Holding

Duty is payable at the rate in force on the date of clearance, and interest accrues only after the expiry of the notice‑specified period, to be computed on the duty amounts using the rates prevailing during that period.

Summary

M/s Bangalore Wire Red Mills imported a high reversible mill in 1982 and warehoused it without paying duty, executing a bond under Section 59(1) of the Customs Act, 1962. A notice dated 7 March 1985 required clearance within fifteen days, but the goods were only cleared on 9 September 1988, at which time duty was paid at the prevailing rate of 90% ad valorem. The importer challenged the levy of interest from the date of warehousing and the application of the 90% duty rate for the entire period. The Karnataka High Court directed that interest be computed only from 22 March 1985 (the expiry of the notice period) to the clearance date, using the duty rates that were in force during that interval. The Supreme Court held that duty must be assessed at the rate in force on the date of clearance and that interest accrues only after the notice‑specified period, not from the warehousing date, and must be calculated on the varying duty amounts. Consequently, the appeals were dismissed.

Issues considered

Whether customs duty on warehoused goods is payable at the rate in force on the date of clearance or at the rate applicable at the time of import/warehousing.
From which date interest on duty becomes payable under Section 59(1)(b) of the Customs Act, 1962.
Whether interest should be calculated on the duty amount using the 90% rate for the entire warehousing period or using the rates prevailing at different times.

Legislation cited

Customs Act, 1962s. 59(1)(b), s. 61(1)(a), s. 61(2)

Subjects

customs dutywarehousingbondinterestSection 59Section 61consumable storesCustoms Act

Judgment

...

A UNION OF INDIA AND ORS. ETC.
v.
MJS. BANGALORE WIRE RED MILLS ETC.

MARCH 19, 1996

B [B.P. JEEVAN REDDY ANDS. SAGHIR AHMAD, JJ.)

Customs Act, 1962 :
1
Ss.59(l)(b),61(1)(b), 61(2}-Import of items falling within "Con- I
C swnable stores''-Warehousing of-lmp01ter executing a bond in temis of
s.59(1 )-Liability of importer to pay duty and interest thereott-Held, duty to
be paid at the rate prevalent on date of clearance-Interest chargeable only
after the expiry of period mentioned in notice on the amoullt computed
according to the rates of duty in force from time to time.

D The respondent in C.A. No. 431/93 imported a 'high reversible mill',
an item covered under "consumable stores" within the meaning of' ·-
s.61(l)(a) of the Customs Act, 1962, in the year 1982 and warehoused the
same on 11.11.1982 without paying any duty thereon. However, the respon-
dent executed a bond in terms of s.59(1). On 7.3.1985, a notice was issued
E to the respondent to clear the goods within 15 days after paying the duty.
On the date of warehousing the rate of customs duty chargeable was 40%
ad valoram. This rate was increased from time to time and on 9.9.1988,
when the respondent cleared the goods, the rate of duty was 90%. The
respondents paid the duty at 90% amounting to Rs. 1.40 crores and interest _,
thereon amounting to Rs. 81.49 lakhs as demanded by the authorities, and,
F after clearing the goods, filed a writ petition challenging the levy of duty
at the rate of 90% as also the interest thereon from 11.11.1982 up to the
date of clearance. The case of the respondent was that the initial warehous-
ing period was three years and the interest would start running only
thereafter. The Single Judge disposed of the writ petition. Both the im-
G porter as also the Government filed appeals before the Division Bench or
the High Court, which directed the Customs authorities to recompute the
amount or interest from 22.3.1985 to 9.9.1988 on the amount or Customs
duty prevailing from time to time during the aforesaid period. Aggrieved,
the Government as also the importer filed the appeals.

H Dismissing the appeals, this Court
656
U.O.L v. MIS BANGALORE WIRE RED MILLS 657

HELD : 1. In view of the provisions of the Customs Act, 1962, the A
duty would be payable at the rate in force on the date of clearance from
the warehouse and not at the rate in force on the date of import or on the
date of warehousing. Though the period of three years for warehousing the
goods prescribed in s.61 (l)(a) of the Act, was reduced to one year by an
amendment in the Act with effect from May 13, 1983, neither the respon· B
dent cleared the goods nor authorities issued the demand notice within
one year from May 13, 1983. The respondents cleared the goods only on
9.9.1988, and as such the duty was rightly imposed on and paid by the
respondents at the rate of ninety per cent. [661-A; 660-G-H; 661-B]

2.1. There is no justification or legal basis for the appellants to C
demand the interest taking the rate of the duty at ninety per cent for the
entire period from the date of ware housing the goods till its clearance.
The language of Section 59(1)(b) of the Act, as it stood at the relevant time,
clearly and unambiguously says that the importer shall have to execute a
bond undertaking inter alia to pay interest from the date specified in the
notice of demand. The liability to pay interest arises only after the expiry
D
of the period prescribed in the notice of demand. Accordingly, the duty
became due on issuing the notice of demand. The notice prescribed fifteen
days for payment. Interest is chargeable only thereafter as rightly held by
the High Court. (661-H; E·G]
E
2.2. Further, the rate of duty on the goods was not ninety percent
throughout the period from March 22, 1985 to September 9, 1988. It was
varying. The High Court's directions therefore, to take the actual rate in
(-
force from time to time is a reasonable one. (661-H; 662-A]

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 431-32 F
of 1993.

