Holding

The Department was not entitled to interest on the Rs 6.02 crore for the period 28 Oct 1991 to 10 July 1997.

Summary

Essar Steel Ltd imported goods under the Project Imports Regulations, 1986 and paid duty based on a declared assessable value of DM 46.75 million. The Customs Department increased the assessable value to DM 84.15 million, leading the importer to pay an additional Rs 6.02 crore under protest. The Customs Tribunal ordered a refund of that amount, which the Department appealed. The Supreme Court, in an interim order dated 9 September 1991, allowed the refund subject to a bank guarantee and stipulated that, if the Department succeeded on appeal, the amount should be returned with interest at 18% per annum from the date of refund. After the Department later recovered the amount by encashing the guarantee in July 1997, it claimed interest for the period 28 October 1991 to 10 July 1997. The Court held that the Department was not entitled to such interest because the addition to the assessable value was partially disallowed (DM 23 million) and there was no statutory provision for interest on provisional assessment duties at that time. Consequently, the interest claim was rejected and the appeals were disposed of.

Issues considered

Whether the Department is entitled to interest at 18% per annum on the refunded Rs 6.02 crore under the interim order of 9 September 1991.
Whether interest can be levied on duty payable on a provisional assessment under the Customs Act, 1962.

Legislation cited

Customs Act, 1962s. 47(1), s. 47(2)

Subjects

import dutyprovisional assessmentinterestCustoms Actrefundassessable valuebank guaranteeinterim order

Judgment

A ESSAR STEEL LTD. AND ANR. -...'
v.
UNION OF INDIA AND ORS.
,
MARCH 29, 2007

B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]

Import-Export: ...
~

Project Imports Regulations, 1986-lmporter submitted Bills of Entry- ---
c Provisional assessment-Department increased assessable value by DM 37.40
million-On that basis, importer paid additional duty of Rs. 6.02 crores-
Payment under protest-Tribunal directed refund-Department filed appeal
before .this Court, which by interim order, declined stay of the refund,
upholding entitlement of importer to refund subject to furnishing of bank
guarantee-Further held that if Department succeeded in the appeal, amount
D of refund shall be restituted back to it by importer together with interest
thereon @ 18% p.a. from date of refund-Civil appeal disposed of with the
,..._"'"
Court setting aside addition in assessable value to the extent of DM 23
million-Held: Department failed in its appeal in increasing the assessable
value by DM 37.40 million-In the circumstances, claim by Department
E under the interim order for grant of interest on Rs.6.02 crores @ 18% p.a.
from 28-10-1991 (the date of refund) to 10-7-1997 (the date Department
recovered Rs. 6.02 crores by encashing bank guarantee given by importer)
is not tenable.

Importer-Appellant submitted Bills of Entry on which provisional
F assessment was made under the Project Imports Regulations, 1986. The A

declared assessable value of DM 46. 75 million was not accepted by the -¥
Department which increased the value by DM 84.15 million, on account of
which, Appellant paid a further Rs.6.02 crores as duty, though under protest
On payment, the imported goods were cleared. Tribunal, however, held in favour
of the Appellant by directing refund of Rs.6.02 crores. Department ftled appeal
G
before this Court which, by an interim order dated 9-9-1991, declined to order
stay of the refunds. The Court upheld entitlement of Appellant to refund subject
....
to furnishing of a bank guarantee by it and further held that if the Department
-~"
succeeded in the appeal, the amount of refund shall be restituted back to it by
the Appellant together with interest thereon@ 18% p.a. from the date of ~

H 540
. ESSAR STEEL LTD. v. U.0.1. 541
>- refund. The appeal was finally disposed of with the Court disallowing addition A
to the extent of DM 23 million. Thereafter final assessment was passed and
differential duty was reduced, which was paid. While the litigation was going
on, the Department had recovered Rs.6.02 crores on 10-7-1997 by e~cashing
the back guarantee given by the Appellant.

