Madras High Court
Vijai Narain Products Pvt. Ltd. vs Union Of India (Uoi) on 29 April, 1998
Equivalent citations: 1998(102)ELT254(MAD)
Author: P. Sathasivam
Bench: P. Sathasivam
ORDER P. Sathasivam, J.
1. The petitioner is seeking a writ of declaration declaring the sub-section 2 of Section 61 of the Customs Act, 1962 as ultra vires, unconstitutional and capricious in so far as the petitioner is concerned, on various grounds.
2. The case of the petitioner is briefly stated hereunder :
According to them the petitioner Company is a private limited Company and it has proposed to establish a fishing net manufacturing business at Kattukuppam village in the Union Territory of Pondicherry. The firm has obtained an Import licence and imported 3 fishing net manufacturing machineries at a cost of Rs. 30 lakhs from Japan during February, 1988. The firm has approached a Financial Institution for sanction of term loan for clearing of the imported machineries and it took some time for getting the loan and hence the petitioner firm has filed Bill of Entry for warehousing with the second respondent for keeping the machineries in a Public bonded warehouse at Virugambakkam. The second respondent has assessed the total duty for the 3 machineries by over valuing the same at Rs. 41,35,892/-. Though the petitioner Firm has disputed the assessment it has complied with the provisions of Section 59 of the Customs Act, 1962 and executed ware-housing bond binding itself in a sum equal to twice the amount of the duty assessed and also to all other conditions for the bond. In accordance with such execution of the bond the machineries were kept in the bonded ware-house on 27-4-1988. As per the terms of the bond only 6 per cent interest to the duty is imposed as stated under Section 59 of the Customs Act. However, at the time of the execution of the bond, the stipulation of interest was stated at 12 per cent per annum. It is further stated that it has paid Rs. 1,30,000/- to the Central Warehousing Corporation through their clearing Agents towards rent and insurance charges. After paying the said amount on 6-3-1989 had filed Bill of Entry for Ex-bond clearance for home consumption with the second respondent after obtaining the term loan from the Financial Institutions and from the Banker, during February, 1989. The second respondent has now assessed the total duty at Rs. 12,64,892/- to which the firm is ready and willing to pay and clear the dues. However the second respondent has also demanded a further sum of Rs. 1,55,946/- towards interest on bond and that too at 18 per cent interest from 25-7-1988.
3. It is further stated that the petitioner has no obligation to pay the enhanced interest of 18 per cent per annum from 25-7-1988 as the notification enhancing the interest from 12 per cent to 18 per cent was demanded under the Notification No. 143 of 1983 from 20-9-1988. It is further stated that sub-section 2 of Section 61 of the Customs Act is arbitrary, ultra vires, unconstitutional and capricious as provision 61(2) is contrary to Section 59 of the Act. It is stated that by keeping its goods in the warehouse there is no transaction of any grant of loan or advance, no interest can be claimed in any transaction which is not in the nature of loan or advance. Accordingly the payment of interest for keeping the goods in the warehouse and that too beyond the period as stipulated under Section 61 of the Act is unreasonable. When once there is, the rent is being paid for keeping the goods, there can not be any other claim in the nature of interest for keeping the goods beyond the stipulated period as provided under Section 61. Hence, according to the petitioner the claim of interest made is arbitrary and capricious.
4. Both the respondents though were duly served even on 22-3-1989 and 5-3-1989 respectively, none of them have chosen to file counter affidavit disputing the various averments made by the petitioner.
5. In the light of the above pleadings. I have heard Mr. K. Venkatapathy, learned Advocate General for the petitioner and Mr. S. Udayakumar, learned Additional Central Government Standing Counsel for the respondents.
6. The learned Advocate General after taking me through Section 61(2) and 59 of the Customs Act, 1962 has submitted that the petitioner is not serious in declaring the said provision as unconstitutional. However, if it is held that the respondents are not entitled to claim interest at the rate of 18 per cent that would be sufficient for the petitioner. On the other hand Mr. S. Udayakumar, learned Additional Central Government Standing Counsel after going through the relevant provisions submitted that the respondents are justified in demanding interest at 18 per cent, since the petitioner has not adhered the time fixed by the Board. He also submitted that the claim of the respondents with regard to interest is well-founded and accordingly prayed for dismissal of the writ petition.
7. I have carefully considered the rival submissions.
8. In order to appreciate the rival contentions, I shall refer Section 59(1) which deals with Warehousing bond and reads thus :
"Warehousing bond:
The importer of any dutiable goods which have been entered for ware-housing and assessed to duty under Section 17 or Section 18 shall execute a bond binding himself in a sum equal to twice the amount of the duty assessed on such goods, -
(a) to observe all the provisions of this Act and the rules and regulations in respect of such goods;
(b) to pay on or before a date specified in a notice of demand all duties, rent and charges claimable on accounts of such goods under this Act, together with interest on the same from the date so specified at the rate of six per cent per annum or such other rate as is for the time being fixed by the Board; and
(c) to discharge all penalties incurred for violation of the provisions of this Act and the rules and regulations in respect of such goods."
Section 61 deals with period for which goods may remain warehoused, which reads thus:
"Period for which goods may remain ware-housed :
(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 one year.
Explanation - For the purposes of sub-clause (iv) "hundred per cent Export Oriented Undertakings" has the same meaning as in Expl. 2 to Sub-section (1) of Section 3 of the Central Excises and Salt Act, 1944 (1 of 1944); and
(b) ...