From the Judgment and Order dated 10.4.92 of the Karnataka High
Court in W.A. No. 1275/91 & 2419/91.
G
WITH

Civil Appeal Nos. 4601-02 of 1996.

From the Judgment and Order dated 10.4.92 of the Karnataka High
Court in W.P. Nos. 1275/91 and 2649 of 1991. H
f

658 SUP!l.EME COURT REPORTS (1996)3 S.C.R.

A N.K. Bajpai, S.D. Sharma (Rajiv Nanda) for T. Sridharan for the
Appellants.

J oscph Vellapally and Ms. lndu Malhotra for the Respondents.

The Judgment of the Court was delivered by
B
B.P. JEEVAN REDDY, J. Leave granted in Special Leave Petitions.

The respondent-M/s. Bangalore Wire Rod Mill imported a 'high
reversible mill" in the year 1982. On November 11, 1982, he warehoused
C the said goods without paying duty as contemplated by Sections 58 and 59
of the Customs Act, 1962 (the Act). On March 7, 1985, the authorities
issued a notice to the respondent to clear the goods from the warehouse
within fifteen days of the said notice after paying duty due thereon. The
respondent, however, did not clear the goods until September 9, 1988 on
which day he paid a duty of R. 1.40 crores and interest of Rs. 81.49 lakhs
D as demanded by the authorities. Having cleared the goods, the respondent
filed a writ petition in the Karnataka High Court contending that levy of
interest from November 11, 1983 upto the date of clearance of the goods
from the warehouse and that too treating the rate of duty as ninety percent
is contrary to law and unsustainable. It asked for refund of excess amount
E of interest collected from it. Its case was that the initial warehousing period
was for three years and, therefore, the interest, if :•t all, should be charged
only for the period after the expiry of the said three years' period. The writ
petition was heard and disposed of by a learned Single Judge against whose
decision both the respondent and the Union of India filed writ appeals.
The Division Bench of the Karnataka High Court disposed of the writ
F appeals with the following directions :
"(a) The respondents are directed to re-compute the amount of
interest payable by the petitioner at the prescribed rate with effect
from 22.3.1985 upto 9.9.1988 on the basis of the amount of customs
duty which the petitioner would have been liable to pay to the
G Central Government ;,t the rate, which was prevailing during the
different periods between 22.3.1985 to 9.9.1988;

(b) After computing the total amount of interest payable for the
entire period as directed above, the respondents shall refund the
H balance of the amount of interest collected from the petitioner."
U.O.J. v. MIS BANGALORE WIRE RED MILLS (JEEVAN REDDY, J.I 659

The judgment of the Division Bench is being questioned both by the A
Union of India and by the importer in these appeals.

For a proper appreciation of the questions arising herein, 1t 1s
necessary to state a few more facts: on the date of warehousing the goods,
the rate of customs duty chargeable on the imported goods was forty
percent ad valorem. The rate of duty was being raised from time to time B
and on September 9, 1988, the date on which the goods were cleared from
the warehouse, the rate of duty was ninety percent. The Act, as in force at
• the relevant time, permitted an importer either to clear the goods imme-
1. diately on their import or to warehouse them without paying the duty. The
warehousing of the goods without paying the duty was, however, subject to C
certain conditions specified in Section 59. Sub-section (1) of Section 59,
which alone is relevant for our purposes, read thus at the relevant time :

"59. Warehousing bond - (1) The importer of any dutiable goods
which have been entered for warehousing and assessed to duty
under Section 17 or Section 18 shall execute a bond binding himself D
in a sum equal to twice the amount of the duty assessed on such
goods;

(a) to observe all the provisions of this Act and the Rules and
Regulations in respect of such goods;
E
(b) to pay on or before a date specified in a notice of demand, all
duties, rent and charges claimable on account of such goods under
this Act, together with interest on the same from the date so
specified at the rate of six per cent per annum or such other rate
as is for the time being fixed by the Board; and F
(c) to discharge all penalties incurred for violation of the provisions
of this Act and the rules and regulations in respect of such goods."

