Interesting INTEREST under Customs Act
DDT received this interest ing mail from a very knowledgeable Netizen:-
It is true that Board circulars are binding on officers. Apex court also endorsed this view. The problem lies in a circular which cannot be implemented. For example, Circular No. 61/2002- Cus dt 20.9.2002 envisages that provisions of Section 114A of Customs Act, 1962 are to be implemented even if there is a confusion between `or` and `and` and so on. It clarifies that penalty equal to interest is to be imposed in circumstances warranting invoking the provisions of Section 114 A of the Customs Act, 1962. It is pertinent to mention that interest under Section 28AB of the Customs Act, accrues till the date of payment of the Customs duty. It is not understood, how interest except warehousing interest can be determined in advance so as to impose penalty equal to interest under Section 114A of the customs Act, 1962.
Sir, may I request you to offer your expert views on the said circular either to me through e-mail or to the netizens through DDT.
Circular is produced below for reference.
Subject: Levy of penalty under section 114A of Customs Act, 1962 – Clarification- regarding.
It has been reported that a number of show cause notices were issued proposing the demand of not only duty, but also interest payable in terms of provisions of para 128 of the Hand Book of Procedures (1st April, 1993 – 31st March, 1997). While the Show Cause Notices have quantified/specified the amount of duty, the interest to be demanded has not been specified, although demands have been raised. It has been reported that in all such cases, penalty under section 114A is being imposed equivalent to the amount of duty which stands determined on the date of adjudication order. The Board has been requested to clarify as to whether mandatory penalty imposed under section 114A of the Customs Act, 1962 would be equal to the amount of duty or it would be equal to duty plus interest. Section 114A provides for levy of penalty equal to the duty or interest payable by a person in cases involving collusion or any willful mis -statement, or suppression of facts by the said person. Conjunction "or" in section 114A seems to be creating confusion at the field level.
2. The matter has been examined in consultation with the Ministry of Law. The Ministry of Law, has stated that Maxwell's Interpretation of Statutes (p-229) while dealing with conjunctions "or" and "and" provides that -
"To carry out the intention of the legislature, it is occasionally found necessary to read conjunctions "or" and "and" one for the other."
The Hon'ble Supreme Court in a case reported AIR 1957 SC p.699 State of Bombay vs. R.M.D.Chamarbougwala also read the word "or" as "and" to give effect to the clear intention of the legislature. In view of this, the Ministry of Law is of the view that to carry out the intentions of the legislature, it is occasionally found necessary to read the conjunction "or" and "and" one for the other. A Constitutional Bench of the Hon'ble Supreme Court in a case reported in AIR 1963 SC p.1638 T.S.Govindlalji Maharaj vs. State of Rajasthan has also observed that sometimes "or" must mean "and" as has been mentioned vide para 39 of the said judgment. A copy of the Ministry of Law's opinion is enclosed.
3. In view of the above, it is clarified that penalty under section 114A of the Customs Act, 1962 should be equivalent to duty and interest. The above-said clarification may kindly be kept in mind while imposing the penalty under section 114A of the Customs Act, 1962.
4. The contents of the Circular may be brought to the notice of all concerned by way of issuing suitable Standing Orders. Kindly acknowledge receipt of the Circular.
Our edit team has examined the issue and has come up with this analysis.
In terms of s. 114A of the Customs Act, 1962, equivalent penalty is leviable for
i. non levy of duty or
ii. short levy of duty or
iii. interest has not been charged or has been part paid or
iv. Duty or interest has been erroneously refunded due to reasons as envisaged therein.
Under s. 114A it is stated that such duty or interest would be as determined under s. 28(2) of the Act.
The pertinent question at this juncture is to understand what could be meaning of the term 'interest' when it is used in this context i.e. s.114A of the Act. Further s.114A clearly states that the 'duty' or 'interest' as the case may be, determined in accordance with s. 28(2) of the Act.
Under s. 28(2A), again the terms duty , interest are used. This construction of this clause more or less reflects the construction of s.114A . Under Customs Act, 1962, interest is leviable in two instances, firstly when there is non-payment or delayed payment of duty etc in terms of s. 28AA and s. 28AB interest is leviable. Secondly, interest is also leviable under s. 61(2) of the Act when goods remain in a warehouse beyond the stipulated period.
When the provisions of s.114A is harmoniously read with s. 28 of the Act, it becomes abundantly clear that the term 'interest' referred to therein is not the 'interest' which is leviable under s. 28AA or s. 28AB for the instances enumerated therein but 'interest' which is levied independently for violating the warehousing norms in terms of s. 61(2) of the Act. It should be noted that nowhere in the Customs Act, 1962 'interest' is levied independent of 'duty' except under s. 61(2). The other instance where 'interest' is leviable is when there is non-levy or short levy of duty. This 'interest' levy shall not survive independent of 'duty'.
Therefore, it can be concluded safely that the term 'interest' used in the context of s.114A is only the 'interest' which is leviable under s.61(2) of the Act and not the 'interest' which is leviable under s.28AA or s.28AB of the Act. In view of this the proposition of the Board to levy penalty equivalent to duty 'and' interest' under s.114A by assuming that the 'interest' payable is interest on 'duty' is grossly misplaced.
Unfortunately, this Board Circular based on the interpretation given by the Law Ministry's conclusions on interpretation of 'or' as 'and' by quoting Maxwell is out of place. The entire exercise of the Board and the Law Ministry in this regard by quoting Maxwell's interpretation of statutes for determining whether 'or' is 'and' in s.114A of the Act, is farfetched and without understanding the fundamentals of the provisions of the Customs Act, 1962 vis -a- vis levy of interest.
In view of the above, any levy of equivalent penalty on the 'interest' leviable under s.28AA or s.28AB is without any authority of law is unconstitutional and any such recovery by the Department has to be returned to assessees forthwith without any delay. Otherwise, it is not far when they will be forced to pay 'interest' under principles of justice and equity for holding such monies illegally and unconstitutionally.
It is time Board and the Law Ministry does a rethink on this issue and come out with clear cut clarification in the interest of justice.