http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

CASE NO.: Appeal (civil)  1730 of 2008

PETITIONER: Rexnord Electronics and Controls Ltd

RESPONDENT: Union of India and others

DATE OF JUDGMENT: 04/03/2008

BENCH: S.B. SINHA & V.S. SIRPURKAR

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO.  1730 OF 2008 (Arising out of SLP (C) No. 3934 of 2007)

S.B. SINHA, J.  

1.      Leave granted.

2.      Interpretation of the provisions of Section 127A read with Section  127H of the Customs Act is involved in this appeal which arises out of a  judgment and order dated 27th September,  2006 passed by the High Court of  Judicature at Bombay in Writ Petition Nos. 6238 and 6242 of 2006  

3.      Appellant herein is an exporter.  It was issued two licences under  Export Promotion Capital Goods (EPCG) Scheme for CIF value of  Rs.26,81,750/- and Rs.27,41,669/- respectively.  It imported capital goods  against the aforementioned licences availing the benefit of the Notification  dated 20th April, 1992.  It presented bills of entry at Mumbai Customs for  there clearance.  Pursuant to or in furtherance of the said licences the  appellant was required to export goods worth US $ 3,40,000 and US $  3,47,600 respectively within a period of five years from the date of issuance  thereof.  Appellant, however, could not meet its export liability and the value  of the exports made by it was to the extent of US $ 2,79,210 and US $  2,80,450.83 respectively.  In terms of the aforementioned Notification the  appellant was required to furnish a bond and undertaking before the Director  General of Foreign Trade, an authority created under the Foreign Trade  (Development and Regulation) Act, 1992.   Appellant had also undertaken to  pay interest on the differential amount.

4.      On the appellant’s failure to meet its export obligations in terms of the  said licences as also the Scheme aforementioned, a demand notice was  issued for payment of duty of 6,03,400/- and Rs.4,30,184/- respectively  alongwith 15% interest per annum payable to the Revenue from the date of  clearance of the capital goods till the date of payment of the duty demanded.   

5.      On receipt of the said notices, the appellant filed two applications  before the Settlement Commission for settlement of its cases on 10th  November, 2005 and 30th January, 2006.  By an order dated 29th June, 2006  the case of the appellant was settled by the Settlement Commission with a  direction to pay the total duty amount of Rs.2,16,610/- and Rs.3,41,493/-  respectively together with interest @ 15% per annum while granting  immunity from prosecution and penalty to the appellant.  

6.      Questioning the direction of the Settlement Commission to pay  interest @ 15 % per annum, two writ petitions were filed by the appellant  before the Bombay High Court which, by reason of the impugned judgment,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

have been dismissed.  

7.      Mr. Jay Savla, learned counsel appearing on behalf of the appellant  submitted that the order of the Settlement Commission was inconsistent/self- contradictory in so far as on the one hand payment of interest under the bond  could not have been held to be contractual in nature and on the other, it will  be subjected to any direction by the Court.  8.      Since interest payable under the bond, Mr. Savla, would submit, have  a direct nexus with the payment of excise duty, the Settlement Commission  had the requisite jurisdiction to waive the whole or a part of  interest payable  under the bond also.

9.      The learned Solicitor General, appearing on behalf of the respondents,  on the other hand, urged that having regard to the Scheme of Settlement, the  Settlement Commission had absolutely no jurisdiction in the matter.

10.     The Customs Act, 1962 (the Act) was enacted to consolidate and  amend the law relating to customs.     

       Indisputably on import of goods, customs duty is payable.  The  Central Government, however, issued a Notification bearing No.160/92-Cus.  dated 20th April, 1992 in terms whereof an undertaking was required to be  furnished before the Directorate General of Foreign Trade inter alia on the  following terms :-

"(viii).That the payment of the amount demanded by the  government under this agreement will not affect the  liability of the party to any other action, including the  initiation of legal proceedings for confiscation of the  imported material and refusal of further licences, and all  other liabilities, penalties and consequences under the  provisions of the Foreign Trade (Development and  Regulation) Act, 1992, and the Orders and Rules made  thereunder, that may be decided by the Government.  

(ix).   That this agreement shall remain in full force until  all the obligations of the party are fulfilled to the full and  final satisfaction of the government as specified above  and till such satisfaction is communicated to the party.          