It is now submitted by Department before this Court that the Appellant B
under the interim order dated 9-9-1991 was liable to pay interest@ 18%
p.a on Rs.6.02 crores between the period 28-10-1991 (the date of refund) to
~·

.> 10-7-1997 (the date Department encashed bank guarantee given by
Appellant). The controversy between the parties lies on interpretation of the
said interim order dated 9-9-1991.
c
Disposing of the appeals, the Court

HELD: 1. The Department was not entitled to interest at the rate of
18% p.a. on Rs. 6.02 crores during the period 28.10.1991 to 10.7.1997
under the interim order dated 9.9.1991 of this Court. (Para 12) (546-G]
D
.Ai 2. The entire controversy in the present case is irrelevant. The interim
order passed by this Court was on the stay application made by the Department.
The importer was allowed to withdraw Rs. 6.02 crores. The importer had
undertaken to restore the amount ifthe Department succeeded in the appeal
In the present case, it is necessary to keep in mind the conceptual difference E
between the assessable value and the amount of duty payable thereon. The
declared value was DM 46. 75 million. This was not accepted by the
Department. They increased the value from DM 46.75 million to DM 84.15
million. The Department included certain items. The importer objected to
such inclusion. The loading of the value was to the tune ofDM 37.40 million.
~
In the final hearing, this Court disallowed the addition to the extent ofDM F
'+- 23 million out of DM 37.40 million, therefore, the importer substantially
succeeded in getting the assessable value reduced. The duty amount of Rs.
6.02 crores was based on the loading of certain items to the tune of DM 37.40
million which this Court did not accept. Duty is derived from the assessable
value. As can be seen from the order of final assessment, the differential G
,. duty stood substantially reduced from Rs. 13.95 crores to Rs. 10.63 crores
(approx.). The final assessment order has.given a complete break-up of the
amounts paid during the interregnum by the importer. When the litigation
'r' was going on the Department has recovered Rs. 6.02 crores on 1O.7.1997; it
has recovered Rs. 2.17 crores on 1.11.2000; the importer has paid Rs. 50
lacs on 6.1.2001 and the importer has paid Rs. 75 lacs on 10.2.2001. In all, H
SUPREME COURT REPORTS (2007] 4 S.C.R.
542 -
A an amount of Rs. 9.44 crores (approx.) got collected/paid and the balance -.!....
amount was Rs.l.19 crores. This amount has also been paid. In the
circumstances, the Department cannot seek to recover interest oil the full
amount of Rs. 6.02 crores which is the duty amount calculated on the
increased/loaded assessable value ofDM 37.40 million. The Department has
failed in its appeal in loading the assessable value by DM 37.40 million. The
B addition to the extent of DM 23 million is disallowed. In the circumstances,
the question of charging interest under the interim order of this Court for
.,.,.
the aforesaid period does not arise. (Para 10) (545-F-H; 546-A-D]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 202 of2002.
. ..._
.
c From the Final Judgment and Order dated 06.02.2001 of the High Court
of Judicature of Gujarat at Ahmedabad in S.C.A. No. 12661 of2000.

S. Ganesh and S.K. Bagaria, P. Kataki, S. Gupta, Vipin Jain and Meenakshi
· Arora for the Appellants.
~]
D Ravindra Srivastava, A. Subba Rao, T. A. Khan, B. Krishna Prasad,
Kuna! Verma, Arjun, Raju! Srivastava and M. Maman for the Respondents. i'"--
~-.

The Judgment of the Court was delivered by

KAPADIA, J. I. In these civil appeals the controversy lies on the
E interpretation of the interim order dated 9 .9 .199 l passed by this Court in a
stay application in Civil Appeal Nos. 3152-53 of 1991 filed by the Department.

2. Essar Steel Limited ("the importer" for short) submitted the Bills of
Entry on which provisional assessment was made under Project Imports
F Regulations 1986. The declared value was DM 46.75 million on which the ...
importer paid Rs. 7.93 crores as duty. This was not accepted by the Department. .l;'

They issued a show cause notice dated 24.10.1988. They made provisional
assessment based on total transaction value of DM 84.15 million. Thus, the
Department increased the transaction value from DM 46.75 million to DM
84.15 million, i.e., addition ofDM 37.40 million. This increase was made by
G the Department by loading the assessable value on account of certain technical
..
fees/charges. Under the provisional assessment, the Department accordingly
called upon the importer· to pay Rs. 13.95 crores. As stated above, the
importer had paid Rs. 7.93 crores, unconditionally, according to the declared "./

value. After loading they paid a further amount of Rs. 6.02 crores under
protest. Thus, the disputed amount of duty paid by the importer was Rs. 6.02
H
ESSARSTEELLTD. v. U.0.1. [KAPADIA,J.] 543

)..--
crores on account of the increased transaction value ofDM 37.40 million. The A
amount was paid on 15/16.12.1988 by the importer. On payment, the goods
were cleared on 15/16.12.1988.