(i) ...
(ii) ...
(2) 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, interest at such rate, not exceeding eighteen per cent per annum, as is for the time being fixed by the Board shall be payable on the amount of duty on the ware-housed goods for the period from the expiry of the period of one year or as the case may be, three months, till the date of the clearance of the goods from the warehouse;
(Provided that the Board may, if it considers it necessary so to do in the public interest, waive by special order and under circumstances of an exceptional nature to be specified in such order, the whole or part of any interest payable under this sub-section in respect of any warehoused goods),"
9. The reading of the above provisions show that where the goods remain in a ware-house beyond the period as prescribed under Section 61(1)(a), it is open to the respondents to impose interest at such rate not exceeding 18 per cent. It is true that the maximum rate can be imposed by way of interest is 18 per cent. It is not disputed that the goods imported by the petitioner were warehoused beyond the prescribed period, in such circumstances, irrespective of the earlier statement as per Section 61(2) of the Act, the respondents are competent to impose interest at 18 per cent. In this regard, the decision of the Supreme Court reported in Pratibha Processors v. Union of India, is very relevant for the disposal of the issue involved in our case. As a matter of fact the very same sections were considered by their Lordships' in the said decision and concluded thus, "On a fair reading of the relevant provisions of the Act and in particular Sections 15, 25, 59, 61 and 68 and the General Exemption granted by the Notification [pages 169-170 of the paper-book] and the Import Export (Trade) Policy 1990-93 (Blue-Book) (Page 176 of the paper-book), we are of the opinion that the entire scheme is in a 'package'. In allowing exemption to imported goods the Government had made it clear that goods imported into India against the Advance Licence includes goods imported under any licence (including Open General Licence) for which at the time of clearance out of Customs control a valid Advance Licence is produced by the importer. It is open to the importer to import the items in advance under Open General Licence and keep the same in Customs Bond for getting a clearance against the valid licence issued subsequently under Duty Exemption Scheme. When the notification granting the exemption and also the Import Policy has totally liberalised the entire process, the mere fact of warehousing the goods on an anterior date and clearing the same on the basis of a subsequent Advance Licence, validly obtained under Duty Exemption Scheme, cannot be any stretch of imagination import the idea of levy of interest for the period the goods were kept in the warehouse. The liability of the assessee to pay the duty arises only on clearance of the goods from a warehouse. The assessee has no obligation to pay duty as long as the goods were kept or remained in the warehouse. It is only in cases where the goods kept in the warehouse are exigible to duty, and they are so kept in the warehouse for more than the permitted period, and the said goods are cleared subsequently and duty paid, interest is chargeable for the period of delay in the clearance of the goods. Since the goods warehoused are kept for a longer period such delay entails delayed payment of duty payable and so interest is charged for such delayed payment of duty.
In the above backdrop, let us consider the scope and content of Section 61(2) of the Act as it existed at the relevant time. Section 61(1) prescribes the period during which the goods imported may remain in the warehouse. The normal period in different cases are provided therein. Extension of time in special cases is also provided. If the goods imported remain in warehouse beyond the period provided or extended under Section 61(1), the consequences are specified in Section 61(2) of the Act. As per the provisions of the Act duty is payable (only) when the goods are cleared. If the goods are not cleared within the time granted under Section 61(1) of the Act, and the goods are cleared later, the payment of duty exigible on the goods gets automatically delayed. It is to meet the said contingency Section 61(2) provides that if the goods warehoused are cleared beyond the time specified or granted under Section 61(1) of the Act, interest not exceeding 18% per annum shall be pay-able on the amount of duty on the warehoused goods. It is implicit from the language of Section 61(2) of the Act that the interest shall be payable on the amount of duty "payable" or "due" on the warehoused goods for the period from the expiry of period specified or granted till the date of clearance of the goods from the warehouse. In this case, on the date of clearance of the goods, no duty is payable. The goods are not exigible to duty at that time. Calculation of interest is always on the principal amount. The 'interest' payable under Section 61(1) and (2) of the Act is a mere 'accessory' of the principal and if the principal is not recoverable/payable, so is the interest on it. This is a basic principle based on commonsense and also flowing from the language of Section 61(1) and (2) of the Act. The principal amount herein is the amount of duty payable on clearance of goods. When such principal amount is nil because of the exemption, a fortiori, interest payable is also nil. In other words, we are clear in our mind that the interest is necessarily linked to the duty payable. The interest provided under Section 61(2) has no independent or separate existence. When the goods are wholly exempted from the payment of duty on removal from the warehouse, one cannot be saddled with the liability to pay interest on a non-existing duty. Payment of interest under Section 61(2) is solely dependent upon the exigibility or factual liability to pay the principal amount, that is, the duty on the warehoused goods at the time of delivery. At that time, the principal amount (duty) is not payable due to exemption. So, there is no occasion or basis to levy any interest, either. We hold accordingly."
10. In the light of the law laid down by the Apex Court in the above referred decision and of the fact that the goods imported by the petitioner were warehoused beyond the prescribed period, I am of the view that the claim made by the respondents in pursuance of Section 61(2) is well-founded and I am unable to accept the argument of the learned Advocate General, accordingly the writ petition fails and the same is dismissed. No costs. Consequently, W.M.P. No. 6351 of 1989 is also dismissed.