(x)     That the party irrevocably undertakes that in the  event of his default in meeting the aforesaid export  obligation/conditions, they shall pay an amount equal to  24% interest per annum on the amount of customs duties  saved from the date of import of the first consignment till  the date of payment."

11.     Indisputably the appellant could not meet its obligations in terms of  the said undertaking.  The customs duty, therefore, became payable.  If  customs duty is not paid, interest is payable in terms of Section 28AA of the  Act, which reads thus :-

28AA. Interest on delayed payment of duty:   Subject to the provisions contained in section 28AB  where a person, chargeable with the duty determined  under sub-section (2) of section 28, fails to pay such duty  within three months from the date of such determination,  he shall pay in addition to the duty, interest at such rate  not below ten percent and not exceeding thirty percent.  per annum, as is for the time being fixed by the Board, on  such duty from the date immediately after the expiry of  the said period of three months till the date of payment of  such duty: Provided that where a person chargeable with  duty determined under sub-section (2) of section 28

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

before the date on which the Finance Bill, 1995 receives  the assent of the President, fails to pay such duty within  three months from such date, then, such person shall be  liable to pay interest under this section from the date  immediately after three months from such date, till the  date of payment of such duty.    Explanation 1. -Where the duty determined to be  payable is reduced by the Commissioner (Appeals),  Appellate Tribunal or, as the case may be, the court, the  date of such determination shall be the date on which an  amount of duty is first determined to be payable.     Explanation 2. -Where the duty determined to be  payable is increased or further increased by the  Commissioner (Appeals). Appellate Tribunal or, as the  case may be, the court, the date of such determination  shall be.-    (a) for the amount of duty first determined to be  payable, the date on which the duty is so  determined;   

(b) for the amount of increased duty, the date of  order by which the increased amount of duty is  first determined to be payable;  

(c) for the amount of further increase of duty, the  date of order on which the duty is so further  increased.

(2)     The provisions of sub-section (1) shall not apply to  cases where the duty or the interest becomes  payable or ought to be paid on and after the date  on which the Finance Bill, 2001 receives the assent  of the President."

12.     For non-payment of duty, the interest, which would be payable in  terms of Section 28AA of the Act, a proceeding may be initiated under  Section 28 of the Act.    

13.     Bond has been executed by the appellant in favour of a different  authority.  In case interest is payable in terms of the said bond and not in  terms of the statutory scheme, department would not be able to proceed in  terms of Section 28 of the Act.  Interest in terms of the provisions of the Act  would be payable if the assessee or the importer fails to pay the amount of  duty determined to be payable within a period of three months.   

14.     The statutory scheme envisaged under the aforementioned  Notification dated 20th April, 1992 is, however, completely different.   

15.     Keeping in view the aforementioned back drop, we may notice the  provisions governing settlement of cases.

       Chapter XIVA of the Act provides for settlement of cases.  It was  inserted by Finance Act, 1998 (Act 21 of 1998).  Section 127B of the Act  provides for filing of an application for settlement of cases wherein a full  and true disclosure of the applicant’s duty liability which had not been  disclosed before the proper officer, the manner in which such liability had  been occurred, the additional amount of customs duty accepted to be payable  by the applicant and such other particulars, as may be specified by rules  including the particulars of such dutiable goods in respect of goods whereof

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

the applicant admits short levy on account of misclassification or otherwise  of the goods before the Settlement Commissioner to have his cases settled.  The procedures laid down therefor are required to be followed by the  Settlement Commission.  In the event, the Settlement Commission accepts  the said application and passes an order thereupon, the applicant becomes  entitled to immunity from prosecution and penalty as laid down in Section  127H of the said Act which reads as under:-  127H. Power of Settlement Commission to grant  immunity from prosecution and penalty. - (1) The  Settlement Commission may, if it is satisfied that any  person who made the application for settlement under  section 127B has co-operated with the Settlement  Commission in the proceedings before it and has made a  full and true disclosure of his duty liability, 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 (45 of  1860) or under any other Central Act for the time being  in force and also either wholly or in part from the  imposition of any penalty, fine and interest under this  Act, with respect to the case covered by the settlement:  Provided that no such immunity shall be granted  by the Settlement Commission in cases where the  proceedings for the prosecution for any such offence  have been instituted before the date of receipt of the  application under section 127B.  (2)     An immunity granted to a person under sub- section (1) shall stand withdrawn if such person, fails to  pay any sum specified in the order of the settlement  passed under sub-section (7) of section 125fC within the  time specified in such order or within such further time  as may be allowed by the Settlement Commission, or  fails to comply with any other condition subject to which  the immunity was granted and thereupon the provisions  of this Act shall apply as if such immunity had not been  granted.  (3)     An immunity granted to a person under sub- section(1 )may, at any time, be withdrawn by the  Settlement Commission, if it is satisfied that such person  had, in the course of the settlement proceedings,  concealed any particulars, material to the settlement or  had given false evidence, and thereupon such person may  be tried for the offence with respect to which the  immunity was granted or for any other offence of which  he appears to have been guilty in connection with the  settlement and shall also become liable to the imposition  of any penalty under this Act to which such person would  have been liable, had no such immunity been granted. "

