REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2899 OF 2006

M/S SBEC SUGAR LIMITED & ANR. —APPELLANTS

VERSUS

UNION OF INDIA & ORS. —RESPONDENTS

WITH

CIVIL APPEAL NO. 2900 of 2006

J U D G M E N T

D.K. JAIN, J.:

1.These appeals, by grant of leave, are directed against the judgments and

orders dated 3

rd

April, 2006 delivered by the High Court of Bombay,

whereby the High Court has dismissed the two writ petitions (Nos.775

and 4173 of 1998) filed by the appellants herein, and has directed the

Assistant Commissioner of Customs, Bond Department to finally assess

the customs duty and other charges payable by the appellants in respect

of the goods covered under the subject bills of entry. The High Court has

further directed that if the payment of customs duty, interest and other

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charges is not made by the appellant company within two weeks from the

date of such determination and communication thereof, the customs

authorities shall enforce the bond executed by the company,

pursuant to the interim order passed by the Court.

2.As a common question of law is involved in the appeals and in fact the

latter order is based on the former, these are being disposed of by this

common judgment. However, in order to appreciate the controversy

involved, for the sake of convenience, the facts emerging from C.A.

No.2899/2006 are being adverted to. These are:

Appellant No. 1 (hereinafter referred to as “the importer”) a body

corporate, is engaged in the manufacture of sugar. Appellant No.2 is the

Vice-President of the first appellant. With a view to set up a sugar

manufacturing unit, the importer imported certain capital goods. Instead of

getting the goods released for home consumption, the importer opted for

getting these goods warehoused under Bond. The present appeal is confined

to three consignments under Bond No. CW-20-4732 dated 26

th

December,

1995; CW-20-4733 dated 26

th

December, 1995 and CW-20-4842 dated 2

nd

January, 1996, which were to expire respectively on 25

th

December, 1996,

25

th

December, 1996 and 1

st

January, 1997. It is pertinent to note that on the

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original bonds and the bills of entry, the Assistant Commissioner of Customs

made an endorsement for payment of interest @ 20% per annum from the

date of expiry of the bond.

3.On 19

th

December, 1996, the importer made an application for extension

of the bond period by six months in respect of all the afore-mentioned

consignments. However, the said request was rejected by the Assistant

Commissioner of Customs vide letter dated 13

th

January, 1997 on the

ground that the application was not received in the Bond department at

least 15 days before the expiry of the current period of bond and was also

not accompanied by an examination certificate by the Customs

Officer/staff of the warehouse, the mandatory terms and conditions

stipulated in para 2(i)(iii) of the Public Notice No.102/96 dated 5

th

June,

1996. Notwithstanding, rejection of prayer for extension of Bond period,

the importer continued making representations dated 21

st

January, 1997;

21

st

April, 1997; 20

th

May, 1997, 26

th

May, 1997 and 27

th

May, 1997 to

the respondents, requesting for re-consideration of their request for

extension of bond period and not to issue notice for auction of the goods.

4.In the meantime, vide notification No.29/97 dated 1

st

April, 1997, issued

under Section 25(1) of the Customs Act, 1962 (for short “the Act”), the

3

Central Government extended the Export Promotion Capital Goods

Scheme (for short “the EPCG Scheme”) for the period 1997-2002 to

Agro based Industries. The effect of the notification was that the capital

goods used in the manufacture of agro-products, like sugar and covered

under EPCG licence, were exempted from the payment of whole of the

customs duty, and additional duty leviable in terms of Section 3 of the

Act, w.e.f. 1

st

April, 1997. Para 6.6 of Chapter 6 of the Exim Policy,

containing the EPCG Scheme provided that:

“The licence issued under this scheme shall be valid for the

goods already shipped/arrived provided customs duty has not

been paid and the goods have not been cleared from Customs.”

5.On 22

nd

August, 1997, a licence under the EPCG Scheme, allowing

concessional duty at the rate of 10% was issued to the importer. On an

application by the importer, the said licence was rectified and endorsed as

“zero duty.”

