Judgment:
Ferdino I. Rebello, J.
1. The petitioners are aggrieved by the action of the Settlement Commission directing payment of interest. The submission on behalf of the petitioners has been that no show cause notice as required under Section 28 of the Customs Act, 1962 (hereinafter referred to as the Act) was served on the petitioners. The show cause notice dated 16th June, 2000 only demanded duty and not interest. It is submitted that considering the provisions of Section 127C of the Customs Act, 1962 as the issue of interest was not the subject of the case, the Settlement Commission in directing the petitioners herein to pay interest acted without jurisdiction.
2. A few facts may be stated. The petitioner had imported one Heidelberg Offset Colour printing machine from Germany. The same was purchased through a known person by name Mr. Rajeev Batra of Delhi, who was also in the printing business and deals in purchase and sale of printing machines. According to the petitioner No. 2 an amount of Rs. 3,80,000/was paid to Shri Rajeev Batra as his commission for arranging purchase and shipment of 72 V speed master printing machine with CPC of 1980 Model available for GBP 55,000. The petitioners were given the certificate dated 29th March, 1999 from M/s.Machinehandel Presto Type Ronde Tooht, 2, Zhandam stating that machine of 1978 sold to them was in good working condition and that the market value of new machine of manufacture in the year 1978 is of Pounds 1,35,000/and the present value of Pounds 55,000/is very reasonable. The machine was thereafter shipped and received by the petitioner and installed on the petitioners' unit in the 2nd week of June, 1999.
3. The respondents issued a show cause notice based on intelligence that the petitioners had imported and cleared an old and used offset colour printing machine in contravention of the restriction imposed on the import of old and used machines. The petitioners by the show cause notice were informed as to why the value set out in the Bill of Entry should not be rejected and the value redetermined as Rs. 83,86,611/under the provisions of Rule 8 of the Valuation Rule, 1988 read with Section 14(1) of the Customs Act, 1961. Penalty was also proposed.
4. On issuance of the show cause notice, the petitioner moved an application before the Settlement Commission under Section 127B of the Act indicating admitted duty liability arising out of the case. The Commission allowed the application to be proceeded with under Sub-section (1) of Section 127C of the Customs Act vide its order dated 17th May, 2001 with a direction that the petitioner to pay the admitted duty liability of Rs. 3,39,058/within 30 days. That amount was paid. After hearing the petitioner and the Respondents the Settlement Commission passed the final order settling duty in an amount of Rs. 36,34,713/. As the petitioners had already paid Rs. 24,07,778/the petitioners were directed to pay the balance amount of Rs. 12,26,935/within 30 days on receipt of the order to the jurisdictional Commissioner and intimate the same to the Commission. The petitioners were also directed to pay simple interest at the rate of 10% on the duty amount namely Rs. 15,65,993/i. e. Duty amount settled at Rs. 36,34,713/minus duty of Rs.20,68,720/paid at the time of import from the date of clearance of the imported goods till the date of actual payments of that sum and pay the same within thirty days of receipt of the order. The petitioners approached this Court to challenge the levying of interest. An interim stay was granted in so far as recovery of interest is concerned.
5. A reply has been filed on behalf of the respondents by K.A. Shaikh, Assistant Director, DRI, Mumbai Zonal Unit and it is set out as under Section 127H of the Customs Act 1962 confers sufficient power on the Settlement Commission to settle the case by granting immunity from prosecution and penalty for any offence under the Customs Act either wholly or in part from the imposition of any penalty, fine and interest subject to such condition as it thinks fit to be imposed. That interest on duty becomes payable from the date it was evaded deliberately and had remained unpaid. Therefore, both in equity and sound commercial practice the person who had obtained financial advantage over the other party by not paying the amount legitimately due to the latter be asked to pay interest on duty to recompensate such party. The printing machinery, it is pointed out, was brought in contravention of the restrictions imposed on old and used machines. There are various other reasons set out which we need not set out. Suffice it to say that it is the stand of the respondents that considering the powers of the Commission it was within the jurisdiction of the Commission to direct payment of interest. The Settlement Commission having granted waiver of penalty in favour of the respondents herein this Court in exercise of its extra ordinary jurisdiction ought not to interfere with the settlement order in so far as interest is concerned.
