ORDER
R. Jayaraman, Member (T)
1. Though an adjournment has been sought for, on behalf of one of the Respondents namely M/s. Garden Silk Mills Ltd., after hearing Shri Mondal, and Shri R. Parthasarathy, the ld. Adv. for the other respondent, we have decided that the Reference Applications could be taken up and disposed of, even without the presence of the other Respondent.
2. Both the reference applications involve in consideration of the same questions of law and hence they were taken up for disposal together. Both the Reference Applications are against the common order passed by this Bench bearing No. 797-800/91-WRB, dated 12-4-1991 allowing the appeals of the Respondents and giving directions to grant consequential reliefs by way of refund of the interest collected in respect of warehoused goods which were cleared from the warehouse and the said goods were wholly exempted. This Bench took note of the decision of the Kerala High Court on the very same issue reported in 1991 (52) E.L.T. 357 (Ker.) in the case of Thungabhadra Fibres Ltd., Bangalore v. Union of India and Anr.. The short question which arose in the appeals was whether the interest is payable on the goods warehoused and cleared from the warehouse by availing of total exemption of duty. The Kerala High Court has held that no duty is required to be paid so long as the goods remained in the warehouse and even as per the legal provisions of the Customs Act, in respect of warehoused goods, the relevant date for determining the rate of duty is the duty prevalent on the date of clearance from the warehouse and hence when the principal amount of duty is nil, there is no question of recovery of any interest. Following the ratio of the judgment, the appeals of respondents were allowed. The revenue brought forth these two Reference Applications setting out the following questions of law alleged arising out of the said order:-
1. Whether the grant of refund of interest is inherent in Section 27 of C.A. ’62 as held by CEGAT in this case when the said section specifically deals with refund of duty only. Whether CEGAT’s stand that any other interpretation would mean that Deptt. cannot issue demand for interest under Section 28 of C.A. ’62 is relevant when there are specific provisions under Sections 59, 61(2) and 72 of C.A. ’62 for recovery of interest.
2. Whether Exemption under DEEC Scheme which exempts the goods from duty subject to fulfilment of certain conditions can be taken to include within its scope exemption from liability to pay interest already incurred when there is no such provision in Notification No. 116/88-Cus. Though liability to pay interest is an adjunct to a debt or liability, can the extinguishment of principal debt or liability, ipso facto absolve the debtor from liability to pay interest which has already become payable as a distinct liability?
3. Whether the Hon’ble High Court was correct in holding that liability to pay duty is only at the time of clearance of goods, when Section 72(1) specifically lays down liability to pay duty on the date of expiry of warehousing period as allowed under Section 61(1) unless the importers relinquish the title to the goods U/s 23(2) of C.A.’ 62? Does not the bond executed by the importer U/s 59 conclude that liability to pay duty has already been incurred but it is only being deferred to a later date?
3. Shri Mondal, strenuously argued as below :
It cannot be held that the goods were exempted from duty. At the time of import, the goods are admittedly dutiable and even at the time of warehousing they were dutiable and there was a principal amount namely the duty payable on these goods. Merely because they were exempted, interest accruing on the principal amount, namely duty during the period, prior to elgibility for exemption cannot be wiped off. It is not the case of the Respondents that the goods were exempted on import. If they were so, there was no need to warehouse the goods. The warehousing is mainly intended for deferring the payment of duty. Payment of interest is required under Section 61 of the Customs Act. According to this section, such interest rates are to be prescribed by the Board and even waiver of interest is required to be granted by the Board, whereas the duty rates are determined by the Govt. through an appropriate legislation passed through the Parliament. The Govt. only have the power to grant exemption under Section 25 of the Customs Act. That power only relates to duty and cannot be said to cover the interest amount. Hence when the goods, on import, are dutiable and they have been warehoused for the purpose of deferment of payment of duty, interest accrual till the date of grant of exemption by the Govt. cannot be said to be wiped off, automatically, unless there is a specific waiver by the Board. On these grounds, he contended that the points of law have arisen. On a query he however fairly conceded that the question No. 3, as framed by the Collector, is not happily worded; because of the fact that the question deals with the decision of the High Court and not with the order of the Bench and hence that part of question cannot be said to be arising out of the order of this Bench.
4. Shri R. Parthasarathy, the Ld. Adv. on the other hand, referred to the relevant portion of the findings of this Bench and also the decision of the Kerala High Court and pleaded that it is statutorily laid down that the rate of duty, as prevalent on the date of clearance, is applicable in respect of warehoused goods and when on the date of clearance, there is no duty payable, the interest calculation cannot be made on a notional sum based on the duty payable on import. Thus he opposed the Reference Application.
5. After hearing both the sides, and on a perusal of the points of law, we observe that though with regard to questions 1 and 3 no serious arguments were advanced, we find that they are also required to be disposed for matter of record. Section 27 of the Customs Act during the relevant period is no doubt relating to refund of duty. Even this Bench has held that interest is not duty but when the interest has been collected, when it is not to be recovered, that is to be refunded under the normal law. Even in the case of redemption fine, which is not to be collected or in the case of other miscellaneous dues, where they were wrongly collected, the Department cannot refuse refund on the ground that Section 27 does not provide for the same. Hence any collection illegally made is required to be refunded under the normal law. The only condition is that if it is a case of illegal collection of duty, time limit and other conditions may have to be looked into as per Section 27. As regaras the question No. 2, any exemption, whether it is under DEEC Scheme or otherwise is an exemption. Though certain conditions are required to be fulfilled under the DEEC Scheme, at the time of clearance of the goods from the warehouse, they are charged to nil rate of duty, because of the exemption. If it is a case of non-fulfilment of the conditions under DEEC Scheme, they can recover the duty payment with the interest payable thereon in terms of the undertaking given by the importers. Hence when the goods are released duty free in terms of the exemption notification, there is no principal amount required to be paid. The principal amount would arise, only when the conditions imposed are not fulfilled and such an amount would be demanded in terms of the undertaking executed by the importers. As regards the arguments advanced by the SDR, we are to take note of the position as laid down under the Customs Act. Under Section 15 of the Customs Act, rate of duty in respect of the warehoused goods shall be the one prevalent on the date on which the goods were actually removed from the warehouse. So long as the goods remain in the warehouse, there is no requirement of payment of duty. Hence the first occasion for demanding the interest would be the date, on which the goods are cleared from the warehouse and based on that, the period of detention in the warehouse and applying the rate of interest to the principal amount, interest is to be calculated. Applying the simple arithmetics, when the principal is zero, interest is also zero and that is what has been held by the Kerala High Court, with which no one can cater any doubt.
6. We therefore, do not find any merit in the Reference Applications and dismiss the same.