6.Vide order dated 26

th

September, 1997, issued under Section 72(1) of the

Act, the Superintendent of Customs directed the importer to clear the

goods covered under Bond No. CW-20-4842 dated 2

nd

January, 1996 on

payment of full duty of customs and other charges within a period of 15

days.

4

7.On 14

th

January, 1998, the importer executed a bond and furnished a bank

guarantee for 100% of the duty saved as required under Notification No.

29/97 dated 1

st

April, 1997. Having acquired licence under the EPCG

Scheme, on 21

st

January, 1998, the importer filed three bills of entry for

ex-bond clearance for home consumption of the goods lying in the

warehouse. As afore-stated, by that time the bond period in respect of

the three consignments had expired and demand for payment of full

amount of customs duty chargeable on account of goods lying in the

warehouse, along with interest, penalty etc. had already been raised

against the importer. On 5

th

and 9

th

February, 1998, the importer made a

representation to the Chief Commissioner of Customs stating that since

zero duty was chargeable on the goods under the EPCG licence, there

was no question of levy of interest thereon.

8.Vide letter dated 17

th

March, 1998, the Deputy Commissioner of Customs

informed the importer that its request for waiver of interest had been

rejected. Being aggrieved, on 3

rd

April, 1998, the importer preferred a

writ petition (Writ Petition No. 775/1998) before the High Court

questioning the demand for interest in respect of the three consignments.

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9.On 30

th

March, 1998, the Assistant Commissioner of Customs issued an

order, confirming the levy of duty and interest amounting to

`1,01,03,535/-, together with interest at 20% p.a., which order, according

to the appellants, was received by them on 7

th

April, 1998.

10.On 29

th

April, 1998, the High Court passed an interim order directing the

respondents to permit the importer to remove the consignments on their

executing a bond without payment of interest but on payment of other

charges.

11.On receiving the confirmation letter dated 30

th

March, 1998, the importer

sought to impugn the said confirmation order by amending the Writ

Petition by filing Chamber Summons No. 72/1998 on 5

th

August, 1998.

12.As afore-mentioned, the High Court has dismissed the writ petition, inter

alia, observing:

“19. In the backdrop of the aforesaid legal position exposited by

the Supreme Court in Kesoram Rayon, when we turn to the

facts of the present case, it would be seen that the bond period

expired in respect of two bonds on 25th December, 1996 and

with regard to third bond on 1st January, 1997. Undisputedly,

the application for extension of bond period made on 19th

December, 1996 by the company was rejected on 13th January,

1997. That the demand under Section 72 was raised by the

Proper Officer on 26th June, 1997 to pay amount of duty

chargeable on account of the subject goods lying in the bonded

warehouse after expiry of bonded period is not in dispute. As a

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matter of fact, the petitioners have not challenged the said

demand made under Section 72 of the Customs Act vide notice

dated 26th January, 1997. On expiry of bond period, as

aforenoticed, the subject goods are treated to have been

improperly removed under Section 72 from the warehouse.

That improper removal took place even when the goods

remained in the warehouse beyond the permitted period of

permitted extension. Thus, at the time the bills of entry were

filed by the company on 21st January, 1998, the Proper Officer

was justified in computing the duty from the date of expiry of

the bond period and the interest payable thereon. As a matter of

fact the company was aware that the duty has been calculated

by the concerned Officer along with interest on the reverse of

the bill of entry but this fact has been suppressed.

20. The edifice has been built on erroneous premise in the writ

petition that no duty was payable on the goods and since no

duty was payable on the goods no interest could be levied or

demanded as interest is only the accessory to the principal and

if the principal is not payable the interest is not payable. In

challenging the demand of interest, the petitioners has

misrepresented that the duty was not payable by virtue of

notification dated 1st April, 1997 and the licence issued to the

company under EPCG scheme and endorsement made thereon

of zero duty.

