Legal principle

The Settlement Commission's power under Section 127H to grant immunity from interest relates only to interest payable under the Customs Act (such as under Section 28AA) and does not extend to interest payable under a bond executed under an exemption or EPCG notification, which is a contractual obligation it cannot waive.

Court decision

The Supreme Court dismissed the appeal, confirming the Bombay High Court's judgment. It held that the Settlement Commission's power under Section 127H extends only to waiver of partial or full interest payable under the Act, and not to interest payable under a bond, which retains its contractual character; accordingly, the Commission could not have waived the bond interest and committed no jurisdictional error in directing payment of the 15% interest, which the appellant was in any event bound to pay under the bond.

Facts

Rexnord Electronics and Controls Ltd, an exporter, imported capital goods under two EPCG licences availing the benefit of Customs Notification No.160/92 dated 20 April 1992, under which it furnished a bond and undertaking to DGFT to export specified values within five years, failing which it would pay duty with 24% interest per annum on the duty saved. It failed to meet its full export obligation, and demand notices were issued for duty of Rs.6,03,400 and Rs.4,30,184 plus 15% interest per annum. The appellant filed two applications before the Settlement Commission, which by order dated 29 June 2006 settled the cases, directing payment of Rs.2,16,610 and Rs.3,41,493 with interest @ 15% per annum while granting immunity from prosecution and penalty. The appellant's writ petitions against the interest direction were dismissed by the Bombay High Court.

Key provisions

• Section 127H, Customs Act, 1962 — Power of Settlement Commission to grant immunity from prosecution and penalty
• Section 25, Customs Act, 1962 — Power to grant exemption from duty
• Section 127A, Customs Act, 1962 — Definitions