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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 7570 OF 2004

M/S. SWASTIKA ENTERPRISES & ANR. .....APPELLANT(S)

VERSUS

COMMISSIONER OF CUSTOMS & ORS. .....RESPONDENT(S)

W I T H

CIVIL APPEAL NO. 7571 OF 2004

J U D G M E N T

A.K. SIKRI, J.

The question of law which arises in these two appeals is

identical which concerns the interpretation that is to be accorded

to the provisions of Kar Vivad Samadhan Scheme (for short, the

'Scheme') that was introduced under Chapter IV of the Finance

(No.2) Act of 1998 (hereinafter referred to as the '1998 Act') and is

contained in Sections 86 to 98 of the said Act.  In particular, it is

Section 95(ii)(b) of the 1998 Act that becomes the focus of the

issue and the meaning that is to be assigned to the said clause

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would be the determinative of the outcome of the dispute.  It has

arisen under  the following circumstances (facts are taken from

Civil Appeal No. 7570 of 2004 for the sake of convenience):

2) The appellants carry on the business,  inter alia, of importing old

ships for the purpose of ship breaking and disposing of the scrap.

In 1993, they imported a vessel called  M.V. Pablo Metz  and for

clearance of these goods, filed the Bill of Entry under Section 46

of  the Customs Act,  1962.   Although the appellants contended

that  the  said  import  was  exempted  from  levy  of  'additional

customs duty' under an exemption Notification dated February 28,

1993, the Customs authorities, after hearing the appellants, felt it

otherwise.   An endorsement on the Bill  of  Entry was made for

payment of additional customs duty of  ₹52,20,000 in addition to

the basic customs duty.  The said endorsement was made under

Section 47 read with Section 153 of the Customs Act and required

the appellants to make payment of the amount assessed within 7

days, failing which interest was chargeable.

3) This levy was challenged by the appellants by means of a writ

petition before the High Court of Calcutta, which was disposed of

by the High Court with a direction to the appellants to submit a

bank guarantee for 50% of the disputed amount and a personal

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bond for the balance 50%.

4) It  so  happened  that  in  the  meantime,  one  M/s.  Amar  Steel

Industries  had  succeeded  in  the  writ  petition  filed  by  the  said

assessee on the same point as the learned Single Judge of the

Calcutta High Court had allowed its writ petition vide order dated

April  16,  1993.  However,  the  Revenue  had  preferred  appeal

against the said judgment, which was pending before the Division

Bench.  The Division Bench had passed an interim order dated

May 17, 1993 staying the operation of the judgment of the Single

Judge and, at the same time, had also given certain directions.

5) When  the  writ  petition  of  the  appellants  was  taken  up  for

consideration and disposed of  by the learned Single Judge on

July 20, 1993, the aforesaid events in the case of M/s. Amar Steel

Industries were taken cognizance of.  Thus, while disposing of the

writ petition and directing the appellants to submit bank guarantee

of  50%  of  the  disputed  amount  and  a  personal  bond  for  the

balance 50%, the learned Single Judge observed that he case of

the  appellants  would  abide  by  the  result  of  the  appeal  of  the

Revenue in the case of M/s. Amar Steel Industries.

6) During the pendency of the appeal, the Union of India introduced

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the Scheme contained in Sections 86 to 98 of the 1998 Act.  The

Scheme provides for settlement of disputes relating to tax arrears

both for direct taxes and indirect taxes.  So far as indirect tax is

concerned, Section 87(m)(iii) of the 1998 Act defines 'tax arrear' in

respect  of  which the  Scheme was to  be applied.   It  reads as

follows:

“(a)  the  amount  of  duties  (including  drawback  of duty,  credit  of  duty  or  any  amount  representing duty),  cesses,  interest  fine or  penalty  determined as due or payable under that enactment as on the 31st day of March, 1998 but remaining unpaid as on the date of making a declaration under section 88; or

(b)   the amount  of  duties  (including drawback of duty,  credit  of  duty  or  any  amount  representing duty),  cesses,  interest,  fine  or  penalty  which constitutes the subject matter of a demand notice or a show-cause notice issued on or before the 31st day  of  March  1998  under  the  enactment  but remaining  unpaid  on  the  date  of  making  a declaration under section 88, but does not include any  demand  relating  to  erroneous  refund  and where  a  show-cause  notice  is  issued  to  the declarant  in  respect  of  seizure  of  goods  and demand of duties, the tax arrear shall not include the duties on such seized goods where such duties on the seized gods have not been quantified.”

7) The Scheme also provided the procedure to take benefit thereof.