21. Having noticed the facts above, we have no hesitation in

holding that the provisions of Section 68 and consequently of

Section 15(1)(b) have no application since the goods were not

cleared from the warehouse within the bond period.

Admittedly, no extension was granted. By reason of goods

having remained in the warehouse beyond 25th December,

1996 insofar as two consignments were concerned and beyond

1st January, 1997 with regard to the third consignment, the

goods shall be deemed to have been improperly removed from

the warehouse under Section 72 and the Proper Officer was

justified in calling upon the company to pay the customs duty

on them as may be payable at the rate applicable at the rate on

the date on which the bond period expired. As a matter of fact,

there is no challenge to the demand made under Section 72 on

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26th September, 1997 calling upon the company to pay full

amount of duty chargeable on account of the subject goods

together with penalties, rent, interest and other charges. We are

surprised that the respondents permitted the company to remove

the goods on execution of bond alone though by the order dated

29th April, 1998 what the Court permitted the petitioners was to

remove the goods on their executing bond without payment of

interest but on payment of other charges. In other words, as per

the interim order dated 29th April, 1998 passed by this Court,

save and except, demand of interest, the company was liable to

pay all other charges including the full amount of duty together

with other charges as demanded vide notice dated 26th

September, 1997.”

13.As stated above, following this order, the second writ petition was also

dismissed.

14.Hence, the present appeals.

15.Mr. S. Ganesh, learned senior counsel appearing on behalf of the

appellants, strenuously urged that the impugned judgments are clearly

erroneous in light of the judgment of this Court in Pratibha Processors

& Ors. Vs. Union of India & Ors.

1

wherein this Court had observed that

if by operation of an exemption, the goods cleared were duty free and if

no duty was recoverable on the imported goods at the time of clearance,

no interest was payable thereon under Section 61(2) of the Act. It was

strenuously argued that in the instant case the goods were cleared from

1

(1996) 11 SCC 101

8

the warehouse under Section 68 and had not been removed on the basis

of an order under Section 72 of the Act and, therefore, having regard to

the provisions of Section 15(1)(b) of the Act, by virtue of the exemption

notification No.29/97, on the date of removal of the goods, no duty was

payable thereon. It was asserted that reliance on the decision of this

Court in Kesoram Rayon Vs. Collector of Customs, Calcutta

2

by the

High Court was clearly misplaced because unlike in the present case, the

goods in that case had been removed on the basis of the order under

Section 72 of the Act.

16.Per contra, Mr. Harish Chander, learned senior counsel appearing on

behalf of the respondents, while supporting the impugned judgments

contended that the benefit of exemption from payment of duty in terms of

the EPCG Scheme was not available to the importer because after the

expiry of the warehousing period, the goods had been removed under

Section 72 and not under Section 68 of the Act and therefore, Section

15(1)(b) of the Act had no application. It was stressed that the removal

of all the consignments in question was by virtue of demand notice dated

26

th

September, 1997, which was admittedly not questioned in the writ

petition filed on 3

rd

April, 1998 and therefore, the dictum laid down in

2

(1996) 5 SCC 576

9

Kesoram Rayon (supra) was squarely applicable on the facts of the

present case.

17.Having considered the matters in the light of the statutory provisions, we

are of the considered opinion that there is no merit in these appeals.

18.Section 61 of the Act prescribes the period for which goods may remain

warehoused. In so far as is relevant, it reads as follows:

“61. Period for which goods may remain warehoused.—(1)

Any warehoused goods may be left in the warehouse in which

they are deposited or in any warehouse to which they may be

removed,—

(a) in the case of—

(i) non-consumable store; or

(ii) goods intended for supply to a foreign diplomatic

mission; or

(iii) goods intended for use in any manufacturing

process or other operations in accordance with the provisions of

Section 65; or

(iv) goods intended for use in any hundred per cent

export-oriented undertaking; or

(v) goods which the Central Government may, if it is

satisfied that it is necessary or expedient so to do, by

notification in the Official Gazette, specify for the purposes of

this clause,

till the expiry of one year.

