M/s. Tanfac Industries Ltd. v. The Assistant Commissioner of Customs

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 20.4.2009CORAMTHE HONOURABLE MRS. JUSTICE PRABHA SRIDEVANANDTHE HONOURABLE MR. JUSTICE T.S. SIVAGNANAMC.M.A.NOS.3609 TO 3611 OF 2008M/s. Tanfac Industries Ltd.,No.14, SIPCOT Industrial ComplexCuddalore – 607 005.... Appellant in all the appealsVs.The Assistant Commissioner of CustomsCustoms DivisionNo.60, Mohan Singh StreetCuddalore – 607 003.... Respondent in all the appealsCivil Miscellaneous Appeals filed under Section 130 of theCustoms Act, 1962 against the final order Nos.863, 864 and 865respectively, dated 11.8.2008 passed by the Customs, Central Exciseand Service Tax Appellate Tribunal, South Zonal Bench, Chennai inthe matter of Appeal No.C/133 to 135/2007 preferred by the appellantherein against the Order in Appeal No.2 to 4 of 2007 against theOrder in Original Nos.28, 29/2006, 36/2006, dated 31.7.2006,24.8.2006 and 28.11.2006 respectively in FileNos.C.No.VIII/23/14/2006, C.No.VIII./23/01/2006 dated 31.7.2006 andC.No.VIII/23/08/2006.For Appellant : Mr. M. BalagopalFor Respondent : Ms. P. Bhuvaveswari Senior Standing Counsel https://hcservices.ecourts.gov.in/hcservices/ J U D G M E N T(Judgment of the Court was delivered byPrabha Sridevan, J.)In these three appeals, the following Substantial Questions ofLaw arise for consideration.i) Whether the Customs Circular No.26/07, dated 20.7.2007 islegally correct ?ii) Whether the appellant is liable to pay the interestunder Section 61(2) of the Customs Act, when no duty is paid incash, as having been exempted as per Notification 05/2002 and96/2004 ?iii) Whether, adjustment of credit granted by the Governmenton export of goods in the DEPB towards import duty payable buyfor the exemption is equivalent to payment of duty in cash ?iv) Whether clearance of goods from the warehouse after 90days means that payment of duty due to the Government wasdelayed so as to earn interest by the Government ?2. The appellant, who is the holder of private bonded warehouselicences No.02/84 and 1/2005 issued under Section 58 of the CustomsAct, 1962 received Acid Grade Flourspar falling under Chapterheading 25 of the Customs Tariff Act, 1975 from the Customers Bondedwarehouse situated at Cuddalore under cover of a Transfer Bond.Subsequently, the warehoused goods are being cleared on payment ofduty /DEEC/DEPB through Ex-bond Bills of Entry. 3. In this particular case, the importers have effectedclearance by utilising the DEPB scrips. The Bills of Entry wereassessed under Section 18 of the Customs Act (in short "the Act") Interms of Section 61(2(i), the importers were called upon to showcause why interest shall not be demanded from them, since they hadeffected clearance beyond the interest free ware housing period of90 days as per Section 61 of the Act. 4. The appellant replied that they were effecting clearanceutilising the DEPB licence under the Notification issued underSection 25 of the Act and that the Notification refers to exemptionfrom payment of duty and so the liability to pay interest cannotarise on a non-existing duty. The Order in Original held that debitin DEPB scrip tantamounts to payment of duty in cash, since theimporter shall be entitled to avail CENVAT credit of additional dutyleviable under Section 3 of the Customs Tariff Act against theamount debited in DEPB. Therefore, whether the duty was paid by wayof cash or by DEPB scrip, if there is delay in clearance fromwarehouse, interest must be paid. The Appellate Authority confirmed https://hcservices.ecourts.gov.in/hcservices/ the same and the Tribunal also dismissed the appeal filed by theappellant.5. The learned counsel appearing for the appellant strenuouslycontended that the debit entries and the DEPB scrips shall betreated as payment of duty only for the purpose of availment ofCENVAT credit and as far as liability to pay duty under the Act isconcerned, one should look Section 25 of the Act and the relevantNotification issued under this Act, which clearly speak of exemptionfrom duty. Section 25 of the Act deals with the power of theCentral Government to grant exemption from duty, if it is necessaryin public interest to do so, either absolutely or subject to suchcondition as may be