3. The figures given in this judgment are rounded off to even numbers
for the sake of convenience.
B
4. The order was challenged by the importer before CEGAT ("the
Tribunal"). By judgment dated 13.2.1991 the Tribunal decided the appeal in
~
favour of the importer and directed refund of Rs. 6.02 crores. Aggrieved by
- / the decision of the Tribunal, the Department came to this Court by way of
civil appeal nos. 3152-53/91. At the time of preliminary hearing on 9.9.1991 the
following order was passed:
c
"On the application for stay, we think, it is not appropriate to order
stay of the refunds. The respondent shall be entitled to the refund
subject to the furnishment of a bank guarantee for the amount of the
refund to the satisfaction of the Collector of Customs (Preventive)
D
Ahmedabad. A fresh bank guarantee, in lieu of existing bank guarantee,
_,. shall be now furnished. The respondent shall ensure that the guarantee
J shall be for the entire period of the pendency of these appeals if
necessary by renewal from time to time. The guarantee shall be strictly
subject to this condition.
E
The refund shall be made within two weeks from the date of the
furnishment of the bank guarantee or within a period of 6 weeks
whichever is later. If the appellants succeed in appeals, the amount
of refund obtained pursuant to order shall be made good and restituted
back to the appellants by the respondent together with interest thereon
..- @ 18% per annum from the date of the refund." F
'f 5. Finally, by judgment and order dated 19.11.1996, this Court disposed
of the Department's civil appeal nos. 3152-53/91. It was held that fees paid
by the importer to the foreign supplier for theoretical and practical training
of engineers outside India was not includible in the assessable value of the
plant. It was further held that engineering and consultancy fees paid to the G
;:_ foreign company was not fully includible in the value of the plant. That, only
the expenditure incurred for dismantling the plant was includible. In short, out
of the addition ofDM 37.40 million in the assessable value for technical fees/
-...,.·
charges, this Court excluded DM 23 million in favour of the importer and
included DM 14.3 million (in favour of the Department). In other words, the H
!--
544 SUPREME COURT REPORTS [2007) 4 S.C.R.

A assessee substantially succeeded in the appeal. ·This Court set aside additions
,...(_
to the extent of DM 23 million.

6. After the decision of this Court, ultimately the final assessment order
was passed by the Department on 16.2.2001. This order has been passed after
the impugned judgment of the High Court dated ~.2.2001. Under the final
B assessment order dated 16.2.2001, on account of deletion of additions to the
extent of DM 23 million the differential duty payable by the importer stood
reduced to Rs. 10,63,39,665/- According to the final assessment order the
importer had already paid Rs. 9,44,29,850/- leaving the balance of ~

Rs. 1,19,09,815/-, which stands paid by the importer. In other words, the entire ·"'(
e,.
account stands settled.
c
7. The Department now contends that the importer under the interim
order dated 9.9.1991 was liable to pay interest@ 18% p.a. on Rs. 6.02 crores
between the period 28.10.1991 to 10.7.1997; that under the said interim order
passed by this Court it was stipulated that if the Department succeeds in the
civil appeal nos. 3152-53/91 the importer was liable to restore the refunded
D
amount to the Department with 18% interest. The ~ntire controversy revolves
round this interim order.
r-
8. In our opinion, this litigation was totally unwarranted and time ""-
consuming. On one hand, the importer contended that under the Customs
E Act, 1962, as it stood at the relevant time, there was no provision for levy
of interest on provisional assessment. According to the importer, the
Department could have levied interest only on final assessment. According
to the importer, the present case related to imports during the period September
to November, 1988. According to the importer at that time there was no
provision for levying of interest on provisional assessment. According to the
F importer, section 47(2) was not applicable to the present case. According to 4,,
the importer, at the relevant time, interest was payable only in a case where
the importer fails to pay import duty under section 47(1) at the time of x
clearance within 5 days from the date on which the bill of entry is returned
to him for payment of duty and that too on the amount of duty demanded
G at that stage by the Department. According to the importer, as indicated by
the facts above, the import duty was paid within the stipulated period and,
in the circumstances, section 47(2) was not applicable. It was further contended .:::

on behalf of the importer t~at the Department cannot call upon the importer
to pay interest on the basis of the interim order of this Court which ultimately v
got merged into the final judgment dated 19.11.1996. On behalf of the importer
H it was lastly contended, that in the present case, the final assessment order
ESSAR STEEL LTD. v. U.0.1. [KAPADIA, J.] 545
was passed only on 16.2.2001; that during the period 28.10.1991to10.7.1997 A
there was no final assessment order; that the importer had succeeded
substantially in getting the assessable value reduced and that the very fact
.
,
that the law stood amended by Act 29 of2006 with effect from 13.7.2006 vide
section 18(3) under which interest could be levied even on provisional
assessment indicates that prior to 13. 7 .2006 there was no provision in the
Customs Act, 1962 to charge interest on provisional assessment except to the B
limited extent mentioned in the proviso to section 47(2) which, on the facts
of this case, is not attracted. That, the doctrine of merger of the interim order
in the final order was not applicable in the present case.

