TIOL-DDT 938 · the untouched capture
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 938</font></strong> <strong><br>
27.08.2008 <br>
Wednesday </strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Interesting <font color="#FF6633">INTEREST</font> under Customs Act </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>DDT </strong> received this <strong>interest </strong>ing mail from a very knowledgeable Netizen:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 `<strong>or</strong>` and `<strong>and</strong>` 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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <strong>DDT</strong>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Circular is produced below for reference.</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633">Subject:</font></strong><font color="#FF6633"> Levy of penalty under section 114A of Customs Act, 1962 – Clarification- regarding.</font></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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 -</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">"To carry out the intention of the legislature, it is occasionally found necessary to read conjunctions "or" and "and" one for the other."</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Our edit team has examined the issue and has come up with this analysis.</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In terms of s. 114A of the Customs Act, 1962, equivalent penalty is leviable for</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i. non levy of duty or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii. short levy of duty or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii. interest has not been charged or has been part paid or</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iv. Duty or interest has been erroneously refunded due to reasons as envisaged therein.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under s. 114A it is stated that such duty or interest would be as determined under s. 28(2) of the Act.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Under s. 28(2A), again the terms <strong>duty </strong>, <strong>interest </strong> 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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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'. <br>
<br>
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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Unclaimed Deposits/Inoperative Accounts in banks – RBI clarifies</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI has instructed that:-</font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i) Banks should make an annual review of accounts in which there are no operations (i.e. no credit or debit other than crediting of periodic interest or debiting of service charges) for more than one year. The banks may approach the customers and inform them in writing that there has been no operation in their accounts and ascertain the reasons for the same. In case the non operation in the account is due to shifting of the customers from the locality, they may be asked to provide the details of the new bank accounts to which the balance in the existing account could be transferred.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ii) If the letters are returned undelivered, they may immediately be put on enquiry to find out the whereabouts of customers or their legal heirs in case they are deceased.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iii) In case the whereabouts of the customers are not traceable, banks should consider contacting the persons who had introduced the account holder. They could also consider contacting the employer/or any other person whose details are available with them. They could also consider contacting the account holder telephonically in case his telephone number/Cell number has been furnished to the bank. In case of Non Resident accounts, the bank may also contact the account holders through e-mail and obtain their confirmation of the details of the account.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(iv) A savings as well as current account should be treated as inoperative/dormant if there are no transactions in the account for over a period of two years.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(v) In case any reply is given by the account holder giving the reasons for not operating the account, banks should continue classifying the same as an operative account for one more year within which period the account holder may be requested to operate the account. However, in case the account holder still does not operate the same during the extended period, banks should classify the same as inoperative account after the expiry of the extended period.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vi) For the purpose of classifying an account as ‘inoperative' both the type of transactions i.e. debit as well as credit transactions induced at the instance of customers as well as third party should be considered. However, the service charges levied by the bank or interest credited by the bank should not be considered.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(vii) Further, the segregation of the inoperative accounts is from the point of view of reducing risk of frauds etc. However, the customer should not be inconvenienced in any way, just because his account has been rendered inoperative. The classification is there only to bring to the attention of dealing staff, the increased risk in the account. The transaction may be monitored at a higher level both from the point of view of preventing fraud and making a Suspicious Transactions Report. However, the entire process should remain un-noticeable by the customer.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(viii) Operation in such accounts may be allowed after due diligence as per risk category of the customer. Due diligence would mean ensuring genuineness of the transaction, verification of the signature and identity etc. However, it has to be ensured that the customer is not inconvenienced as a result of extra care taken by the bank.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(ix) There should not be any charge for activation of inoperative account.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(x) Banks are also advised to ensure that the amounts lying in inoperative accounts ledger are properly audited by the internal auditors/statutory auditors of the bank.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(xi) Interest on savings bank accounts should be credited on regular basis whether the account is operative or not. If a Fixed Deposit Receipt matures and proceeds are unpaid, the amount left unclaimed with the bank will attract savings bank rate of interest.</font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Banks may also consider launching a special drive for finding the whereabouts of the customers/legal heirs in respect of existing accounts which have already been transferred to the separate ledger of ‘inoperative accounts'.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=wnew/rbi_notification.htm" target="_blank">RBI/2008-09/138 DBOD.No.Leg. BC. 34/09.07.005/2008-09 Dated August 22, 2008</a></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Committee of Commissioners cannot examine orders passed by Commissioner (A)</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF0000">Stunned!