specified. The Duty Entitlement Pass Book-Customs Duty Exemption Notification, which deals with DEPB refers toexemption from payment of duty as well as additional duty under Sub-section 3 of the Customs Tariff Act.6. We are here concerned with the question, whether the debitsunder DEPB is equivalent to payment of duty in cash. 7. The learned counsel for the appellant submitted that inPRATIBA PROCESSORS VS. UNION OF INDIA (1966 (88) ELT 12 (SC))squarely applies to the present case. There, the Supreme Court heldas follows:-" 12. On a fair reading of the relevant provisionsof the Act and in particular Sections 15, 25, 59, 61 and68 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 thepaper book), we are of the opinion that the entireScheme is in a 'package' in allowing exemption toimported goods the Government had made it clear thatgoods imported into India against the Advance Licenceincludes goods imported under any licence (includingOpen General Licence) for which at the time of clearanceout of Customs control a valid Advance Licence isproduced by the importer. It is open to the importer toimport the items in advance under Open General Licenceand keep the same in Customs Board for getting aclearance against the valid Licence issued subsequentlyunder Duty Exemption Scheme. When the notificationgranting the exemption and also the Import Policy hastotally liberalised the entire process, the mere fact ofwarehousing the goods on an anterior date and clearingthe same on the basis of a subsequent Advance Licence,validly obtained under Duty Exemption Scheme cannot beany stretch of imagination import the idea of levy ofinterest for the period the goods were kept in thewarehouse. The liability of the assessee to pay the https://hcservices.ecourts.gov.in/hcservices/ duty arises only on clearance of the goods from awarehouse. The assessee has no obligation to pay duty aslong as the goods were kept or remained in thewarehouse. It is only in cases where the goods kept inthe warehouse are exigible to duty and they are so keptin the warehouse for more than the permitted period andthe said goods are cleared subsequently and duty paid,interest is chargeable for the period of delay in theclearance of the goods. Since the goods warehoused arekept for a longer period such delay entails delayedpayment of duty payable and so interest is charged forsuch delayed payment of duty.13. .....14. In the above backdrop, let us consider the scope andcotent of Section 61(2) of the Act as it existed at therelevant time. Section 61(1) prescribes the periodduring which the goods imported may remain in thewarehouse. The normal period in different cases areprovided therein. Extension of time in special cases isalso provided. If the goods imported remain inwarehouse beyond the period provided or extended underSection 61(1), the consequences are specified in Section61(2) of the Act. As per the provisions of the Act dutyis payable (only when the goods are cleared. If thegoods are not cleared when the time granted underSection 61(1) of the Act, and the goods are clearedlater, the payment of duty exigible on the goods getsautomatically delayed. It is top meet the saidcontingency. Section 61(2) provides that if the goodswarehoused are cleared on the amount of duty on thewarehoused goods. It is implicit from the language ofSection 61(2) of the Act that the interest shall bepayable on the amount of duty 'payable or due' on thewarehoused goods for the period from the expiry ofperiod specified or granted till the date of clearanceof the goods from the warehouse. In this case, on thedate of clearance of the goods, no duty is payable. Thegoods are not exigible to duty at that time. Calculationof interest is always on the principal amount. The"interest" payable under Section 61(1)(2) of the Act isa mere- "accessory" of the principal and if theprincipal is not recoverable/payable, so is the intereston it. This is a basic principle based on common senseand also flowing from the language of Section 61(1)(2)of the Act. The principal amount hererin is the amountof duty payable on clearance of goods. When suchprincipal amount is nil because of the exemption, afortiori, interest payable is also nil. In other words,we are clear in our mind that the interest