It required an assessee to make a declaration to the designated

authority in respect of tax arrears and pay the amount payable

under the Scheme to conclude in proceeding with respect to the

recovery of such tax arrears.  For the purpose of taxes payable

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under indirect tax enactments, the rates at which the settlement

would be made are specified in Section 88(f) of the 1998 Act.  For

our purposes, crucial provision is Section 95(ii) which made the

scheme inapplicable, in respect of indirect tax enactments, in the

following cases:

“(a)  In a case where prosecution for any offence punishable under any provisions of any indirect tax enactment has been instituted on or before the date of filing of the declaration under Section 88, in respect of any tax arrears of such case under such indirect tax enactment.

(b)   In  a  case where show-cause notice or  a notice  of  demand  under  any  indirect  tax enactment has not be issued.

(c)  In a case where no appeal or reference or writ petition is admitted and pending before any appellate  authority  or  High  Court  or  the Supreme Court or no application for revision is pending before the Central Government on the date of declaration made under Section 88.”

8) The  appellants  opted  to  avail  of  the  Scheme  and  filed  a

declaration  accordingly.   However,  the  designated  authority

passed the order dated February 13, 1999 thereon whereby he

rejected the declaration on the ground that in the appellants' case,

no  show-cause  notice/demand  notice  had  been  issued  and,

therefore, by virtue of Section 95(ii)(b), the Scheme did not apply.

9) The appellants challenged the order dated February 13, 1999 by

filing another writ petition before the High Court.  The appellants

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also prayed for quashing of Section 95(ii)(b) of the 1998 Act if it

was construed as requiring a notice of payment to be issued in

any particular form.  The learned Single Judge allowed the writ

petition by his judgment dated April 19, 1999 holding that the said

endorsement on the Bill  of Entry constituted sufficient notice of

demand to attract the Scheme.

10) The Revenue filed intra-court appeal before the Division Bench

questioning  the  validity  of  the  judgment  of  the  learned  Single

Judge.   In  this  appeal,  the  Revenue  has  succeeded  as  the

Division Bench has reversed the order of  the Single Judge by

means  of  its  judgment  dated  August  28,  2003  resulting  in

dismissal of the writ petition of the appellants and affirming the

order of the designated authority rejecting the declaration of the

appellants holding that the appellants were not entitled to take the

benefit of the Scheme under Section 95(ii) of the 1998 Act.  The

Division Bench has gone a step further in rendering the impugned

judgment as according to it the declaration filed by the appellants

was not only hit by clause (b) but clause (c) of Section 95(ii) as

well.  It has held that neither clause (b) or (c) of Section 95(ii) of

the 1998 Act is attracted inasmuch as there was no show-cause

notice or notice of demand issued in the instant case.  Further, no

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appeal  or  reference  or  writ  petition  of  the  respondent  was

admitted or pending before any authority mentioned in clause (c)

above.

This is how the matter has landed up in this Court.   

11) From the facts noted above, it is clear that on the import of the old

vessel, the appellants had filed Bill of Entry under Section 46 of

the  Customs  Act.   The  appellants  claimed  exemption  from

payment of additional custom duty.  This stand of the appellants

was not accepted resulting into an endorsement by the Revenue

asking  the  appellants  to  pay  additional  customs  duty  of

₹52,20,000. According to the appellants, this amounts to notice of

demand within the meaning of clause (b) of Section 95(ii).  It is

also the case of  the appellants that  though technically the writ

petition filed by the appellants challenging the aforesaid additional

customs duty  was disposed of  by  the  High  Court  on  July  20,

1993, the order of Court was categorical, namely, the result of the

appellants' case was made dependant upon the outcome of the

appeal which was preferred by the Revenue in the case of M/s.

Amar  Steel  Industries  and  in  that  sense  the  matter  was  still

pending.  

12) On the aforesaid facts, we have to examine whether the case of

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the  appellants  is  covered  by  clause  (b)  and/or  clause  (c)  of

Section 95(ii) of the 1998 Act, thereby making them ineligible to

utilise the benefit of the Scheme.   

13) Insofar as clause (b) of Section 95(ii) is concerned, it is the case

of  the appellants that  endorsement  on the Bill  of  Entry to  pay

additional customs duty amounted to raising demand for payment

of duty.  On the other hand, the Revenue argues that the demand

stands crystallized only when there is a show-cause notice issued

under  Section  28  of  the  Customs  Act  and  after  following  the

procedure the adjudicating authority passes an order on the said

show-cause  notice  holding  that  customs  duty  or  additional

customs duty is payable and on that basis notice of demand is

issued.  It was, thus, argued that since no such steps were taken

in the instant case, it cannot be said that any show-cause notice

was issued (which was the admitted position) or notice of demand

was given.  It was also argued that endorsement on Bill of Entry

will be regarded, at the most, a provisional assessment.

