am in full agreement. But, before the Division Bench, it was not at all argued that the demand of interest could be made by the authority under the Foreign Trade (Development and Regulation) Act, 1992, in terms of the bond, which is outside the purview of the Customs Act.
24. As I have already pointed out, in the instant case, interest is demanded not within the purview of the Customs Act, but, as per the terms of the bond executed in terms of the Foreign Trade (Development and Regulation) Act, 1992. Thus, the Division Bench had no occasion to consider, whether the authority under the Foreign Trade (Development and Regulation) Act, 1992, has got power to demand interest in terms of the bond executed as per the licence in the event of failure to fulfil the export obligation. The Division Bench has further held that for such failure to fulfil export obligation, the customs authority has got no power to demand interest. Regarding that proposition, as I have already pointed out, there can be no second opinion. That was not a case where payment of interest was made by an authority under the Foreign Trade (Development and Regulation) Act, 1992, in terms of the bond. Therefore, the judgment of the said Division Bench has got no application to the facts of the present case at all.
25. The learned counsel for the petitioner would rely on yet another unreported judgment of a learned Single Judge of this Court in M/s.Gayathri Stickers vs. The Director General of Foreign Trade (W.P.No. 21948 of 2002) (referred to above), dated 30.10.2012. In that case, of course, the learned Single Judge in paragraph No.16 has held as follows:-
"16. In the light of the above said order, it is clear that interest cannot be levied on duty amount by the respondents. When the above said order of this Court has not been challenged in appeal, I do not find any merit in the arguments advanced by the learned counsel for the respondents 1 to 3 as well as the impugned order passed by the third respondent. Therefore, as already held by this Court, no interest can be levied against the persons, who failed to comply with the conditions mentioned in the licence, hence, this Court is inclined to allow this writ petition. Accordingly, the writ petition is allowed by setting aside the impugned order passed by the third respondent."
26. With respect, I regret to state that I am unable to follow the said view taken by the learned Single Judge in the said judgment for the simple reason that the judgment of the Hon'ble Supreme Court in Rexnord Electronics and Controls Limited case (cited supra), was not brought to the notice of the learned Single Judge. It was also not argued before the learned Single Judge that the authority under the Foreign Trade (Development and Regulation) Act, 1992, can enforce a bond, which creates a contractual obligation to demand for interest. Therefore, the said judgment of the learned Single Judge cannot be taken as a precedent on the law, which is under discussion in this judgment.
27. The learned counsel for the petitioner would, nextly, rely on a judgment of the Hon'ble Supreme Court in V.V.S.Sugars vs. Government of Andhra Pradesh and Others, reported in 1999 INDLAW SC 374 and similarly, yet another judgment of the Hon'ble Supreme Court in India Carbon Limited and others vs. State of Assam, reported in 1997 INDLAW SC 2083. In these two cases, the Hon'ble Supreme Court has held that unless there is a substantive provision in the Tax Law for payment of penalty or interest, the authority cannot make such a demand for interest or penalty. Regarding this proposition also, there is no quarrel before this Court.
28. But, in the instant case, as I have already concluded, it cannot be said that the interest cannot be demanded by the authority under the Foreign Trade (Development and Regulation) Act, 1992, in the event of failure of the exporter to fulfil his export obligation in terms of the bond executed and the licence issued. I am bound by the law laid down by the Hon'ble Supreme Court in Rexnord Electronics and Controls Limited vs. Union of India and others, reported in (2008) 12 Supreme Court Cases 156, referred to above, wherein, the Hon'ble Supreme Court, after an elaborate discussion has held that a bond executed in terms of the licence under the Foreign Trade (Development and Regulation) Act, 1992, creates a contractual obligation, under which, the authority under the Act, can demand interest from the exporter for his failure to fulfil the export obligation.
29. In view of the above settled position of law, I am unable to find any infirmity in the impugned order of the second respondent/Deputy Director General of Foreign Trade, dated 26.11.2002.
30. In the result, this Writ Petition fails and accordingly, the same is dismissed. No costs.
paa To
1.Directorate General of Foreign Trade Udyog Bhavan New Delhi-110 011.
2.Deputy Director General of Foreign Trade Udyog Bhavan New Delhi-110 011.
3.Foreign Trade Development Officer New Delhi.
4.State Bank of India Commercial Branch 232, N.S.C.Bose Road Chennai 600 001