6. The Settlement Commission on consideration of the application of the petitioner herein and considering the report of the Commissioner has recorded a finding that the machine was shipped on 17th April, 1999, after the exemption Notification had been withdrawn. It has further come on record that the year of manufacture was misdeclared as 1978 instead of 1983. The Commission further recorded a finding that the cast of the machine in fact was GBP 95,000.
7. The question for our consideration is, when admittedly the commission has come to the conclusion that there is a short payment of duty on account of suppression of facts whether it was within the jurisdiction of the Commission to have directed the petitioners herein to pay interest.
8. Section 28 of the Act requires that in the case when any duty has not been levied or has been shortlevied or erroneously refunded, or when any interest payable has not been paid, part paid or erroneously refunded, the proper officer may within six months and considering the proviso where any duty has not been levied or has been shortlevied or the interest has not been charged or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts then within the extended period of five years to show cause why such amount be not paid. Sub-section (2) requires that after considering the representation, the amount of duty be determined and the person shall pay the amount so determined. Section 28AB as it then stood would be relevant. Section 28AB(1) is reproduced as under:
28AB(1) Interest on delayed payment of duty in special cases:
(1) Where any duty has not been levied or has been shortlevied or erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts, the person who is liable to pay the duty as determined under Sub-section (2) of Section 28, shall in addition to the duty, be liable to pay interest at such rate not below ten per cent and not exceeding thirty per cent per annum, as is for the time being fixed by the Board, from the first day of the month succeeding the month in which the duty ought to have been paid under this Act, or from the date of such erroneous refund, as the case may be, but for the provisions contained in Sub-section (2) of Section 28, till the date of payment of such duty.
9. We then come to the provisions pertaining to settlement. 'Case' has been defined under Section 127A(b) to mean any proceedings under this Act or any other Act for the levyassessment and collection of customs duty, or any proceeding by way of appeal or revision in connection with such levy, assessment or collection, An application has to be moved under Section 127B. Section 127C lays down the procedure on receipt of an application under Section 127B. We may gainfully reproduce Section 127C(7) and (9) which read as under:
129C(7)After examination of the records and the report of the Commissioner of Customs received under Sub-section (1), and the report, if any, of the Commissioner (Investigation) of the Settlement Commission under Sub-section (6), and after giving an opportunity to the applicant and to the Commissioner of Customs having jurisdiction to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner of Customs or the Commissioner (Investigation) under Sub-section (1) or Sub-section (6).
(9) Every order passed under Sub-section (7) shall provide for the terms of settlement including any demand by way of duty, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud, or misrepresentation of facts.
10. Under Section 127F(1), the Settlement Commission in addition to the powers conferred under Chapter V of the Central Excise Act, 1944 shall have all the powers which are vested in the officer of the Customs under this Act or the Rules made thereunder. In any case where an application is made under Section 127B has been allowed to be proceeded with, the Settlement Commission shall until an order is passed under Sub-section (7) of Section 127C have exclusive jurisdiction to perform the functions of any officer of Customs or Central Excise. Under Section 127J the order passed by the Settlement Commission becomes conclusive. Section 127H confers power on the Settlement Commission in a case where a person who has made an application for settlement under Section 127B has cooperated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability to grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code or under any other Central Act for the time being in force and also either wholly or in part imposition of penalty, fine or interest. The various amendments need not be referred. Considering that we have to consider the law at the time this application was made.