is https://hcservices.ecourts.gov.in/hcservices/ necessarily linked to the duty payable. The interestprovides under Section 61(2) has no independent orseparate existence. When the goods are wholly exemptedfrom the payment of duty on removal from the warehouse,one cannot be saddled with the liability to pay intereston a non-existing duty. Payment of interest underSection 61(2) is solely dependent upon the exigibilityor factual liability to pay the principal amount, thatis, the duty on the warehouswed goods at the time ofdelivery. At tht time, the principal amount (duty) isnot payable due to exemption. So, there is no occasionor basis to levy any interest, either. We holdaccordingly."8. The learned counsel submitted that in that case, the SupremeCourt held that importers are not liable to pay interest, since thegoods were exempted from payment of duty at the time of clearance. 9. The learned Senior Standing Counsel for the respondentsubmitted that the judgment in Pratiba's case will not apply to thepresent case, since those goods were covered under the DEEC Schemewhich is totally different. The learned counsel submitted that asper para 4.3.5 of Foreign Trade Policy 2004-07, the additional dutyof customs paid in cash or through DEPB license shall be adjusted ina CENVAT credit for payment of interest duty on the imports andtherefore, this would clearly show that the debit under DEPB licenseamounts to payment of duty, the only difference is that it is notpaid in cash and therefore, in respect of the warehousing goodswhich remain beyond the time stipulated, the liability to payinterest will arise. The learned counsel also relied on theTribunal's judgment in Seshasayee Paper and Boards Ltd and submittedthat the impugned order does not require any interference.10. The Duty Entitlement Pass Book Scheme has the objective ofneutralising the incidence of Customs duty on the import content ofthe export product and it is provided by way of grant of duty creditagainst the export product and the additional customs duty/exciseduty paid in cash or through debit under DEPB shall be adjusted asCENVAT Credit or Duty Drawback. The important paragraphs of theCircular dated 20.7.2007 are extracted hereunder:" Interest payavble on clearance of warehoused goods whenduty paid through DEPB debit.Circular No.26/2007-Cus., dated 20.7.2007F.No.475/04/2006-LCGovernment of IndiaMinistry of Finance (Department of Revenue)Central Board of Excise & Customs, New Delhi. https://hcservices.ecourts.gov.in/hcservices/ Subject : Waiver of interest on goods cleared from awarehouse when duty is paid by way of debit in DEPBlicenses-RegardingI am directed to refer to instructions contained in Board'sCircular No.10/2006-Customs, dated 14.2.2006(F.No.473/07/2005-LC) (2006 (194) E.L.T. T23) regardingwaiver of interest on Customs duty on warehoused goods andto say that a refeence was received in the Board seekingclarification whether interest on warehoused goods ischargeable, if the Customs duty is paid by way of debit inDEPB.2. The issue was examined and necessary clarification in thematter has been issued vide F.No.605/85/2006-DBK, dated21.7.2006 to the Commissioner concerned. Having regard tothe general implications of the matter, a copy of the sameis enclosed for information and necessary action. 3. In brief, the issue involved is, whether the duty paidthrough debits under DEPB is to be treated as payment ofduty of exemption from duty. Hitherto, the stand taken bythe Department was that goods cleared through debit underDEPB are exempted goods and, accordingly, no CENVAT ordrawback was allowed for such payments. Para 4.3.5., of theForeign Trade Policy, 2004-09 was amended allowingadditional Customs duty paid through debit under DEPB to beadjusted as Cenvat credit or duty drawback. The saidposition was clarified vide Circular No.59/2004-Cus., dated21.10.2004 (2004 (173) E.L.T. T9). It implies that the goodscleared by debits through DEPBs are not to be treated asexempted but duty paid.4. Section 61 of the Customs Act, 1962 provides for chargingof interest on duty payable on clearance of warehousedgoods. Section 61(d)(i) and (ii) provides that the interestshall be payable on the amount of duty payable at the timeof the clearance of the goods from