http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 4  

CASE NO.: Appeal (civil)  202 of 2002

PETITIONER: Essar Steel Ltd. & Anr

RESPONDENT: Union of India & Ors

DATE OF JUDGMENT: 29/03/2007

BENCH: S. H. Kapadia & B. Sudershan Reddy

JUDGMENT: J U D G M E N T with Civil Appeal No. 179 of 2002

KAPADIA, J.

       In these civil appeals the controversy lies on the  interpretation of the interim order dated 9.9.1991 passed by  this Court in a stay application in Civil Appeal Nos. 3152-53 of  1991 filed by the Department.

       Essar Steel Limited ("the importer" for short) submitted  the Bills of Entry on which provisional assessment was made  under Project Imports Regulations1986. The declared value  was DM 46.75 million on which the importer paid Rs. 7.93  crores as duty. This was not accepted by the Department.  They issued a show cause notice dated 24.10.1988. They  made provisional assessment based on total transaction value  of DM 84.15 million. Thus, the Department increased the  transaction value from DM 46.75 million to DM 84.15 million,  i.e., addition of DM 37.40 million. This increase was made by  the Department by loading the assessable value on account of  certain technical fees/ charges. Under the provisional  assessment, the Department accordingly called upon the  importer to pay Rs. 13.95 crores. As stated above, the importer  had paid Rs. 7.93 crores, unconditionally, according to the  declared value. After loading they paid a further amount of    Rs. 6.02 crores under protest. Thus, the disputed amount of  duty paid by the importer was Rs. 6.02 crores on account of  the increased transaction value of DM 37.40 million. The  amount was paid on 15/16.12.1988 by the importer. On  payment, the goods were cleared on 15/16.12.1988.

       The figures given in this judgment are rounded off to  even numbers for the sake of convenience.         The order was challenged by the importer before CEGAT  ("the Tribunal"). By judgment dated 13.2.1991 the Tribunal  decided the appeal in favour of the importer and directed  refund of Rs. 6.02 crores. Aggrieved by the decision of the  Tribunal, the Department came to this Court by way of civil  appeal nos. 3152-53/91. At the time of preliminary hearing on  9.9.1991 the following order was passed: "On the application for stay, we think, it is not  appropriate to order stay of the refunds. The  respondent shall be entitled to the refund  subject to the furnishment of a bank  guarantee for the amount of the refund to the  satisfaction of the Collector of Customs  (Preventive) Ahmedabad. A fresh bank

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 4  

guarantee, in lieu of existing bank guarantee,  shall be now furnished. The respondent shall  ensure that the guarantee shall be for the  entire period of the pendency of these appeals  if necessary by renewal from time to time. The  guarantee shall be strictly subject to this  condition.

The refund shall be made within two weeks  from the date of the furnishment of the bank  guarantee or within a period of 6 weeks  whichever is later. If the appellants succeed in  appeals, the amount of refund obtained  pursuant to order shall be made good and  restituted back to the appellants by the  respondent together with interest thereon @  18% per annum from the date of the refund."

       Finally, by judgment and order dated 19.11.1996, this  Court disposed of the Department’s civil appeal nos.          3152-53/91. It was held that fees paid by the importer to the  foreign supplier for theoretical and practical training of  engineers outside India was not includible in the assessable  value of the plant. It was further held that engineering and  consultancy fees paid to the foreign company was not fully  includible in the value of the plant. That, only the expenditure  incurred for dismantling the plant was includible. In short, out  of the addition of DM 37.40 million in the assessable value for  technical fees/ charges, this Court excluded DM 23 million in  favour of the importer and included DM 14.3 million (in favour  of the Department). In other words, the assessee substantially  succeeded in the appeal. This Court set aside additions to the  extent of DM 23 million.

After the decision of this Court, ultimately the final  assessment order was passed by the Department on  16.2.2001. This order has been passed after the impugned  judgment of the High Court dated 6.2.2001. Under the final  assessment order dated 16.2.2001, on account of deletion of  additions to the extent of DM 23 million the differential duty  payable by the importer stood reduced to Rs. 10,63,39,665/-  According to the  final assessment order the importer had  already paid Rs. 9,44,29,850/- leaving the balance of            Rs. 1,19,09,815/-, which stands paid by the importer. In other  words, the entire account stands settled.

       The Department now contends that the importer under  the interim order dated 9.9.1991 was liable to pay interest @  18% p.a. on Rs. 6.02 crores between the period 28.10.1991 to  10.7.1997; that under the said interim order passed by this  Court it was stipulated that if the Department succeeds in the  civil appeal nos. 3152-53/91 the importer was liable to restore  the refunded amount to the Department with 18% interest.  The entire controversy revolves round this interim order.