Explanation.—For the purposes of sub-clause (iv),

‘hundred per cent export-oriented undertaking’ has the same

1

meaning as in Explanation 2 to sub-section (1) of Section 3 of

the Central Excises and Salt Act, 1944 (1 of 1944);

(b) in the case of any other goods, till the expiry of three

months, after the date on which the proper officer made an

order under Section 60 permitting the deposit of the goods in a

warehouse:

Provided that—

… … …

(ii) in the case of any goods which are not likely to deteriorate,

the aforesaid period of one year or three months, as the case

may be, may, on sufficient cause being shown, be extended by

the Collector of Customs for a period not exceeding six months

and by the Board for such further period as it may deem fit:

… … …

(2) Where any warehoused goods remain in a warehouse

beyond the period of one year or three months specified in

clause (a) or clause (b) of sub-section (1) by reason of the

extension of the aforesaid period or otherwise, interest at such

rate, not exceeding eighteen per cent per annum as is for the

time being fixed by the Board, shall be payable on the amount

of duty on the warehoused goods for the period from the expiry

of the period of one year or, as the case may be, three months,

till the date of the clearance of the goods from the warehouse:

Provided that the Board may, if it considers it necessary so to

do in the public interest, waive, by special order and under

circumstances of an exceptional nature to be specified in such

order, the whole or part of any interest payable under this sub-

section in respect of any warehoused goods.”

19.From a bare reading of the afore-extracted Section, it is manifest that

warehousing is permissible for a limited period, as contemplated under

sub-sections (1)(a) and (1)(b) of Section 61; and such period is

1

extendable on showing sufficient cause for the same. However, by

operation of sub-section (2), interest on the amount of duty is payable

from the period of expiry of the permissible period till the date of

clearance from the warehouse, regardless of whether the goods have

remained in the warehouse beyond the permitted periods by reasons of

extension or otherwise. [See: Kesoram Rayon (supra)]

20.Section 68 deals with the clearance of warehoused goods for home

consumption and provides that an importer of any warehoused goods

may clear the goods for home consumption if : (i) a bill of entry for home

consumption of the said goods has been presented in the prescribed form,

(ii) the import duty leviable on such goods, all penalties, rent, interest and

other charges payable in respect of such goods have been paid, and (iii)

the proper officer has made an order for the clearance of such goods. In

relation to goods cleared under Section 68, Section 15(1)(b) of the Act

provides that the rate of duty shall be computed according to the rate and

valuation applicable on the date on which goods are actually removed

from the warehouse. (See: D.C.M & Anr. Vs. Union of India & Anr.

3

).

3

1995 Supp (3) SCC 223

1

21.Section 72 of the Act, which is relevant for our purpose, provides for the

consequences for improper removal of goods from warehouse. It reads

thus:

“72. Goods improperly removed from warehouse, etc.—(1) In

any of the following cases, that is to say,—

(a) where any warehoused goods are removed from a

warehouse in contravention of Section 71;

(b) where any warehoused goods have not been removed from a

warehouse at the expiration of the period during which such

goods are permitted under Section 61 to remain in a warehouse;

(c) where any warehoused goods have been taken under Section

64 as samples without payment of duty;

(d) where any goods in respect of which a bond has been

executed under Section 59 and which have not been cleared for

home consumption or exportation are not duly accounted for to

the satisfaction of the proper officer,

the proper officer may demand, and the owner of such goods

shall forthwith pay, the full amount of duty chargeable on

account of such goods together with all penalties, rent, interest

and other charges payable in respect of such goods.

(2) If any owner fails to pay any amount demanded under sub-

section (1), the proper officer may, without prejudice to any

other remedy, cause to be detained and sold, after notice to the

owner (any transfer of the goods notwithstanding) such

sufficient portion of his goods, if any, in the warehouse, as the

said officer may select.”

