Interest and penalties not imposable on demand of Customs, CVD, SAD

The Hon'ble Supreme Court in Union of India & Ors. v. Mahindra and Mahindra Ltd. [Special Leave Petition (Civil) Diary No. 18824 of 2023 dated July 28, 2023] dismissed the appeal filed by the Revenue Department and upheld the decision of the Hon'ble Gujarat High Court of setting aside the imposition of interest and penalty on custom duty, CVD, being without jurisdiction. 

Facts

M/s. Mahindra and Mahindra Ltd. ("the Respondent")is engaged in the business of manufacturing of vehicles.

The Respondent was served with Show Cause Notices ("the SCNs") to show why the entire amount payable in connection with the imported goods which amounts to misdeclaration with an intent to evade payment of customs duty. The Respondent filed reply of such SCNs.

Aggrieved by the SCNs the Petitioner filed writ before the hon'ble Bombay High Court.

The Petitioner contended that Section 90 of the Finance Act, 2000 relates to surcharge, Section 3 of the Customs Tariff Act, 1975 relates to additional duty of customs equal to excise duty and Section 3A of the Customs Tariff Act, 1975 relates to special additional duty of customs but none of these provisions provided for imposition of penalties and interest on the chargeable duty thereunder. Therefore, there was no power under provision of law to impose penalties and interest.

The Hon'ble Gujarat High Court relied upon the Judgement of IndiaCarbon Ltd. & Ors. v. State of Assam [Civil Appeal No. 2156-2167 of 1993] wherein the Supreme Court held that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax and further held that, where there is no substantive provision requiring the payment of interest, the authorities cannot, for the purpose of collecting and enforcing payment of tax, charge interest thereon.

The Court 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 and 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.

Stating so, the High Court held that imposition of interest and penalty on the portion of demand pertaining to surcharge or additional duty of customs or special additional duty of Customs was incorrect and without jurisdiction.

Aggrieved by the Order of the High Court the Petitioner filed Special leave petition before the Hon'ble Supreme Court.

Issue

Whether interest and penalty can be levied on demand of Customs Additional duty, SAD and surcharge?

Held

The Hon'ble Supreme court in Special Leave Petition (Civil) Diary No. 18824 of 2023 held as under:

• Dismissed the appeal of the Petitioner which was subsequently rejected on grounds of lack of merit and held that penalties or interest on additional customs duty, CVD, SAD and surcharges, which are not intrinsically linked to the basic customs duty, cannot be imposed without explicit substantive provision.