the warehouse. In case ofclearances under DEPB Scheme, the amount of duty payable isrequired to be debited from DEPB scrip. Therefore, it cannotbe considered that the duty payable is nil or exempted. Thisis further supported by the fact that the CENVAT credit orduty drawback is available even when the additional Customsduty is debited under DEPB.5. The issue regarding interest on warehoused goods hasalready been clarified by the Board vide CircularNo.10/2006-Cus., dated 14.2.2006 clarifying, inter alia,that interest on warehoused goods is not payable where theprinciple amount (duty) itself is not payable following theApex Court Judgment in the case of Pratibha Processors (1996(88) E.L.T., 12 (S.C.) on this issue. In the case of https://hcservices.ecourts.gov.in/hcservices/ notification governing imports under DEPB Scheme, thesituation is slightly different. As explained above, thenotification issued under DEPB Scheme provides for exemptionsubject to debit of duties in DEPB scrips. It is thus not acase where the goods are unconditionally exempt from duty.6. In the light of the position explained above, it isclarified that interest is chargeable on duty paid by way ofdebit in DEPB on goods cleared from the warehouse."11. We are informed that in 2008(223) ELT 287 (Commissioner vs.Kanoongo Estate P. Ltd.,) has been appealed against. In 2001 (133)ELT 263 and in Pratibha Processors' case, the matter was coveredby DEEC Scheme and not DEPB Scheme. It was in those circumstances,that it was held that when no duty is payable, no interest liabilitywould arise. The differences between DEEC and DEPB Scheme has beenexplained in COMMISSIONER OF CUSTOMS, CALCUTTA VS. INDIAN RAYON &INDUSTRIES LTD., reported in 2008(10) SCALE 499, which reads asfollows:-" DEEC Scheme Under this scheme, the importer is issued an AdvanceLicence to procure the raw material for a manufacturerof the export product. The goods which are clearedunder Advance Licence are meant for use in themanufacture of export product or replenishment of theraw materials already used. The clearance is allowedduty free. The details of items allowed product arepublished by the Ministry of Commerce in their InputOutput Norms which are part of the Exim Policy.DEPB SchemeUnder this scheme, the exporters are issued DEPBscrips which allows them the specific amount to beutilized for payment of Customs duty. The amount forwhich DEPB scrip is issued depends upon the rate for aparticular export product. The Ministry of Commercenotifies DEPB credit rates for export of all item. TheDEPB scrip is freely transferable and can be used todebit the payment of duty at the time of clearance ofgoods except capital goods and goods mentioned innegative list."12. In fact, in that case, there were three bills of entries,only one of them was goods exported under DEEC Scheme and other twowere under the DEPB Scheme. The difference drawn by the SupremeCourt in the above judgments make it clear that under the DEECScheme, the clearance is allowed duty free, whereas under DEPBScheme, the exporters are issued DEPB scrips which allows themspecific amounts to be utilised for payment of Customs duty.Therefore, the importers, who use DEPB scrips, pay duty not by cash https://hcservices.ecourts.gov.in/hcservices/ but only by way of credit. This is clear from the judgment of theSupreme Court extracted above. Therefore, the goods cleared underDEPB Scheme cannot be treated an exempted goods, but they can onlybe treated to be duty-paid goods and therefore, the interest ispayable as per Section 61(2) of the Act. The debit of any amountunder the DEPB Scheme is a mode of payment of duty on the importedgoods and cannot be treated as exempted goods, unlike the goodsunder DEEC Scheme. We are unable to answer the questions raised bythe appellant in its favour. Therefore, the civil miscellaneousappeals are dismissed. Sd/Asst.Registrar/true copy/Sub Asst.RegistrarkbTo1. The Assistant RegistrarCustoms, Central Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai2.The Assistant Commissioner of CustomsCustoms DivisionNo.60, Mohan Singh StreetCuddalore – 607 003.3 ccs to M/s. Hari Radhakrishnan, Advocate, Sr. 15645 to 156471 cc to M/s. P. Buvaneswari, Advocate, Sr. 15970C.M.A.NOS.3609 to 3611/2008BVN (CO)kk 21/5