9. According to the Department, on the other hand, the Tribunal had
passed an order of refund of Rs. 6.02 crores. According to the Tribunal, the C
assessable value was not liable to be loaded on account of technical fees/
charges. The Department had filed civil appeal nos. 3152-53/91 against the
decision of the Tribunal granting the refund. At the stage of preliminary
hearing when the Department sought an order of stay of the refund, the
importer was allowed the refund of Rs. 6.02 crores subject to the importer D
giving a bank guarantee to the satisfaction of the Collector. It was made clear
in the interim order that Rs. 6.02 crores should be brought back by the
importer if the Department succeeds in the said civil appeals and in such an
event the importer shall return Rs. 6.02 crores to the Department with interest
at the rate of 18% p.a. from the date of refund which, as stated above, in the
present case, was on 28.10.1991. The Department contended before us that E
in view of the above interim order, the Department was entitled to interest on
Rs. 6.02 crores commencing from 28. l 0.1991 to 10. 7.1997 on which date the
Department encashed the bank guarantee given by the importer.

l 0. As stated above, the entire controversy in the present case is
irrelevant. The interim order passed by this Court was on the stay application F
• made by the Department. The importer was allowed to withdraw Rs. 6.02
crores. The importer had undertaken to restore the amount if the Department
succeeded in the appeal. In the present case, it is necessary to keep in mind
the conceptual difference between the assessable value and the amount of
duty payable thereon. As indicated above, the declared value was OM 46.75
million. This was not accepted by the Department. They increased the value G
from OM 46.75 million to OM 84.15 million. The Department included certain
items. The importer objected to such inclusion. The loading of the value was
to the tune of OM 37.40 million. In the final hearing, this Court disallowed the
addition to the extent ofDM 23 million out ofDM 37.40 million, therefore, the
importer substantially succeeded in getting the assessable value reduced. H
546 SUPREME COURT REPORTS [2007) 4 S.C.R.

A The duty amount of Rs. 6.02 crores was based on the loading of certain
·--<
items to the tune of DM 37.40 million which this Court did not accept. Duty
is derived from the assessable value. As can be seen from the order of final r
assessment, the differential duty stood substantially reduced from Rs. 13.95
crores to Rs. 10.63 crores (approx.). The final assessment order has given a .
'
complete break-up of the amounts paid during the interregnum by the importer.
B When the litigation was going on the Department has recovered Rs. 6.02
crores on 10.7.1997; it has recovered Rs. 2.17 crores on l.11.2000; the importer
has paid Rs. 50 lacs on 6.1.2001 and the importer has paid Rs. 75 lacs on
10.2.2001. In all, an amount of Rs. 9.44 crores (approx.) got collected/ paid and
the balance amount was Rs. 1.19 crores. This amount has also been paid. In
C the circumstances, the Department cannot seek to recover interest on the full
amount of Rs. 6.02 crores which is the duty amount calculated on the increased/
loaded assessable value of DM 37.40 million. The Department has failed in
its appeal in loading the assessable value by DM 37.40 million. The addition
to the extent of DM 23 million is disallowed. In the circumstances, the
question of charging interest under the interim order of this Court for the
D aforesaid period does not arise. We do not wish to go into larger controversy
regarding chargeability of interest under the Customs Act, 1962 as it stood
in 1988.

11. Before concluding, we may state that the importer and the Department
have both come in appeal to this Court against the impugned judgment of the
E Gujarat High Court dated 6.2.2001 in Special Civil Application No. 12661/2000.
In fairness to the High Court, we may state that the final assessment order
came to be passed on 16.2.2001 which is after the impugned judgment In the
impugned judgment, it has been stated that the parties should have moved
this Court for clarification of interim order dated 9 .9 .1991. We have clarified
and explained the position. We do not wish to expand the controversy. Justice
F has been done in the matter. Accounts have been settled. Accordingly, we
set aside the impugned judgment.

12. For the aforestated reasons, without going into the wider controversy,
keeping the question of law open, we hold that the Department was not
entitled to interest at the rate of 18% p.a. on Rs. 6.02 crores during the period
G 28.10.1991 to 10.7.1997 under the interim order dated 9.9.1991 of this Court, ,
quoted above. ·-
13. Accordingly, both the appeals are disposed of with no order as to
costs.

H B.B.B. Appeals disposed.