       In our opinion, this litigation was totally unwarranted  and time consuming. On one hand, the importer contended  that under the Customs Act, 1962, as it stood at the relevant  time, there was no provision for levy of interest on provisional  assessment. According to the importer, the Department could  have levied interest only on final assessment. According to the  importer, the present case related to imports during the period  September to November, 1988. According to the importer at  that time there was no provision for levying of interest on  provisional assessment. According to the importer, section

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 4  

47(2) was not applicable to the present case. According to the  importer, at the relevant time, interest was payable only in a  case where the importer fails to pay import duty under section  47(1) at the time of clearance within 5 days from the date on  which the bill of entry is returned to him for payment of duty  and that too on the amount of duty demanded at that stage by  the Department. According to the importer, as indicated by the  facts above, the import duty was paid within the stipulated  period and, in the circumstances, section 47(2) was not  applicable. It was further contended on behalf of the importer  that the Department cannot call upon the importer to pay  interest on the basis of the interim order of this Court which  ultimately got merged into the final judgment dated  19.11.1996. On behalf of the importer it was lastly contended,  that in the present case, the final assessment order was  passed only on 16.2.2001; that during the period 28.10.1991  to 10.7.1997 there was no final assessment order; that the  importer had succeeded substantially in getting the assessable  value reduced and that the very fact that the law stood  amended by Act 29 of 2006 with effect from 13.7.2006 vide  section 18(3) under which interest could be levied even on  provisional assessment indicates that prior to 13.7.2006 there  was no provision in the Customs Act, 1962 to charge interest  on provisional assessment except to the limited extent  mentioned in the proviso to section 47(2) which, on the facts of  this case, is not attracted. That, the doctrine of merger of the  interim order in the final order was not applicable in the  present case.  

According to the Department, on the other hand, the  Tribunal had passed an order of refund of Rs. 6.02 crores.  According to the Tribunal, the assessable value was not liable  to be loaded on account of technical fees/charges. The  Department had filed civil appeal nos. 3152-53/91 against the  decision of the Tribunal granting the refund. At the stage of  preliminary hearing when the Department sought an order of  stay of the refund, the importer was allowed the refund of Rs.  6.02 crores subject to the importer giving a bank guarantee to  the satisfaction of the Collector. It was made clear in the  interim order that Rs. 6.02 crores should be brought back by  the importer if the Department succeeds in the said civil  appeals and in such an event the importer shall return Rs.  6.02 crores to the Department with interest at the rate of 18%  p.a. from the date of refund which, as stated above, in the  present case, was on 28.10.1991. The Department contended  before us that in view of the above interim order, the  Department was entitled to interest on Rs. 6.02 crores  commencing from 28.10.1991 to 10.7.1997 on which date the  Department encashed the bank guarantee given by the  importer.         As stated above, the entire controversy in the present  case is irrelevant. The interim order passed by this Court was  on the stay application made by the Department. The importer  was allowed to withdraw Rs. 6.02 crores. The importer had  undertaken to restore the amount if the Department  succeeded in the appeal. In the present case, it is necessary to  keep in mind the conceptual difference between the assessable  value and the amount of duty payable thereon. As indicated  above, the declared value was DM 46.75 million. This was not  accepted by the Department. They increased the value from  DM 46.75 million to DM 84.15 million. The Department  included certain items. The importer objected to such  inclusion. The loading of the value was to the tune of DM  37.40 million. In the final hearing, this Court disallowed the  addition to the extent of DM 23 million out of DM 37.40

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 4  

million, therefore, the importer substantially succeeded in  getting the assessable value reduced. The duty amount of      Rs. 6.02 crores was based on the loading of certain items to  the tune of DM 37.40 million which this Court did not accept.  Duty is derived from the assessable value. As can be seen from  the order of final assessment, the differential duty stood  substantially reduced from Rs. 13.95 crores to Rs. 10.63  crores (approx.). The final assessment order has given a  complete break-up of the amounts paid during the  interregnum by the importer. When the litigation was going on  the Department has recovered Rs. 6.02 crores on 10.7.1997; it  has recovered Rs. 2.17 crores on 1.11.2000; the importer has  paid Rs. 50 lacs on 6.1.2001 and the importer has paid Rs. 75  lacs on 10.2.2001. In all, an amount of Rs. 9.44 crores  (approx.) got collected/ paid and the balance amount was Rs.  1.19 crores. This amount has also been paid. In the  circumstances, the Department cannot seek to recover interest  on the full amount of Rs. 6.02 crores which is the duty  amount calculated on the increased/ loaded assessable value  of DM 37.40 million. The Department has failed in its appeal  in loading the assessable value by DM 37.40 million. The  addition to the extent of DM 23 million is disallowed. In the  circumstances, the question of charging interest under the  interim order of this Court for the aforesaid period does not  arise. We do not wish to go into larger controversy regarding  chargeability of interest under the Customs Act, 1962 as it  stood in 1988.

       Before concluding, we may state that the importer and  the Department have both come in appeal to this Court  against the impugned judgment of the Gujarat High Court  dated 6.2.2001 in Special Civil Application No. 12661/2000.  In fairness to the High Court, we may state that the final  assessment order came to be passed on 16.2.2001 which is  after the impugned judgment. In the impugned judgment, it  has been stated that the parties should have moved this Court  for clarification of interim order dated 9.9.1991. We have  clarified and explained the position. We do not wish to expand  the controversy. Justice has been done in the matter.  Accounts have been settled. Accordingly, we set aside the  impugned judgment.

       For the aforestated reasons, without going into the wider  controversy, keeping the question of law open, we hold that  the Department was not entitled to interest at the rate of 18%  p.a. on Rs. 6.02 crores during the period 28.10.1991 to  10.7.1997 under the interim order dated 9.9.1991 of this  Court, quoted above.

Accordingly, both the appeals are disposed of with no  order as to costs.