Whether interest on delayed payment of refund is available when payment has been made at the time of investigation?

PJ/CASE LAW/2015-16/3022

Case:- S.S. DYES AND CHEMICALS VersusCOMMISSIONER OF CUSTOMS, MUMBAI

Citation:- 2016 (331) E.L.T. 477 (Tri. - Mumbai)

Brief facts:-The appeal is directed against Order-in-Appeal No. MUM-CUSTM-SXP-363-12-13, dated 14-6-2013 passed by the Commissioner of Customs (Appeals), Mumbai-I. Vide the impugned order the ld. appellate authority dismissed the applicant’s claim for interest on delayed refund of Rs. 30,53,905/- sanctioned to them vide order dated 27-8-2012 by the adjudicating authority.
The appellant imported consignments of citric acid and cleared the same under DEEC licence claiming the benefit of Notification No. 203/92-Cus., dated 19-5-1992 vide bills of entry filed in February, 1994. After clearance of the goods, a less charge memo was issued to the appellant vide notice dated 28-6-1994 alleging that they were not eligible for the benefit of said exemption Notification. In the meanwhile, in 1994 the appellant was forced to pay the duty involved of Rs. 30,53,905/-. The less charge demand was confirmed vide order No. S/16-Misc.-67/94-VII, dated 1-5-1996 against which the appellant preferred an appeal before the lower appellate authority who dismissed their appeal. The appellant preferred an appeal before this Tribunal and this Tribunal vide order No. A/427/WZB/2007/CSTB/C-I, dated 26-7-2007 [2007 (220)E.L.T.160 (Tribunal)] allowed their appeal. After the receipt of the order, the appellant filed refund application for refund of duty as well as interest. The original authority vide order dated 23-12-2008 allowed the refund of duty for Rs. 30,53,905/- but did not grant the refund of interest. The appellant preferred an appeal before the Commissioner (Appeals), who held that the payment made by the appellant in 1994 at the instance of DRI was not a payment of duty in pursuance to an order of assessment but it was merely a pre-deposit. Therefore no interest is payable on refund of deposit and hence the appellants are before them.

Appellant’s contention:- The ld. counsel for the appellant submits that the amount of Rs. 30,53,905/- paid by them was confirmed as duty under Section 28 of the Customs Act, 1962 vide order dated 1-5-1996 and whatever they paid at the time of investigation was appropriated towards such duty. Further, the lower adjudicating authority while passing the refund order in December 2008 vide Order No. ACAO/268/P.K./AC/2008-Gr.VII.B, dated 28-12-2008 has also considered the issue of unjust enrichment before the refund was sanctioned and therefore, what has been paid by them in 1994 is nothing but payment of duty and not a pre-deposit as held by the lower appellate authority. He further submits that they had filed refund claim as early as in September 1994 vide application dated 12-9-1994 for refund of the said amount of Rs. 30,53,905/-. With effect from 1-12-1995, Section 27A was inserted into the Customs Act vide Finance Act, 1995 which provide for payment of interest on delayed refund on the expiry of three months from the date of application of refund till the date of refund of the duty. Since the said section came into force in December 1995, they are entitled for the benefit of interest as provided for under Section 27A of the Customs Act. The ld. counsel also relies on the judgment of the Apex Court in the case of Ranbaxy Laboratories v. UOI [2011 (273)E.L.T.3 (S.C.) = 2012 (27)S.T.R.193 (S.C.)]wherein it was held that interest on delayed refund is payable under Section 11BB of the Central Excise Act, 1944 on the expiry of three months from the date of receipt of application under Section 11B and not from the date of order of refund or appellate order allowing such refund. He argued that the same principle will apply in the case of Customs refund also and therefore, they are rightly entitled for the benefit of interest. He also relies on the judgment of this Tribunal in the case of Toyota Kirloskar Auto Parts P. Ltd. v. CC, Bangalore [2009 (240)E.L.T.124]and Bipin Silk & Synthetics [2007 (213)E.L.T.442]and the judgment of Hon’ble High Court of Bombay in Voltas Ltd., 2005 (179)E.L.T.29in support of his contention.

Respondent’s contention:- The ld. AR appearing for the Revenue on the other hand contends that what has been paid by the assessee was only a deposit and not duty and therefore the appellant is not entitled to interest under Section 27A.

Reasoning of Judgment:-They havecarefully considered the rival submissions. In the instant case from the records of the case, it is seen that though the appellant made the payment of the impugned amount at the time of investigation, the said payment was confirmed as duty vide order dated 1-5-1996 and the said payment was appropriated towards duty demand. Therefore there is no doubt on the point that what has been paid by the appellant has been adjusted towards duty and it is not a mere pre-deposit as canvassed by the revenue. Further while passing the refund order, the lower adjudicating authority had considered the applicability of unjust enrichment and only thereafter, he granted the refund which also shows that what was sanctioned by refund was only duty paid in excess. If that is so, the question of payment of interest on delayed refund would automatically arise. In the instant case from the records, it is seen that the appellant had filed refund applications dated 12-9-1994 claiming a total refund of Rs. 30,53,905/-. Therefore, the provisions of Section 27A of the Customs Act, 1962 is clearly attracted and the said section provides for grant of interest on the expiry of three months from the date of refund application till the date of grant of refund irrespective of when the order for refund was actually passed. The ratio of the judgment of the Hon’ble Apex Court in the case of Ranbaxy Laboratories cited supra and of the Hon’ble High Court of Bombay in Voltas (supra) would apply to the facts of the case. However, since Section 27A of the Customs Act itself came into force only in May, 1995 and the appellant has claimed the interest for the period from 1-12-1995 onwards, we are of the view that the appellant is rightly entitled for interest at the applicable rates from 1-12-1995 onwards till the date of actual payment of refund. Thus the appeal is allowed with consequential relief.

Decision:- Appeal allowed.

Comment:- The analogy of the case is that Refund claim filed in September, 1994 and amount sanctioned on 28-12-2008 after passing of order in favour of appellant. Interest denied on the ground that amount paid during investigation is not duty but pre-deposit. Section 27A of the Customs Act provide for payment of interest on delayed refund on the expiry of three months from the date of application of refund till the date of refund of the duty. When amount is paid during investigation appropriated it represents duty and when refund sanctioned for duty paid in excess, interest would automatically arise on expiry of three months from date of filing application. Appellant is entitled for interest.

Prepared by:- Monika Tak

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PJ/CASE LAW/2015-16/3022

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