11. Reading of this provision would, thefore, indicate that an order under Section 127C(7) has to be in accordance with the provisions of the Act and on the matters covered by the application and any other matter relating to the cases not covered by the application, but referred to in report of the Commissioner of Customs or Commissioner (Investigation) under Sub-section (1) or Sub-section (6) of Section 127C. Sub-section (9) of Section 127C sets out that every order passed under Sub-section (7) shall provide for the terms of settlement including any demand by way of duty, penalty or interest. It would, therefore, be clear that ordinarily the Settlement Commission is bound to pass orders in terms of the provisions of the Act. It cannot proceed to pass orders beyond what is set out under the Act.
12. It is in this context that we shall have to examine the scope and intent of Section 28 of the Act. Before examining that, we may consider some of the judgments cited at the Bar. On behalf of the petitioners learned Counsel had placed reliance on the judgment of the Supreme Court in the case of Collector of Customs Calcutta v. TIN Plate Co. of India Ltd. : 1996 (87) E.L.T. 589 (S.C.). The matter pertains to bills of entries which were presented in December, 1983. Section 28AB as it now stands was not on the statute book at the relevant time. The learned Court on a consideration of the issue as to whether without complying with the requirement of Section 28(1) and 28(2) a duty or interest could be levied was pleased to observe on consideration of the Scheme of the Act as under:
Now, as pointed out earlier if action is contemplated under 28(1)(b) it is incumbent (or mandatory) on the part of the Department to serve the assessee a notice requiring him to show cause why he should not pay the amount specified therein. This requirement is in keeping with the Principle of Natural justice.
Proceeding further the Court observed as under:
It is incumbent on the part of the Department to issue a show cause notice and thereby giving the assessee an opportunity to make his representation as is envisaged by Section 28(2) of the Customs Act. It is a condition precedent.
13. Next reference was made to the judgment of a learned Division Bench of this Court in Nirlon Ltd. v. Union of India : 2007 (209) E.L.T. 12 (Bom.) That was in the matter of charging interest under the provisions of the Central Excise Act. The Court therein noted that the requirement of law including natural justice would be that a notice must be issued to the petitioner or a party aggrieved as to why interest amount should not be claimed from it and after affording a hearing that liability ought to be decided.
14. Consideration of these judgments would, therefore, show that under the Customs Act if there has been short levy of duty or interest or nonpayment thereof the requirement of serving a notice under Section 28 arises, more so as under Section 28(1)(b) the period of limitation would depend as to whether Section 28(1)(b) or the proviso would apply.
15. We may now refer to the judgments cited on behalf of the Revenue by learned Counsel. We may firstly refer to the judgment in Pratibha Processors v. Union of India : 1996 (88) E.L.T. 12 (S.C.). The issue before the Supreme Court was payment of interest in respect of warehousing under Section 61(2) and the bond which is required to be furnished under Section 59(1). In that context the Supreme Court was pleased to observe that interest is compensatory in character and is imposed on the assessee who had withheld the payment of tax as and when it is due and payable. Essentially, it is compensatory and different from penalty - which is penal in character. In Pratibha Syntext Ltd. v. Union of India : 2003 (157) E.L.T. 141 (Bom.) Section 28AB was not in issue. What was in issue was in the matter of bond to be furnished under Section 59. It is in that context, though the contention on behalf of the petitioner was that the Settlement Commission has no jurisdiction that this Court observed that as a bond had been given under Section 59 it was not necessary to examine those contentions. The issue, therefore, of applicability or nonapplicability of Section 28 was not considered by this Court.