16.     The core question which, therefore, arises for consideration is as to  whether the term "interest" used therein would include within its fold  interest payable under the bond furnished by the appellant before the  Director General of Foreign Trade.   17.     The statutory scheme for the purpose of approaching the Settlement  Commission and the mode and manner in which appropriate order is to be  passed thereupon, are governed by Chapter XIVA of the Act.  With a view  to enable the Settlement Commission to pass an order, an applicant is  required to make a full and true disclosure of his liability. As noticed  hereinbefore, in the event his application is accepted, an immunity is granted  from prosecution of any offence under the Customs 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 from imposition of any penalty, fine and interest  under the said Act, with respect to the cases covered by the settlement.  The  same has nothing to do with payment of any interest under any other Act.  If  any interest became payable under the Act, indisputably the Settlement

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

Commission, will have the requisite jurisdiction to grant immunity in respect  thereof either wholly or in part.   All penalties, fine and interest, it goes  without saying, must, however, be enforceable under the Act.  The Scheme  for charging interest under the Act has been noticed by us hereinbefore.  No  other provision has been brought to our notice in terms whereof interest is  payable under the Act.   

17.     We, therefore, agree with the High Court that interest payable under  the bond is not an interest payable under the Act.   

18.     Mr. Savla has drawn our attention to a decision of the Bombay High  Court in Pratibha Syntext Ltd. vs.  Union of India : 2003 (157) E.L.T. 13  141 (Bom.).  The fact involved therein is not similar to the one before us.    There, the Commission, apart from directing the petitioner therein to deposit  the amount, directed adjustment thereof from and out of the deposit made by  the petitioner during the course of investigation.  While, however, granting  immunity a direction to pay interest @ 10 % on the amount of duty for not  complying with the declaration given as per the Exemption Notification  No.204/92 dated 19-5-1992 was issued.  A contention was raised therein that  the Customs Act does not make any provision for levy of interest on the duty  amount payable in respect of goods cleared during the period 1994-1996.  In  was in the aforementioned situation, it was held :- 16. Exemption Notification No. 204/92 issued under  Section 25 of the Customs Act clearly provides that  before clearance of the imported goods, the petitioners  shall produce proof of having executed a bond or a legal  undertaking before the concerned Licensing Authority,  for complying with conditions of the said Notification.  Therefore, the terms and conditions of bond and legal  undertaking executed before the Licensing authorities  agreeing to pay customs duty with interest in case of  breach, became part and parcel of the conditions of the  exemption notification issued under Section 25 of the  Customs Act, 1962. Since, there was breach of the terms  of the Exemption Notification, the customs authorities  were entitled to recover the duty with interest. Merely,  because the Commission erroneously or otherwise had  not levied interest in his order, it cannot be said that the  Customs authorities had no jurisdiction to recover  interest. If the petitioners were satisfied with the order of  the Commissioner of Customs, there was no need for  them to approach the Settlement Commission. Once the  petitioners have voluntarily chosen the jurisdiction of the  entire issue by the Settlement Commission afresh, in the  light of the disclosure made by them it was open to the  Settlement Commission to direct the petitioners to pay  the customs duty with interest. Although the Settlement  Commission has levied interest at a percentage, much  less than what was agreed to pay by the petitioners in  their bond and legal undertaking, the same being not an  issue in this petition, we are not expressing any opinion  in that behalf. Therefore, we have no hesitation in  holding that once the petitioners committed breach of the  terms of the exemption Notification No. 204/92, the  Customs authorities were entitled to enforce the  declaration with bond and legal undertaking given by the  petitioners and recover customs duty with interest. If the  customs authorities were entitled to recover duty with  interest then no fault could be found with the Settlement  Commission in directing the petitioners to pay customs  duty with interest."

