Whether interest is allowable on delayed refund of encashed bank guarantee to the assessee?

PJ/Case Law/2013-14/1837

Case:-AREVAT & D INDIA LTD. Versus COMMISSIONER OF CUSTOMS, CHENNAI

Citation:-2013 (290) E.L.T. 496 (Mad.)

Brief facts:-It has been stated that the petitioner had imported certain goods under two EPCG licences, bearing reference Nos. P/CG/2131057 and P/CG/2132894, dated 27-8-1993 and 19-4-1994, respectively. The goods had been imported subject to certain export obligations to be fulfilled within the prescribed time limit. However, the petitioner had failed to submit the Export Obligation Discharge Certificate, within the prescribed time limit. Hence, the Joint Director General of Foreign Trade, New Delhi, had enforced the bank guarantees for a total amount of Rs. 9,60,000/-, furnished by the petitioner. The Joint Director General of Foreign Trade had instructed the Banks to send the said amount to the Customs Department, Chennai. Accordingly, two demand drafts, for a sum of Rs. 3,00,000/- and for a sum of Rs. 6,60,000/- had been sent to the Customs Department, Chennai, on 30-8-2000 and 9-3-2001, respectively.

It has been further stated that the petitioner had, thereafter, completed the export obligation and had obtained the discharge certificates from the Director General of Foreign Trade, on 29-1-2004. On obtaining the discharge certificates the petitioner had filed a refund application, on 28-9-2004, for the refund of Rs. 9,60,000/-, collected by the Customs Department, through encashment of the bank guarantees, by the Director General of Foreign Trade. The refund claim of the petitioner had been rejected by the Department on the ground that the amount had been recovered from the petitioner for the breach of trust and that the claim had not been filed, within a period of six months from the date of the encashment of the bank guarantee. The request of the petitioner relating to the refund claim had been rejected, vide the Order-in-Original, No. 3977 of 2005, dated 14-7-2005, passed by the Deputy Commissioner of Customs (Refunds), Office of the Commissioner of Customs (Sea Port), Chennai.

Aggrieved by the said order the petitioner had preferred an appeal before the Commissioner of Customs (Appeals), Chennai, who had passed the Order-in-Appeal No. C3/782/R/2005-Sea in C-Cus. No. 91/2006, dated 8-2-2006. By the said order the Commissioner of Customs (Appeals), Chennai, had set aside the order of the Deputy Commissioner of Refunds and had held that the time limit of six months would not apply for the grant of refund pertaining to the encashment of a bank guarantee.

It has been further stated that the first respondent had preferred an appeal challenging the order, dated 8-2-2006, passed by the Commissioner of Customs (Appeals), Chennai, before the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, at Chennai. The said Tribunal, vide its Final Order No. 748 of 2006, dated 18-8-2006, dismissed the appeal filed by the Department, confirming the order of the Commissioner of Customs, Chennai, holding that the time limit of six months would not apply for making a claim for the refund of the amount pertaining to the encashment of a bank guarantee. Based on the said order of the Tribunal the petitioner had been pursuing its claim for the refund of the sum of Rs. 9,60,000/-. After a long delay an amount of Rs. 6,60,000/-, pertaining to the Air Customs had been refunded to the petitioner, on 26-8-2008. The balance amount of Rs. 3,00,000/- had also been refunded to the petitioner, by the Assistant Commissioner of Customs (Refunds), Office of the Commissioner of Customs (Sea Port), Chennai.

It has been further stated that, due to the delay in the refunding of the amount of Rs. 6,60,000/-, the petitioner had requested the second respondent to pay the interest from the month of December, 2004, till the 26th of August, 2008. However, the second respondent by his letter, dated 19-2-2009, had rejected the claim of the petitioner stating that interest on delayed refund, which is payable, as per Section 27A would apply only in case of refund of customs duty made under Section 27 of the Customs Act, 1962. However, there cannot be a claim for the payment of interest arising out of the encashment of a bank guarantee.

Respondent’s contention:-The respondent submitted that the amount paid is only a deposit and the refund of such deposit is not covered under Section 27 of the Customs Act, 1962. Accordingly, the amount of Rs. 6,60,000/- refunded to the petitioner would not fall under the purview of Section 27 of the Customs Act, 1962, and therefore, it would not attract any interest payable under Section 27A of the said Act.

