BIFR Waiver of ₹81.60L Customs Demand Binding: Madras HC Quashes CESTAT Pre-Deposit Against SMS Lifesciences [Read Order]

The Madras High Court ruled that the waiver of Rs 81.60 Lakhs on SMS Lifesciences by the Board for Industrial and Financial Reconstruction (BIFR) was binding and has thus quashed a pre-deposit demand of Rs. 60 Lakhs passed by the Customs Excise and Service Tax Appellate Tribunal (CESTAT).

The matter arose from the granting of nine Advance Licences for the import of antibiotic chemicals to Plant Organics Limited, the assessee, for availing the benefit under Customs Notification No.149/1995. Upon the arrival of the consignments, the Directorate of Revenue Intelligence (DRI) found that there were discrepancies in the description of the raw materials imported, which were free of customs duty.

Proceedings were initiated after affording a chance for a personal hearing. Later the commissioner of Customs passed an order demanding customs duty aggregating to Rs.81,60,861/- in terms of the proviso to Section 28(1) of the Customs Act, 1962, read with Customs Notification No.149/1995 dated 19.09.1995, along with equal penalty under Section 114(A) and penalty of Rs.10,00,000/- under Section 112(A) of the Act.

The assessee filed an appeal before the tribunal along with an interim application seeking stay of demand. The application was disposed of, ordering pre-deposit of a sum of Rs. 60,00,000/-, including Rs.5,00,000/- already adjusted by the Commissioner under the Order-in-Original, to be paid within a period of three months from the date of that order, on condition of which, stay was granted. The assessee defaulted. And filed a petition once again before the tribunal to modify the order of the tribunal. The tribunal dismissed the same as it had no power to review its order.

Meanwhile, the assessee had become a Sick Industrial Company and had approached the Board for Industrial and Financial Reconstruction (BIFR) in terms of the applicable provisions of the Sick Industrial Companies Act, 1985 (SICA), with a scheme for rehabilitation. BIFR sanctioned a Modified Rehabilitation Scheme, approving the merger of the assessee with SMS Lifesciences India Limited (SMSL), which is the petitioner in the present matter.

The scheme provides specific instructions to revenue authorities regarding outstanding dues. For the income and central excise, the scheme used the phrase “to consider” exemptions and waivers, leaving discretion with authorities. For DRI and DGFT, however, the scheme issued positive directions to waive demands. Paragraph 8.6 of the same directed waiver of penalties, interest and damages on the disputed customs demand of ₹81.60 lakh. Paragraph 8.7(1) directed the waiver of the DGFT demand of ₹81.60 lakh for non-fulfilment of export obligations.

Counsel for the petitioner argued that the BIFR scheme directions, as outlined in paragraphs 8.6 and 8.7, constituted a binding waiver of the customs demand. Since the demand arose from non-fulfilment of export obligations investigated by DRI and adjudicated by the customs commissioner, it fell squarely within the scope of the scheme.

Counsel for Customs and DRI contended that the scheme was only used “to consider” language, implying no binding waiver. They further argued that the customs demand was distinct from DGFT dues and not covered by the scheme.

The court rejected the respondents’ objections and noted that the scheme consciously used “to consider” only for Income Tax and Excise dues, while issuing positive waiver directions for DRI and DGFT demands. Both paragraphs 8.6 and 8.7 referred to the identical figure of 81.60lakh, which matched the customs demand under their order.

It was further observed that the customs demand arose from DGFT-related export obligation violations investigated by DRI, hence inseparable from DGFT dues. It was noted that the customs authorities were fully aware of the scheme. Accordingly, the Court held that the waiver directions under paragraph 8.7(1) were binding on Customs, DRI, and DGFT. The demand of ₹81.60 lakh stood extinguished.

Thus, the writ petition and the Customs, DRI, and DGFT were directed to give effect to the waiver under paragraphs 8.6 and 8.7 of the scheme. Also, the CESTAT’s pre-deposit order dated 09 August 2000 was quashed as superfluous, since the underlying demand itself was waived.

The Court concluded that once the demand was extinguished under the rehabilitation scheme, continuation of the appeal before CESTAT was unnecessary. Both writ petitions were allowed, with connected miscellaneous petitions closed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates