Financial Benefits To Assessee Can't Be A Ground To Levy Interest Without A Statutory Provision: Bombay High Court

The Bombay High Court has ruled that penalty or interest on additional customs duty (CVD) and special additional duty of customs (SAD), or surcharge, which is not connected to the basic customs duty, cannot be imposed in the absence of an explicit substantive provision. The Division Bench of Justices K.R. Shriram and A.S. Doctor observed that there was no substantive provision which obligated the assessee to pay interest or penalty on CVD or SAD, leviable under the Customs Tariff Act, 1975, or on the surcharge leviable under the Finance Act, 2000. The Court held that when penalty is imposed by way of additional tax, the constitutional mandate requires a clear authority of law for imposition of the same. The bench added that the Settlement Commission cannot pass an order beyond the provisions of the Customs Act, 1962 and that the fact that the assessee derived financial benefits cannot be a ground to order payment of interest in the absence of any statutory provision. Show cause notices were issued to the petitioner- Mahindra & Mahindra Ltd., on the ground that it did not declare the entire amount payable in connection with the goods imported by it, amounting to misdeclaration with an intent to evade payment of customs duty. Under the said show cause notices, a demand of differential customs duty was raised against the petitioner. The petitioner filed applications before the Settlement Commission for settlement of the demand raised against it. The Settlement Commission passed an order holding that the customs duty liability, as proposed in the show cause notice, was payable by the petitioner. The Settlement Commission also held that the petitioner had derived financial benefit by not paying the differential duty that was payable by him and hence, the petitioner was liable to pay interest on the differential customs duty, along with penalty. Against this, the petitioner filed writ petitions before the Bombay High Court. The petitioner- Mahindra & Mahindra Ltd., submitted before the High Court that the Settlement Commission had passed an order levying penalty and interest on the differential amount of additional customs duty/ countervailing duty (CVD) and the special additional duty of customs (SAD), which the petitioner had allegedly evaded. The petitioner contended that none of the relevant provisions contained in the Finance Act, 2000, relating to levy of surcharge, and the Customs Tariff Act, 1975, relating to levy of CVD and SAD, provide for imposition of penalty or interest on the chargeable duty. The petitioner added that Section 28AB of the Customs Act, 1962, which provides for interest on delayed payment of duty, is applicable only for basic customs duty leviable under Section 12 of the Customs Act, 1962. It argued that the Finance Act, 2000 and the Customs Tariff Act, 1975 do not borrow the provisions of Customs Act, 1962 relating to levy of interest on delayed payment of duty. Hence, it contended that the revenue department had no power under the law to impose penalty or interest. The petitioner argued that in a petition filed under Article 226 of the Constitution of India, against the order of the Settlement Commission, the Court should only be concerned with the legality of the procedure followed and not with the validity of the order. However, it added that if the order passed by the Commission is contrary to the provisions of law, which has caused prejudice to the assessee, the Court must certainly intervene. To this, the revenue department contended that the additional customs duty and the special additional duty of customs, or the surcharge, though charged under different statutes, are duties of custom and that they form a part of the total customs duty. The department added that since the petitioner had misstated the assessable value of imported goods by undervaluing them, the Settlement Commission was justified in directing the petitioner to pay interest and penalty on the differential customs duty. Thus, the department argued that the Court should not interfere with the order passed by the Commission. Section 28AB of the Customs Act, 1962 provides that where any duty has not been levied or has been short levied, due to collusion, wilful misstatement or suppression of facts, the assessee is liable to pay interest in addition to the duty as determined under the relevant provision of the Customs Act. The Court observed that in view of the judgment of the Apex Court in Jyotendrasinhji versus S.I. Tripathi and Ors. (1993), the order of the Settlement Commission is in the nature of a package deal and therefore, the assessee should not be permitted to accept what is favourable to him and reject what is not. However, the Supreme Court had held that if the court is satisfied that the order of the Commission is contrary to the provisions of the law, the court must intervene. The bench referred...

Financial Benefits To Assessee Can't Be A Ground To Levy Interest Without A Statutory Provision: Bombay High Court

Parina Katyal

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