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 3rd 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 26th December,  

1995; CW-20-4733 dated 26th December, 1995 and CW-20-4842 dated 2nd  

January, 1996, which were to expire respectively on     25th December, 1996,  

25th December, 1996 and 1st 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 19th 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 13th 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 5th June,  

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

the importer continued making representations dated 21st January, 1997;  

21st April, 1997; 20th May, 1997, 26th May, 1997 and 27th 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 1st April, 1997, issued  

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

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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. 1st 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  22nd 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 26th 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 2nd January, 1996 on  

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

days.

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7. On 14th 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 1st April, 1997.  Having acquired licence under the EPCG  

Scheme, on 21st 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 5th and 9th 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 17th March, 1998, the Deputy Commissioner of Customs  

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

rejected.  Being aggrieved, on 3rd 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 30th 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 7th April, 1998.

10.On 29th 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 30th March, 1998, the importer  

sought  to  impugn  the  said  confirmation  order  by  amending  the  Writ  

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

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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,  Calcutta2 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  

26th September, 1997, which was admittedly not questioned in the writ  

petition filed on 3rd April, 1998 and therefore, the dictum laid down in  

2 (1996) 5 SCC 576

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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  

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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  

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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

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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:

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“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  

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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

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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

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