14) Having regard to the facts of this case, it is difficult to accept the

contention of the Revenue predicated on the provisions of Section

28 of the Customs Act.  Section 28 deals with recovery of dues

not levied or short levied or erroneously refunded or where any

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interest  payable  has  not  been  paid,  part  paid  or  erroneously

refunded.  In such circumstances, within a period of one year from

the  relevant  date,  appropriate  officer  is  competent  to  serve  a

notice on the person chargeable with the duty or interest which

has not been so levied or which has been short levied or short

paid  or  to  whom  the  refund  is  has  erroneously  been  made,

requiring him to show-cause why he should not pay the amount

specified  in  the  notice.   Therefore,  the  contingency  of  issuing

show-cause  notice  under  this  provision  would  arise  where  the

duty has not been paid either on the ground that it was not levied

at  all  or  was  short  levied.   Another  reason  for  invoking  the

provision would be where duty has been erroneously refunded.

Such a situation did not arise in the instant case.  Moreover, we

have to examine the mater  in  the light  of  the provision of  this

Scheme.  In this context, we would like to refer to the judgment of

this  Court  in  Union  of  India  v.  Nitdip  Textiles  Processors1

wherein  it  is  held  that  under  the  following  circumstances  the

amount payable shall be treated as 'tax arrears':

(i) where tax arrears are quantified but not paid as on 31.03.1998,

and

(ii) where a demand or show-cause notice has been issued before

1 (2012) 1 SCC 226

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31.03.1998.

15) Thus, it becomes abundantly clear that the 'tax arrear' had, in any

event, been quantified and had not been paid as on March 31,

1998.   Moreover,  when  the  Bill  of  Entry  was  filed  by  the

appellants,  after  examining the matter, endorsement was made

thereupon  that  additional  duty  in  the  sum  of  52,20,000  is₹

payable.  The appellants contested the same.  The question is

whether it amounts to notice of demand.  In this behalf, we have

to keep in mind that the 1998 Act does not contain any specific

provision prescribing the manner in which customs duty would be

assessed or demanded in respect of goods imported under a Bill

of Entry for home consumption.  An endorsement on the Bill of

Entry and return thereof to the importer asking the importer to pay

the amount therein would amount to issuing a demand.  On our

specific query to the learned counsel for the Revenue that if the

importer does not deposit the amount within the specified time on

receiving the endorsement on the Bill  of Entry, whether interest

thereupon  shall  start  accruing,  the  learned  counsel  for  the

Revenue  was  candid  in  answering  the  said  question  in  the

affirmative.  In fact, that is the legal position contained in Section

46(1) read with Section 47(2) of the Customs Act.  Under Section

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46(1) (as it then stood), there was an obligation on the part of the

importer to present a Bill of Entry in such cases.  Section 47(2) of

the Customs Act provides that in case there is a failure to pay the

import duty within a specified period from the date on which Bill of

Entry is returned to the importer, it would attract interest until the

date of demand.  At the relevant time, the demand was required

to be made within 7 days.  Otherwise, interest was payable, which

was to be fixed between 20% and 30% per annum.  It may be

mentioned that fundamentals of this provision still  remain intact

although rate of interest and the period within which the demand

is to be paid has been amended from time to time {as per the

amended provision which prevails now, the only difference is that

the demand is to be met within 2 days, excluding holidays, failing

which interest  payable is at a rate between 10% and 36% per

annum}.  Section 153 of the 1998 Act also becomes relevant as it

clarifies that any order, decision, summons or notice under the Act

may be served by tendering it  to  the person or  to  whom it  is

intended  or  to  his  agent.   In  the  instant  case,  after  the

endorsement on Bill of Entry, it was admittedly served upon the

appellants in the manner specified under Section 153.

16) In  Renuka  Datla  (Dr.)  v.  Commissioner  of  Income  Tax,

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Karnataka2,  this  Court  widely  interpreted  the  term  'total  tax

determined  and  payable' appearing  in  Section  87(f)  of  the

Scheme holding  that  no  particular  process  of  determination  is

contemplated.  It has to be held that on principle, same meaning

is to be accorded to the term  'determined as due or payable'  in

Section 87(m)(ii)(a) of the Scheme.

17) There is another manner of looking into the matter.  Immediately

after receiving the Bill of Entry with the endorsement to pay the

amount of ₹52,20,000, the appellants filed the writ petition in the

High Court disputing the same with the contention that it was not

payable.  Obviously,  it  was  a  demand  raised  by  way  of

endorsement on the Bill of Entry that prompted the appellants to

challenge the same by filing the writ petition.  The Revenue never

took the plea that the case was premature in the sense that no

demand  had  been  crystallized  in  the  absence  of  show-cause

notice or  adjudication order and, therefore,  such a writ  petition

was  not  competent.  Thus,  both  the  parties  understood  that

endorsement  on  Bill  of  Entry  and  service  thereof  upon  the

appellants was a notice of demand.