It was also stated that the Commissioner of Customs (Appeals), Chennai, in his order, dated 8-2-2006, had held that the bank guarantee is not equivalent to the payment of excise duty and therefore, Section 27 of the Customs Act, 1962, is not applicable to the present case. The decision of the Commissioner of Customs (Appeals), Chennai, had been confirmed by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, at Chennai. While so, the petitioner has made the claim regarding the payment of interest, under Section 27A of the Customs Act, 1962, contrary to the stand taken by them earlier.

It had also been stated that the petitioner had not filed any refund claim with the Assistant Commissioner of Customs (Refunds), Air Cargo Complex, Chennai, as required under Section 27 of the Customs Act, 1962. As Section 27 of the Customs Act is not applicable for the refund claim of the bank guarantee already enforced, Section 27A would also be inapplicable. As such, interest on delayed refund would be payable, as per Section 27A of the Customs Act, 1962, only if the refund of customs duty had been made under Section 27 of the said Act.

The learned counsel appearing on behalf of the respondent had relied on the decision of the Supreme Court [2006 (196)E.L.T.257 (S.C.) = 2007 (8)S.T.R.193 (S.C.)] wherein, it had been held that the question of payment of interest, by the Government, under the deferment scheme, does not arise as there was no provision in the said scheme for the grant of such interest. Even though the liability to pay tax, by the assessee, accrues each year the payment of tax is deferred under the scheme. As such it is a sort of a loan given by the State to the assessee, so that the assessee could use the tax amount to meet its working capital requirement. It had also been held that there can be no payment of interest on tax unless it is provided for by the provisions of the statute, or by the terms of the agreement. It had also been held that no interest would be payable on the basis of equity.

Reasoning of judgment:-In view of the submissions made on behalf of the petitioner, as well as the respondent, and on a perusal of the records available, this Court is of the considered view that the respondent is liable to pay the interest for the belated refund of the amount of Rs. 6,60,000/-, to the petitioner, at the rate of 9% per annum, for the period from December, 2004 to 26th of August, 2008. Even though the Deputy Commissioner of Customs (Refunds), Office of the Commissioner of Customs (Sea Port), Chennai, had passed an order, on 14-7-2005, in Order-in-Original No. 3997 of 2005, rejecting the claim of the petitioner for the refund of the sum of Rs. 6,60,000/-, collected by the Customs Department, through encashment of the bank guarantees, by the Director General of Foreign Trade, New Delhi, the Commissioner of Customs, Appeals, Chennai, had set aside the said order, in his order, dated 8-2-2006, in the appeal filed by the petitioner. The said order had been challenged by the Department of Customs, before the Central Excise and Sales Tax Appellate Tribunal, South Zonal Bench, at Chennai. However, the Tribunal had confirmed the order of the Commissioner of Customs Appeals, dated 8-2-2006, stating that the petitioner was entitled to the refund. Only thereafter, on 26-8-2008, a sum of Rs. 6,60,000/- had been refunded to the petitioner, pertaining to the Air Customs. The balance amount of Rs. 3,00,000/- had been refunded to the petitioner, by the Assistant Commissioner of Customs (Refunds), Office of the Commissioner of Customs (Sea Port), Chennai. As such, the petitioner is entitled to the interest for the belated payment of the refund amount, due to it, for the period from December, 2004, till the 11th of November, 2007, at the rate of 9% per annum.

Even though the claim of the petitioner for the payment of interest on the belated payment of the refund amount may not arise, based on Section 27A of the Customs Act, 1962, the petitioner would be entitled to the same, as per the decision of the Supreme Court, in Sandvik Asia Ltd. v. Commissioner of Income Tax and Others, 2006 (196)E.L.T.257 (S.C.) = 2007 (8)S.T.R.193 (S.C.).Accordingly, the respondents are directed to pay the interest on the amount of Rs. 6,60,000/-, refunded to the petitioner, based on his refund claim, for the period, from December, 2004 to 26th of August, 2008, at the rate of 9% interest per annum, within a period of eight weeks from the date of receipt of a copy of this order. The writ petition is disposed of with the above directions. No costs. Consequently, connected miscellaneous petition is closed.

Decision:- Appeal allowed.

Comment:-The gist of this case is that the interest claimed by the assessee on the delayed refund of wrongly encashed bank guarantee is available to them even if the refund of bank guarantee is not covered by the provisions of section 27A of the Customs Act as the same is not refund of customs duty. The contention that as the refund is not of customs duty, interest is not admissible under section 27A was rejected by placing reliance on the Supreme Court decision in Sandvik Asia Ltd. wherein it was held that interest on delayed payment of interest is also admissible as compensation to the assessee.

Comments

PJ/Case Law/2013-14/1837

Post a Comment

Query