M/S. SWASTIKA ENTERPRISES &ANR.versusCOMMISSIONER OF CUSTOMS & ORS.

                    [20.15] 8 S.C.R. 1151


          M/S. SWASTIKA ENTERPRISES &ANR.                       A
                              v.
          COMMISSIONER OF CUSTOMS & ORS.
             (Civil Appeal No. 7570 of 2004 etc.)
                                                    ....        8
                     AUGUST 04, 2015
           [A.K. SIKRI AND R. F. NARIMAN, JJ.]

          Finance (No.2) Act, 1998 - s.95(ii)(b) aQd (c) - Kat
  Vivad Samadhan Scheme - Entitlement to '-- Demand of c
  additional customs duty from the assessee declining his
  claim for exemption thereof- By way of endorsement on the
  Bill of entry- The demand challenged by filing writ petition
 - Introduction of the Scheme during pendency of the petition
 - Assessee opted to avail the benefit of the Scheme - D
  Revenue denied the same on the ground that no· show-cause
. notice/demand notice was issued to the assessee and hence
  by virtue of s. s.95(ii)(b), the Scheme was not applicable -
  The denial of benefit challenged in another writ petition -
  Single Judge of High Court held that the assessee was E
  entitled to benefit of the Scheme - Division Bench of High
  Court held that the assessee was not entitled to avail the
 benefit by virtue of sub-clause (b) as well as (c) of s. 95(ii) -
  On appeal, held: It cannot be said that demand stands
 crystallized only when there is show-cause notice issued ul F
 s.28 of Customs Act- It is evident from ss. 46(1), 47(2) and
  153 of 1998 Act that endorsement on the Bill of Entry and
 the service thereof was a notice of demand - The
 endorsement had been treated as notice of demand by the G
 parties as well as the High Court - Therefore, the mischief
contained u/s. s.95(i0(b) would not be attracted-In the facts
of the case, mischief uls. s.95(ii)(c) is also not attracted -
The assessee shall be entitled to the benefit of the Scheme
-CustomsAct, 1962-s.28.
                                                                H
                            1151
1152      SUPREME COURT REPORTS                 [2015] 8 S.C.R.


 A         Allowing the appeals, the Court

           HELD: 1.1 It is not correctto say thatthe demand
   stands crystallized only when there is a show-cause
   notice issued u/s. 28 of the Customs Act and after
 B following the procedure when the adjudicating authority
   passes an order on the said show-cause notice holding
   that customs duty or additional customs duty is payable
   c::.nd on that basis notice of demand is issued. The
   contingency of issuing show-cause notice under s.28
 C of Customs Act 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 present
 D case. Moreover, the matter has to be examined in the
   light of the provision of the Kar Vivad Samadhan
   Scheme. [Paras 13 and 14] [1160-B-C, E, H]

       Union of India v. Nitdip Textiles Processors 2011 (13)
 E     SCR 26: (2012) 1 SCC 226- relied on.

           1.2 The Finance (No,2) Act, 1998 does not contain
   any specific provision prescribing the manner in which
   customs duty would be assessed or demanded in
 F 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.
   Under Section 46(1) (as it then stood), there was an
 G 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 imrorter, it would attract
 H interest until the date of demand. Section 153 of the 1998
    M/S. SWASTIKA ENTERPRISES v. COMMNR. OF             1153
                    CUSTOMS

Act also clarifies that any order, decision, summons or A
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. (Para 15] (1161-D- B
E, G-H; 1162-A, C-D]                       .
   Renuka Oat/a (Dr.) v. Commissioner of Income Tax,
 . Karnataka 2002 (5) Suppl. SCR 166: (2003) 2 SCC
   19- relied on..                          ·~           c
       1.3 The demand raised by way of endorsement
on the Bill of Entry prompted the appellants to challenge
the same by filing the writ petition. The Revenue also
never took the plea that the case was premature in the
sense that no demand had been crystallized in the D
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. [Para 17] (1162-H; 1163-A-B]            E

       1.4 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 F
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. [Para 19] (1163-E-F]
                                          "
       1.5 Even, with reference to the provisions of the G
Scheme, the endorsement shall have to be.treated as
notice of demand. Section 87(m) of the 1998 Act which
defines 'tax arrears', includes the amount of dues
remaining unpaid as on the date of making a declaration
u/s.88 of the 1998 Act. Indubitably, there was an amount H
1154        SUPREME COURT REPORTS               [2015] 8 S.C.R.


 A 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. [Para
 B 18] [1163-B-D]

            1.6 The purpose and the objective of the Scheme
   pertained to the 'tax arrears'which was due and not paid
   as on March 31, 1998 and in order to recover such tax
 C arrears expeditiously without under.going any legal
   hassles, the Scheme was promulgated. 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
 D attracted. [Para 20] [1163-G-H]

          2. In the facts of the present case, prima facie it
   appears that mischief of clause (c) is not attracted. In
   any case, the Revenue had not reje.cted the declarations
 E filed by the appellants, on this ground. [Para 21] [1164-
   D-E]

                        Case Law Reference
   2011 (13) SCR 26        relied on                Para 14
 F 2002 (5) Suppl. SCR 166 relied on.               Para 16
             CIVILAPPELLATE JURISDICTION: Civil Appeal No.
       7570 of 2004.
         From the Judgment and Order dated 28.08.2003 of the
 G High Court at Calcutta in Appeal No. 518of1999 and in Matter
   No. 681 of dated 19.04.1999.
                                Wl1H
       C.A. No. 7571 of 2004
 H           Ruby Singh Ahuja, Prateek Jalan, Ankit Yadav, Rahul
     MIS. SWASTIKA ENTERPRISES v. COMMNR. OF                       1155
                     CUSTOMS

Kripalani, Tuhin, Bhaskar Vali, R. N. Keshwani for the             A
Appellants.