18) Even,  with  reference  to  the  provisions  of  the  Scheme,  this

2 (2003) 2 SCC 19

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endorsement shall have to be treated as notice of demand.  We

have already reproduced the provisions of Section 87(m) of the

1998 Act which defines  'tax arrears'.   It,  inter alia,  includes the

amount  of  dues remaining unpaid as on the date of  making a

declaration under Section 88 of the 1998 Act.  Indubitably, there

was an amount of duty payable, which had remained unpaid on

the date of making declaration by the appellants under Section

88.  It would be absurd to hold that though there is a tax arrear, as

the appellants were liable to pay the tax/duty demanded, and still

the Scheme is inapplicable.

19) It would also be interesting to note that the Division Bench of the

High  Court  in  the  impugned  judgment  has  itself  recorded  that

'duty was assessed' on the Bill of Entry.  This is so stated by the

Revenue in the counter affidavit filed in the instant proceedings as

well. Therefore, endorsement on the Bill of Entry is treated even

by the High Court as well as the Department as the assessment.

20) It is necessary to keep in mind the purpose and the objective with

which  the  Scheme  was  introduced.   It  pertained  to  the  'tax

arrears' which was due and not paid as on March 31, 1998 and in

order  to  recover  such  tax  arrears  expeditiously  without

undergoing  any  legal  hassles,  the  Scheme  was  promulgated.

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Therefore, when it is found in the broader sense that there were

tax arrears and the appellants were called upon to pay the said

tax, mischief contained in Section 95(ii)(b) would not be attracted.

21) We now advert to the second limb of the matter, viz., whether the

case would come within the embargo set out in clause (c).  From

the facts noted above, it is clear that when the High Court had

disposed of  the first  writ  petition  of  the appellants  on July  20,

1993, it was explicit in making categorical remarks that the fate of

the appellants' case would abide by the result of the appeal filed

by the Revenue in a similar case of another assessee, namely,

M/s. Amar Steel Industries.  Thus, the appellants' challenge to the

substantive levy of the additional duty was disposed of subject to

the result of the Revenue's appeal in the case of M/s. Amar Steel

Industries.  Admittedly, the appeal of M/s. Amar Steel Industries,

was still  pending before the Division Bench when the Scheme

was promulgated by the Legislature and the declaration was filed

by the appellants.   The said assessee has subsequently  been

permitted  to  avail  of  the  Scheme.   Therefore,  prima  facie it

appears that mischief of clause (c) is not attracted.  In any case it

is not necessary to go into this aspect in detail, for another simple

reason it needs to be remarked that the Revenue had not rejected

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the declarations filed by the appellants on this ground.  It is the

Division  Bench  of  the  High  Court,  in  the  impugned  judgment,

which has held against the appellants on this account.  It is also

very pertinent to point out that in the counter affidavit filed by the

Revenue  in  the  instant  appeal,  the  Revenue  appears  to  have

given up this contention as the impugned order of the High Court

is not defended on this ground at all.

22) The aforesaid discussion leads us to conclude that the impugned

judgment of the High Court is erroneous and warrants to be set

aside.   We,  accordingly,  allow  these  appeals,  set  aside  the

impugned order and hold that the appellants shall be entitled to

the benefit of Kar Vivad Samadhan Scheme.

No costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ROHINTON FALI NARIMAN)

NEW DELHI; AUGUST 04, 2015.

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ITEM NO.1A              COURT NO.12               SECTION III (for jt.)                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS Civil Appeal  No(s).  7570/2004 M/S. SWASTIKA ENTERPRISES & ANR.                 Appellant(s)                                 VERSUS COMMNR. OF CUSTOMS, KOLKATA & ORS.              Respondent(s) WITH C.A. No. 7571/2004   Date : 04/08/2015 These appeals were called on for judgment  

  today. For Appellant(s)                      Ms. Ruby Singh Ahuja,Adv.                       

Mr. Ashok Kumar Juneja,Adv.  Mr. Chand Qureshi,Adv.

                    Mr. R. N. Keshwani,Adv. For Respondent(s)  Mr. Sanjai Kumar Pathak,Adv.for                      Mr. B. Krishna Prasad,Adv.                       

Hon'ble  Mr.  Justice  A.K.Sikri  pronounced  the judgment of this Court comprising of His Lordship and Hon'ble Mr. Justice Rohinton Fali Nariman.

The appeals are allowed in terms of the signed  judgment.

No costs.   

  (SUMAN WADHWA)         AR-cum-PS

        (SUMAN JAIN)          COURT MASTER

Signed Reportable judgment is placed on the file.

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