       We are not concerned with such a case here.

19.     We may, however, notice that a learned Single Judge of Calcutta High

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

Court in Commissioner of Customs (Port)  vs.  Settlement Commission,  Customs & Central Excise : 2005 (179) E.L.T. 386 (Cal.) held :- "21. As far as the third point is concerned I have  carefully examined the provision of Section 127H of the  Act and it appears to me the power of the Settlement  Commission is relatable to waiver either partial or full  amount of interest under the Act only. In this case the  importer was and is under obligation to pay interest not  under the provision of the Act, but under the bond at the  rate of 24 per cent in terms of exemption notification. I  am of the view though Bond furnished in terms of  statutory decision, but then contractual character is not  destroyed. I am unable to comprehend how the learned  Commission could overlook the implication of bond in  relation to payment of interest thereunder. It seems to me  it has wrongly equated payability of interest under the  bond with the expressed provision of the said Act. Unlike  Civil Court the waiver either of full or of partial interest  in contractual bargain cannot be granted by the  Commission without consent of both the parties. To  clarify the position had it been a case of chargeability or  payability of interest under expressed provision of the  Act the Commission would have jurisdiction. This point  once was brought for decision before Bombay High  Court in the case of Pratibha Syntex Ltd. v. Union of  India [2003 (157) E.L.T. 141]. Their Lordships of the  Division Bench however did not deal with the same as  the facts and situation of the case did not warrant. In  Paragraph 16 it was observed by their Lordships as  follows : "..............although the Settlement Commission has  levied interest at a percentage, much less than what  was agreed to pay by the petitioners in their bond  and legal undertaking, the same being not an issue  in this petition, we are not expressing any opinion  in that behalf."

       Although the Calcutta High Court referred to Pratibha Syntext Ltd.  (supra), the distinct feature of the said case has not been noticed.   

20.     We agree with the Calcutta High Court that the power of the  Settlement Commission is relatable to waiver of partial or full amount of  interest only under the Act.

21.     We may notice that after the decision was rendered in the instant case,  the same Division Bench in Tanu Healthcareltd.  vs. Union of India : 2007  (207) E.L.T. 641 (Bom.) observed :-          "6.     We had an occasion to refer to the Commerce  Ministry Circular dated 22nd May, 2003 in another matter  which came before us yesterday i.e. Writ Petition  NO.6238 of 2006 with Writ Petition NO.6242 of 2006 on  the Appellate side in the case of Rexford Electronics &  Controls Ltd.  v .  the Union of India & others.  We noted  that the apart from the Commerce Ministry circular, as  far as the bond given by the party is concerned, there is a  Judgment of the Calcutta High Court in the case of  Commissioner of Customs (Port) v. Settlement  Commission, Customs and Central Excise, reported in  2005 (179) E.L.T. 386 (Cal.).  The High Court has held  that payment of interest under the bond is a contractual  obligation and the Settlement Commission has no power  to grant immunity to interest covered by such bonds."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

22.     A special leave petition filed thereagainst, being SLP (C) No. 3159 of  2007 has been dismissed by this Court by an order dated 12th March,2007.

23.     We are, therefore, of the opinion that the there is no infirmity in the  impugned judgment.   

24.     Appellant having evaded from payment of duty was bound to pay the  same and furthermore was bound to pay interest in terms of the bond  executed by it.  The Settlement Commission, therefore, could not have given  any direction for deduction in regard thereto.  As the Settlement  Commission, did not have any jurisdiction to waive the amount of interest  payable under the bond, we do not see that any jurisdictional error has been  committed by it in directing the payment of the said amount which is  otherwise payable.   In any event the appellant is not prejudiced thereby as  irrespective of such direction, the appellant was bound to pay the interest  payable under the bond.   

25.     For the reasons abovementioned, there is no merit in this appeal,  which is dismissed accordingly.  Counsel fee Rs.10,000/-.