</font> </strong>No, Sir we do not wish to withdraw these powers from the Committee constituted by the erudite Commissioners but here's an eye popping mail from an<font color="#FF0000"> <strong>inquisitive</strong><strong></strong></font> netizen which says so.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Section 35EE (1A) of the Central Excise Act, 1944 stipulates that the Commissioner of Central Excise may, if he is of the opinion that an order passed by the Commissioner(Appeals) under section 35A , where the order is of the nature referred to in the first proviso to section 35B (1), is not legal or proper direct the proper officer to make an application on this behalf to the Central Government for revision of such order.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">So, the legal position is that such orders of the nature referred to in the first proviso to section 35B (1) of the CEA'44 viz. <strong>rebate etc. </strong> passed by the Commissioner(Appeals) <font color="#FF0000">are not required to be examined by the Committee of Commissioners but by the jurisdictional Commissioner <strong>ONLY<em>. </em></strong></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Interestingly, there is no time limit prescribed in section 35EE within which the Revenue has to make an application to the Central Government for revision of such order.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">By the way, I shudder to think about all those orders of the Commissioner (Appeals) concerning “rebate” that have been accepted or ordered for review by the learned Committee of Commissioners– <strong>what would be their fate if the above “trespass” comes to the notice of the Revisionary authority?</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">May be, I am too finicky, but if the Department still harbours doubts about whether they can review pro-revenue orders as mentioned in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=7774" target="_blank">DDT-937</a></strong>, <strong>I think my question is sure to set eyeballs rolling.</strong></font></p>
<p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>RBI and 965 branches of Banks to accept Advance Income Tax</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Reserve Bank of India, has in a Press release announced that:- </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">As many as 965 computerised branches of public and private sector banks will receive advance income tax in Mumbai and Navi Mumbai. These arrangements have been made for the convenience of the income tax assesses. Of the 965 bank branches 900 branches are public sector bank branches, 36 HDFC bank branches, 10 ICICI bank branches and 19 AXIS bank branches. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Reserve Bank of India has advised income tax assesses to take advantage of these standing arrangements made for their convenience. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Long queues and inconveniences can be avoided at the Reserve Bank of India counters if the assesses in Mumbai and Navi Mumbai utilise the services being made available at various designated branches of banks and deposit their income tax dues well in advance of the last date. </font></p>
<div align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">– Tomorrow's cases</font></strong></font></div>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Import Policy</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>It is trite that no man should suffer a wrong by technical procedure of irregularities. The Rules or procedures are the handmaids of justice and not the mistress of the justice – Supreme Court </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It all started in 1982; a poor importer falling victim to the ignorance of babudom and he had to fight it for 26 years; the firm had been closed down and the partner had to argue the case in the Supreme Court as he had no resources to hire a lawyer! More strangely, the original order and appellate order was passed by the same person.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is futile to fight the <strong>might </strong> or <strong>ignorance </strong> of the Government, for they can ruin you! </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This case had several twists and turns before it meandered its way to the Supreme Court. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In the year 1982, M/s Rashtriya Chemicals & Fertilizers Limited (RCF), a Government of India Undertaking, floated a global tender for supply of various types of capital goods required for its Thal project. </font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Issue of debit notes by buyer for duty collected initially - Since goods are non-excisable, ratio of Larger Bench in Grasim Industries case does not apply </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IN</strong> cases where the duty was initially collected from the buyers, but later found to be not payable to the department, the normal practice is to give back the duty to the buyers by way of credit notes issued by the suppliers. But when the suppliers apply for the refund of such duty paid, it is also normal practice for the revenue to seek the assessee to establish that the incidence of duty has not been passed on to the assessee. And it is now settled law by the Larger Bench in Grasim Industries case <a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=52&filename=legal/cestat/2003/2003-TIOL-276-CESTAT-DEL-LB.htm" target="_blank"> <font size="1">2003-TIOL-276-CESTAT-DEL-LB</font> </a>that such post clearance adjustments like issue of credit notes do not establish that the incidence of duty has not been passed on to the buyer. </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p>
<p align="left"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Refund of advance to foreign buyer - exchange loss - admissible deduction: Bombay High Court</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> question referred to the High Court was, “Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the disallowance of the claim of the assessee for deduction on account of exchange loss of Rs.65,54,930/- incurred on remittance of advance received for supply of goods holding that the sum was paid by the assessee was not on account of commercial expediency and was not incurred wholly and exclusively for the purpose of business?” </font></p>
<p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Site Formation and Clearance, Excavation and Earth moving Demolition Services - Project is perceived by Sabarmati River Front Development Corporation not for purpose of restoring of water resources but for creation of promenades, recreation parks and gardens – Tribunal orders pre-deposit of One crore</strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> Bench after considering the lengthy submissions observed -</font></p>
<div align="justify">
<ul>
<li><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether the services rendered by the applicant would get covered under the exclusion clause or not, and as to whether activity undertaken by the applicant is for renovating or restoring the water resources of water bodies needs to be gone into detail as also the issue regarding the question of limitation and wrong calculation of duty, which can be done so only at the time of final hearing as the issue is a arguable one.</font></li>
</ul>
</div>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements</font></strong></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice Day.</font></p>
<p align="justify"><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
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