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 pay interest on delayed refunds of Special Additional Duty (SAD) within eight weeks. The court emphasized that interest on delayed refunds is a statutory right under Section 27A and that administrative circulars cannot override statutory provisions.

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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.

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