22.The scope and purport of Section 72 was examined by this Court in

Kesoram Rayon (supra). It was held that:

1

“13. Goods which are not removed from a warehouse within the

permissible period are treated as goods improperly removed

from the warehouse. Such improper removal takes place when

the goods remain in the warehouse beyond the permitted period

or its permitted extension. The importer of the goods may be

called upon to pay customs duty on them and, necessarily, it

would be payable at the rate applicable on the date of their

deemed removal from the warehouse, that is, the date on which

the permitted period or its permitted extension came to an end.

14. Section 15(1)(b) applies to the case of goods cleared under

Section 68 from a warehouse upon presentation of a bill of

entry for home consumption; payment of duty, interest, penalty,

rent and other charges; and an order for home clearance. The

provisions of Section 68 and, consequently, of Section 15(1)(b)

apply only when goods have been cleared from the warehouse

within the permitted period or its permitted extension and not

when, by reason of their remaining in the warehouse beyond the

permitted period or its permitted extension, the goods have

been deemed to have been improperly removed from the

warehouse under Section 72.”

23.We respectfully concur with the enunciation of law on the point. It is

plain that Section 15(1)(b) would be applicable only when the goods are

cleared from the warehouse under Section 68 of the Act, i.e., within the

initially permitted period or during the permitted extended period. It is

trite to say that when the goods are cleared from the warehouse after the

expiry of the permitted period or its permitted extension, the goods are

deemed to have been improperly removed under Section 72(1)(b) of the

Act, with the consequence that the rate of duty has to be computed

1

according to the rate applicable on the date of expiry of the permitted

period under Section 61.

24.While it is true that Condition 6 of the licence granted under the EPCG

Scheme was valid against goods which had already been shipped but not

cleared, but, we have no hesitation in holding that the benefit of

exemption granted under the Scheme to the already imported goods

would be available only in respect of those goods which are cleared

under Section 68 of the Act. In our opinion, any other interpretation of

the said clause would render Section 72 of the Act otiose, and would

result in the said Scheme operating as an amnesty scheme, granting an

unintended and undue advantage to the importer, which is ordinarily to

be avoided. (See: State of Maharashtra & Ors. Vs. Swanstone Multiplex

Cinema Private Limited)

4

. It is also a cardinal principle of construction

that the provisions of a notification have to be harmoniously construed as

to prevent any conflict with the provisions of the Statute. (See: Gudur

Kishan Rao & Ors. Vs. Sutirtha Bhattachaarya & Ors.

5

.)

25.We are, therefore, of the opinion that the decision in Pratibha Processors

(supra) on which heavy reliance is placed by learned counsel for the

4

(2009) 8 SCC 235

5

(1998) 4 SCC 189

1

appellants, is clearly distinguishable on facts inasmuch as apart from the

fact that in that case the clearance of goods was under Section 68 of the

Act, the import of Section 72(1)(b) of the Act was not considered. On

the contrary, the dictum laid down in Kesoram Rayon (supra) is on all

fours on facts at hand, and therefore, the decision of the High Court

cannot be faulted with.

26.For the fore-going reasons, the appeals, being devoid of any merit, are

dismissed with costs quantified at `25,000/-.

.……………………………………

(D.K. JAIN, J.)

.…………………………………….

(H.L. DATTU, J.)

NEW DELHI;

FEBRUARY 7, 2010

RS

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

1

CIVIL APPEAL NO. 2899 OF 2006

M/S SBEC SUGAR LIMITED & ANR. — APPELLANTS

VERSUS

UNION OF INDIA & ORS. — RESPONDENTS

WITH

CIVIL APPEAL NO. 2900 of 2006

O R D E R

In the judgment pronounced in C.A. No. 2899 of

2006 and connected matter, the date of the judgment

shall be read as February 07, 2011 instead of February

07, 2010.

……………………………………J.

(D.K. JAIN)

………………………………….J.

(H.L. DATTU)

NEW DELHI;

FEBRUARY 28, 2011

1