16. The next judgment relied upon is in the case of HiTech Engineers v. Union of India and Ors. : 2004 (1) Bom. C.R. 776. Again the issue was in the context of interest on warehousing charges. The issue which is under consideration before this Court was not under consideration. Similarly was the judgment of this Court in B.K. Industrial Corporation v. Union of India : 2004 (169) E.L.T. 13 (Bom.). The judgment of this Court in CCE & C. Aurangabad v. Padmashri V.V. Patil S.S.K. Ltd. : 2007 (215) E.L.T. 23 (Bom.) was considering the provisions of the Central Excise Act. The judgment of the Punjab and Haryana High Court in the matter of Falcom Textiles Ltd. v. Commissioner of Customs Amritsar 2008 (230) E.L.T. 35 (P. & H.), was also cited. The issue there was in respect of a party aggrieved by the nongrant of immunity from payment of interest. It was in that context that the learned Bench was considering the matter. In our opinion, therefore, none of the judgments cited on behalf of the petitioners nor on behalf of the respondents have really dealt with the issue which has now come up for consideration before us.
17. We may now consider Section 28AB which sets out, that the person liable to pay duty as determined under Sub-section (2) of Section 28 shall in addition to the duty be liable to pay interest at such rate not below ten per cent and not exceeding thirty per cent. It is, therefore, clear that the interest is on account of delayed payment of duty in special cases. Those are cases where the duty had not been levied or short levied or interest has been erroneously refunded by reason of collusion or any wilful misstatement or suppression of facts. In the instant case as noted in the order of the Settlement Commission itself, the duty was short paid on account of wilful misstatement or suppression of facts. Interest under Section 28AB, therefore, will be payable. The Section mandates that interest becomes payable on the person being held liable to pay duty after complying with the requirement of Section 28(2). In other words a show cause notice has to be issued under Section 28(1) to pay duty and after giving an opportunity. an order has to be passed under Section 28(2).
18. Once, therefore, duty is ascertained then by operation of law, such person in addition shall be liable to pay interest at such rate as fixed by the Board. The concerned Officer, therefore, in the ordinary course would be bound once the duty is held to be liable on account of collusion, wilful misstatement or suppression of facts to call on the party to pay interest as fixed by the Board at the relevant time.
19. The limited question is whether considering the powers of the Settlement Commission, is it required that fresh notice under Section 28 has to be served on such person on the Assessing Authority coming to the conclusion that such interest is payable on account of failure to pay duty. In our opinion considering the provisions of Section 127F the Settlement Commission has all the powers of an officer under the Act. The Applicant approaches the Settlement Commission for the purpose of settlement of the matter which can exercise the power of the Custom Officer. Once there is power under Section 127F, in our opinion it was open to the Settlement Commission to have directed payment of interest. Ultimately Settlement is of the 'case'. The case involves a demand for duty. Once duty is held to be payable, interest becomes payable by operation of law. Only the question has to be ascertained in terms of the Boards Orders. It is, therefore, a part of the 'case'. In fact interest payable is not what the Customs Officer or the Settlement Commission decides to impose, but interest has to be based upon the orders issued by the Board. Considering, however, the power conferred on the Commission under Section 127H as it then stood it would have been open to the Commission to remit the whole or in part imposition of penalty, fine and interest. It was, therefore, within the jurisdiction of the Commission to have ordered payment of interest at ten per cent, instead of the interest payable in terms of the Board Order, which would be more than 10%
20. Considering the date of passing of the order of settlement, learned Counsel sought to draw our attention to Section 28AB(2) as it now stands. This Sub-section (2) as it now stands is substituted by Act 14 of 2001. We are concerned with the case where the bill of entry was filed on 26th May, 1999. The show cause notice was in the matter of shortpayment of duty as of 26th May, 1999. In our opinion, therefore, the Section as it now stands really would not be attracted and what has to be considered would be Section 28AB(2) as it then stood. If that is considered the duty was payable after Finance Act (2) of 1996 received the assent of the President on 28th September, 1996.
21. The issue where a party is not before the Settlement Commission and where the A.O. has come to the conclusion after following the procedure under Section 28 that duty is payable whether a notice is required under Section 28(2) in the matter of demand of interest, is left open for consideration and has not been decided in this case.
22. For the aforesaid reasons we find no merit in this petition. Rule discharged. There shall be no order as to costs.