Interest Under Customs Act Statutory, Cannot Be Waived Unless Authorised By Act: Kerala High Court

The Kerala High Court has ruled that a Court cannot waive the payment of interest while exercising its jurisdiction under Article 226 of the Constitution, since it is a statutory imposition. 

Justice Gopinath P dismissed a plea seeking a waiver of interest imposed by the respondent authorities on the petitioner for its failure to meet the export requirements under an advance licence, observing:

"Interest under the Customs Act is statutory. There can be no waiver of such interest unless such waiver is provided for in the provisions of the Customs Act itself."

The Court also added:

"...the failure on the part of the statutory authority to exercise power vested in it cannot automatically result in an order that the petitioner should be relieved from the payment of interest for any period of unreasonable delay in exercise of statutory power."

Background:

The petitioner company availed an advance licence to carry out imports without paying duty on the condition that it would achieve a specified export obligation both in terms of value and in quantity.

Upon failing to meet the export obligation within the specified time, it sought an extension of the validity period which was rejected by the Director-General of Foreign Trade. The petitioner thereupon preferred a review petition. 

After considering the review petition, the Policy Relaxation Committee rejected it, offering the petitioner the liberty to get its case regularised in terms of para 4.28 of the Handbook of Procedures accompanying the policy.

Following the rejection of the review petition, the petitioner paid the entire duty amount.

However, the petitioner was served with a notice requiring to show cause as to why action should not be taken against it for failure to regularise the matter in terms of para 4.28 of the Handbook of Procedures as directed.

Responding to the same, the petitioner submitted that it had already remitted the duty amount and that it was awaiting information from the Commissioner of Customs regarding any amount that was further payable.

Later on, the Commissioner informed the petitioner that in addition to the duty amount paid, the interest for the period of pendency of the review petition was due.

The petitioner thereby moved the Court challenging this demand of interest by the respondents.

The petitioner was represented by Advocates C.K. Karunakaran and T.P. Lekshmi Varma while the respondents were represented by Advocates P. Parameswaran Nair and Kavery S. Thampi.

Relevant Contentions:

The principal contention in the plea was that the petitioner was not liable to pay any interest for the period during which the review petition was pending before the competent authority.

To this, the respondents argued that interest is statutory and a High Court in the exercise of its jurisdiction under Article 226 of the Constitution cannot waive statutory interest.

They added that the terms and conditions upon which the advance licence was issued are very clear and categoric and that on failure to achieve export obligation, action, as contemplated by the policy, had to be taken against the petitioner.

Key Findings:

There were two important observations in the judgment, as listed below:

(1) Petitioner Liable To Pay Interest

The Court found that the petitioner had made zero exports within the original validity of the advance licence authorisation, despite being given an extension of 6 months.

It was also brought to the attention of the Bench that a further extension was denied solely because the petitioner company had failed to meet its export obligation even after 9 years. 

Nevertheless, the petitioner was allowed to apply for regularisation under clause 4.28 of the Handbook of Procedures.

The Court noted that the case of the petitioner is covered under clause 4.28 (iii), which provides for the calculation of the amount payable in cases where the export obligation is not fulfilled both in terms of quantity and value.

Accordingly, it was concluded that the petitioner will have to pay interest as well if it intends to regularise its default in terms of clause 4.28.

Therefore, the Court ruled that the demand for interest does not suffer from any vice and that it did not warrant the interference of the judiciary. 

(2) No Waiver Of Interest Under Customs Act

The petitioner had also argued that the delay in disposal of the review petition should relieve it of the liability to pay interest. Several decisions were also produced to establish that statutory power must be exercised within a reasonable time.

Although the Court agreed with the said principle, it observed: 

"...the failure on the part of the statutory authority to exercise power vested in it cannot automatically result in an order that the petitioner should be relieved from the payment of interest for any period of unreasonable delay in exercise of statutory power."

The petitioner, on failure to meet the export obligation, was required to pay customs duty on the imported material. The export obligation period having ended in 2006, it was bound to pay customs duty in the year 2006. However, the Court noted that the petitioner had paid the customs duty only in 2013.

The Bench also remarked that interest being compensation for money retained, the petitioner cannot claim any exemption from its payment. It added, 

"Interest under the Customs Act is statutory. There can be no waiver of such interest unless such waiver is provided for in the provisions of the Customs Act itself."

On the authority of Voltas Ltd. v. State of A.P. [(2004) 11 SCC 569], the Court held that the petitioner was not entitled to any relief, in the facts and circumstances of this case.

The petition was accordingly dismissed. 

Case Title: Pomsy Food Products (P) Ltd. v. Union of India

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