2018 (2) TMI 35 - HC - Customs

Court Strikes Down Circular Denying Interest on Delayed Refunds, Affirms Statutory Rights

The court found paragraph 4.3 of Circular No. 06/2008-Cus. to be ultra vires and contrary to Section 27A of the Customs Act, directing the respondents to ... Refund of SAD - payment of interest on late refund of SAD in terms of Section 27A of the Customs Act - contention of the respondents is that Section 27A is not applicable to refunds of SAD as Notification No.102/2007-Cus. dated 14th September, 2007, has been issued under sub-section (1) to Section 25 of the Customs Act and not under Section 27A of the Customs Act. Held that: - N/N. 102/2007-Cus. has been issued in exercise of power conferred by Section 25 of the Customs Act. As noticed above, it exempts goods falling within the First Schedule of the Customs Tariff Act, 1975, from the whole of SAD leviable under sub-section (5) of Section 3 of the Customs Act, when imported into India for subsequent sale, subject to the conditions in paragraph 2 of notification being fulfilled. Paragraph 3 of the said notification states that jurisdictional customs officer shall sanction refund on being satisfied that conditions referred to in paragraph 2 are fulfilled. It is not disputed that conditions mentioned in paragraph 2 of the notification in respect of 38 Bills of Entry are fulfilled. The orders passed by the jurisdictional customs officer, appellate authority and the Tribunal have attained finality. As a sequitor, it follows that SAD refundable was a duty paid by the petitioner under the Customs Act in respect of which exemption vide N/N. 107/2007-Cus dated 14th September,2007 has been granted by the Central Government. Section 27A states that duty directed to be refunded under sub section 2 to Section 27, if not paid within three months from date of receipt of application under sub section 1 to section 27, interest would be paid by the authorities as per the rate specified. In other words, if the refund is paid within three months of date of receipt of application under sub section 1 to Section 27, no interest is payable. Interest is payable on delayed refunds after three months post the application for refund till the date of refund. Section 27A therefore ensures prompt decision and payment of refunds, when due and payable under sub section 2 of Section 27 of the Act. Interest would be payable in terms of Section 27A of the Customs Act on refund of SAD payable in terms of N/N. 102/2007. Petition allowed. Issues Involved:1. Constitutionality of paragraph 4.3 of Circular No. 06/2008-Cus.2. Applicability of Section 27A of the Customs Act to refunds of Special Additional Duty (SAD).3. Entitlement to interest on delayed refunds of SAD.Detailed Analysis:Constitutionality of Paragraph 4.3 of Circular No. 06/2008-Cus:The petition challenges paragraph 4.3 of Circular No. 06/2008-Cus. dated 28th April 2008, which states that interest under Section 27A of the Customs Act would not be payable on refunds of SAD. The court found this paragraph ultra vires and contrary to the provisions of Section 27A of the Customs Act. The court noted that the circular incorrectly interpreted Section 27A, which mandates the payment of interest on delayed refunds of duty, including SAD. The court emphasized that administrative circulars cannot override statutory provisions.Applicability of Section 27A of the Customs Act to Refunds of SAD:The court examined Sections 25, 27, and 27A of the Customs Act. Section 25 empowers the central government to grant exemptions from customs duties, including SAD, through notifications. Notification No. 102/2007-Cus. exempts goods from SAD when imported for subsequent sale, provided certain conditions are met. Section 27 specifies the procedure for claiming refunds of duty or interest, and Section 27A mandates the payment of interest on delayed refunds.The court held that Section 27A applies to refunds of SAD, as SAD is considered a duty under the Customs Act. This interpretation was supported by the Delhi High Court's decision in Principal Commissioner of Customs Vs. Riso India Pvt. Ltd., which held that SAD is a duty within the meaning of Section 27, and interest is payable on delayed refunds under Section 27A.Entitlement to Interest on Delayed Refunds of SAD:The court reaffirmed that interest on delayed refunds of SAD is payable under Section 27A of the Customs Act. The court cited the Riso India Pvt. Ltd. case, which established that the provisions of the Customs Act, including those related to refunds and interest on delayed refunds, apply to SAD. The court also referred to the Madras High Court's decision in KSJ Metal Impex (P) Ltd., which held that the procedure for refund of SAD falls under Section 27 of the Customs Act, and interest on delayed refunds is governed by Section 27A.The court concluded that paragraph 4.3 of Circular No. 06/2008-Cus. was inconsistent with Section 27A and thus invalid. The court directed the respondents to pay interest on the delayed refund of SAD to the petitioner within eight weeks.Conclusion:The court allowed the writ petition, quashed the impugned order dated 29th September 2017, and directed the respondents to pay interest on the delayed refund of SAD in terms of Section 27A of the Customs Act. The court emphasized that administrative circulars cannot override statutory provisions and that interest on delayed refunds is a statutory right under Section 27A.