A reading of Section 59(1) shows that an importer who seeks to have
the imported goods warehoused has to first have the goods assessedunder G
Section 17 or section 18, as the case may be, and then execute a bond
binding himself to pay double the amount of duty assessed on the said
goods and undertaking "to pay on or before a date specified in a notice of
demand all. duties, rent and charges claimable on account of such goods
under this. Act, together with interest on the same from the date so H
660 SUPREME COURT REPORTS (1996) 3 S.C.R.

A specified at the rate of six per cent per annum or such other rate as is for
the time being fixed by the Board''. Clause (a) of sub-section (1) of Section
61, as obtaining on the date of warehousing of the said goods, [it is not
disputed before us that the imported goods represent "consumable stores"
within the meaning of Section 61(l)(a)J prescribed a period of three years
B beyond which the imported goods could not be warehoused. On May 13,
1983 however, this clause was amended and the period of three years was
reduced to one year. Sub-section '(2) of Section 61 (as inserted by Act 11
of 1983) read as follows :

"(2) Where any warehoused goods remain in a warehouse beyond
c the period of one year or three months specified in clause (a) or
clause (b) of sub-section (1) by reason of the aforesaid period or
otherwise, interest at such rate, not exceeding eighteen percent 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
D 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
E do in the public interest, by special order and under circumstances
of an exceptional nature to be specified in such order, to whole or
part of any interest payable under this sub-section in respect of
any warehoused goods."

We have referred to sub-section (2) of Section 61 for the reason that
F it was relied upon by the appellant before us, though, in our opinion, it is
not really relevant herein as we shall point out presently.

In this case, the respondent did execute a bond as contemplated by
Section 59(1) while warehousing the goods on November 11, 1982. Though
G the period of three years prescribed in Section 61(1)(a) was reduced to
one year by an Amendment Act with effect from May 13, 1983, neither the
respondent cleared the goods nor the authorities issued a demand notice
within one year from May 13, 1983. Only on March 7, 1985, did the
authorities issued a notice to the respondent calling upon him to clear the
H goods on paying the appropriate duty. Now, according to the Act, the duty
U.0.1. v. MIS BANGALORE WIRE RED MILLS [JEEVAN REDDY, J.] 661

payable would be the duty in force on the date of clearance from the A.
warehouse and not the date in force on the date of import or on the date
of warehousing. For one or the other reason, the respondent did not clear
the goods immediately but cleared them only on September 9, 1988. He
paid the duty at the rate of ninety percent and that aspect is no longer in
issue herein. While clearing the goods, the authorities demanded and B
collected interest on the said amount of duty for the period commencing
from November 11, 1982 to September 9, 1988. It is this aspect which alone
• is in dispute between the parties in these appeals. The Division Bench of
I the High Court has held that the interest is chargeable only for the period
March 22, 1985 (on expiry of fifteen days from the date of notice dated C
March 7, 1985) to September 9, 1988. The Division Bench has further
directed that interest shall be calculated taking the rate of duty in force
from time to time during the said period. The State has preferred these
appeals contending that (1) it is entitled to interest from November 11,
1982 and (2) the interest should be charged calculating the duty @ ninety D
·-f percent for the entire period November 11, 1982 to September 9, 1988.

We do not think that the claim of the appellant is sustainable in law.
The language of Section 59(1)(b), as it stood at the relevant time, is clear
and unambiguous. It says that the importer shall have to execute a bond
undertaking inter alia to pay interest from the date specified in the notice E
of demand. We have already extracted clause (b) in full hereinbefore. The
liability to pay interest arises only after the expiry of the period prescribed
in the notice of demand. It has been held by the High Court that the
present matter is not governed by Section 61(2), ,as it stood at the relevant
time but by Section 59(1) alone, Indeed, it is submitted that when the F
respondent applied for extension of time of warehousing under Section
61(2), the goyernment told it that the said provision had no application and
hence, time cannot be extended thereunder. Once that is so, we must go
by what Section 59(1) says. According to it, the duty became due on issuing
the notice of demand. The notice prescribed fifteen days for Payment. G
Interest is chargeaMe only thereafter as held by the High Court, which, in
our opinion, is a reasonable way of understanding the provision. Secondly,
we see no justification or legal basis for the appellants' plea that the interest
must be paid taking the rate of the duty at ninety percent for the said entire
period. As a matter of fact, the rate of duty on the said goods was not H
662 SUPREME COURT REPORTS [1996] 3 S.C.R.

A ninety percent throughout the period March 22, 1985 to September 9, 1988.
It was varying. The High· Court's direction, therefore, to take the actual
rate in force from time to time is a reasonable one. We are, therefore, of
the opinion that the judgment of the High Court does not call for any
interference. The appeals are accordingly dismissed.
B No costs.

R.P. Appeals dismissed.