18 October 2022

No interest and penalty imposable on demand of Customs Additional duty, SAD and surcharge

The Bombay High Court has recently held that interest and penalty cannot be recovered by taking recourse to machinery relating to recovery of duty.

Setting aside the imposition of interest and penalty for non-payment of Customs Additional Duty, Special Additional Duty and Surcharge as without jurisdiction, the Court observed that there is no substantive provision under Section 3 (for additional duty) or Section 3A (for Special Additional Duty) of the Customs Tariff Act, 1975, or Section 90 of the Finance Act, 2000, that creates a charge in the nature of penalty or interest.

Citing the judgment of the Supreme Court in the cases of India Carbon Ltd. v. State of Assam and J.K. Synthetics Ltd. v. Commercial Taxes Officer, the Court said that the liability to interest and penalty is substantive and that provisions imposing interest and penalty are substantive (and not machinery).

The High Court in Mahindra and Mahindra Limited v. Union of India [Judgement dated 15 September 2022] observed that mere fact that there is machinery for assessment, collection and enforcement of tax and penalty under the Customs Act, 1962, it does not mean that the provision for penalty and interest in the Customs Act, 1962 is treated as applicable for penalty and interest under the Customs Tariff Act, 1975.

According to the Court, the meaning of penalty or interest under the Customs Tariff Act, 1975 cannot be enlarged by the provisions of machinery of the Customs Act, 1962 incorporated for working out the Customs Tariff Act, 1975.

The High Court in this regard also noted the difference in the provisions relating to anti-dumping under Section 9A of the Customs Tariff Act, which specifically provided for imposition of interest and penalty. It observed that amendments as made in Section 9A by the Finance (No.2) Act, 2004 were not made to Section 3(6) relating to additional duty equal to excise duty or Section 3A(4) relating to SAD or surcharge under Section 9(3) of the Finance Act, 2000.

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