      Binu Tamta, Bharathi Raju, Rajiv Nanda: B. Krishna
Prasad for the Respondents.
                                                                   B
       The Judgment of the Court was delivered by

       A.K SIKRI, J. 1) 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                 c .
introduced under Chapter IV of the Finance (No.2) Act of 1998
(hereinafter referred to as the '1998Act') 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
                                                                   0
and the meaning that is to be assigned to the said clause 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 of2004 for the sake of convenience):

        2) The appellants carry on the business, inter a/ia, of E
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. F
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 G
additional customs duty of 1 52,20,000 in addition to the basic
customs duty. The said endorsement was made under Section
47 read with Section 153 of the CustomsActand required the
appellants to make payment of the amount assessed within 7
days, failing which interest was chargeable.          ·          H
1156         SUPREME COURT REPORTS                   [2015) 8 S.C.R.


 A             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 bond forthe balance 50%.
 B
               4) ltso happened that in the meantime, one Mis.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
 C     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, atthe same time, had
 D     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/
 E     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
 F     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 the Scheme contained in Sections 86 to 98 of the
 G 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:
 H       "(a) the amount of duties (including drawback of duty,
        M/S. SWASTIKA ENTERPRISES v. COMMNR. OF                   1157
                 CUSTOMS [A. K. SIKRI, J.]

      credit of duty or any amount representing duty), cesses,     A
      interest fine or penalty determined as due or payable
      under that enactment as on the 31"day of March, 1998
      but remaining unpaid as on the date of making a
      declaration under section 88; or
                                                                   B
      (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 31'' day of March 1998 under the            c
      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        D
      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
                                                                    E
    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 ar~ars.
    For the purpose of taxes payable under indirect tax enactments,
    the rates at which the settlement would be made are specified F
    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:
                                                                    G
        "(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
                                                                    H
       enactment.


'
1158         SUPREME COURT REPORTS                    [2015] 8 S.C.R.


 A        (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
 B
          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
 C     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 bad
 D     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 also prayed for quashing of Section 95(ii)(b)
 E     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 s~id endorsement on the Bill of Entry
       constituted sufficient notice of demand to attract the Scheme.
 F
         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
G 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
H Section 95(ii) of the 1998 Act. The Division Bench has gone
      M/S. SWASTIKA ENTERPRISES v. COMMNR. OF                       1159
               CUSTOMS [A. K. SIKRI, J.]

 a step further in· rendering the impugned judgment as A
 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 cas~. Further, B
 no 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.         C

           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 o
  of the appellants was not accepted resulting into .an
  endorsement by the Revenue asking the appellants to pay
  additional customs duty of 1 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 ca~e of E
  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 F
  the appeal which was preferred by the Revenue in the case of
  Mis. Amar Steel Industries and in that sense the matter was
  still pending.

        12) On the aforesaid facts, we have to examine whether G
 the case of 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,   H
1160       SUPREME COURT REPORTS                     [2015] 8 S.C.R.


 A  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
 B 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
 C 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.

 D         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 interest payable has not been paid,
E 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
F bee_n short levied or short paid o.r 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
G 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
H would like to refer to the judgment of this Court in Union of
        M/S. SWASTIKA ENTERPRISES v. COMMNR. OF                   1161
                 CUSTOMS [A. K. SIKRI, J.]

 India v. Nitdip Textiles Processors 1 wherein it is held that A
 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                                               B
      (ii) where a demand or show-cause notice has been
      issued before 31.03.1998.

           15) Thus, it becomes abundantly clear that the 'tax
   arrear' had, in any event, been quantified and had not been. c
   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. D
  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 import.ed under a Bill of Entry for home
  consumption. An endorsement on the Bill of Entry and return E
  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 F
  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 46(1) (as it then stood), there was an obligation G
  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
 1
     (2012) 1 sec 22s                                             H
1162           SUPREME COURT REPORTS               [2015) 8 S.C.R.


 A 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
 B 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
 C which interest payable is at a rate between 10% and 36% per
   annum}. Section 153 of the 1998Act 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
 0
   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, Karnataka 2 , this Court widely interpreted the
 E 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 lo the terr.:
 F '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
 G 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 thatthe case
 H
       2 (2003) 2   sec 19
    M/S. SWASTIKA ENTERPRISES v. COMMNR. OF                       1163
             CUSTOMS [A. K. SIKRI, J.]

was premature in the sense that no· demand had been A
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 endor:sement
on Bill of Entry and service thereof upon the appellants was a
notice of demand.                                               B
         18) Even, with reference to the provisions of the
Scheme, this endorsement shall have to be treated as notice
of demand. We have already reproduced the provisions of
Section 87(m) of the 1998Act which defines 'tax arrears'. It,      c
inter alia, includes the amount of dues remaining unpaid as
on the date of making a declaration under Section 88 of the
1998Act. 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 D
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 E
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 F
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 G
expeditiously without undergoing any legal hassles, the
Scheme was promulgated. 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 9~(ii)(b) would not be attracted.                     H
1164          SUPREME COURT REPORTS                [2015) 8 S.C.R.


 A          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.clearthatwhen
   the High Court had disposed of the first writ petition of the
   appellants on July 20, 1993, it was explicit in making
 B 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
 c 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
 D 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 th·e declarations filed by the
   appellants on this ground. It is the Division Bench of the High
 E 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
 F 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,
 G set aside the impugned order and hold that the appellants shall
   be entitled to the benefit of Kar Vivad Samadhan Scheme.
               No costs.
       Kalpana K. Tripathy                            Appeals allowed.