2024 (5) TMI 530 - AT - Customs

Revenue must pay 12% interest on wrongfully retained deposits from date of deposit until refund disbursement

M/s. Saraswati Knitwear Pvt. Ltd. Versus Principal Commissioner of Customs (Import), New Delhi

CESTAT New Delhi held that appellant was entitled to interest on refunded amounts at 12% per annum from deposit date until disbursement. The tribunal ... Interest for delay in sanction of refund - transaction value of imports - Imports of Polyester Spun Yarn - HELD THAT:- As observed, the amount in question in the present case is no more remains to be an amount of customs duty nor it is an amount of pre-deposit, the amount is merely a deposit with Revenue which Revenue has no authority to retain. The appellant being the owner of the said amount. As per Article 300A of the Constitution of India also, no person shall be deprived of his property, save by authority of law. Once the self assessed value of the appellant has been accepted, the differential duty which was already recovered from the appellant cannot be called as the amount of duty or the amount collected under the authority of law. It definitely is the property of the appellant which remained with the department since the day of the deposit. Hon’ble Apex Court in the case of Sandvik Asia Ltd. Vs. Commissioner of Income Tax-I 2006 (1) TMI 55 - SUPREME COURT, has held the assessee to be entitled to claim interest from the date of payment of initial amount till the date of its refund. Relying upon these decisions, as discussed above, I hold that the appellant herein is entitled to claim the interest on three of the amounts as have already been refunded to him. The interest shall accrue from the date of the payment of the said amount with the department. Keeping in view of this tribunal in the case of M/s S. S. Dyes & Chemicals 2015 (11) TMI 1393 - CESTAT MUMBAI and the fact that the amount is lying deposited with the department since the Year 2013, I deem it to be a fit case for the interest to be awarded to the appellant on three of the amounts, already refunded , at the rate of 12% per annum to be calculated from the date of payment of the said amount till the disbursement thereof. Thus, the order is hereby is modified to the extent as mentioned. The appeals stands accordingly disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts paid as differential customs duty, later held not to be payable and refunded, constitute mere revenue/deposit with the department entitling the payer to interest from date of deposit until refund. 2. Whether the statutory provision governing interest on refund of duty (Section 27A of the Customs Act) applies to such deposits or precludes payment of interest on amounts that are merely revenue deposits and not duty payable under law. 3. What is the appropriate rate of interest payable on refunds of such differential duty/deposits for the period of retention by the department? ISSUE-WISE DETAILED ANALYSIS Issue 1: Nature of the amounts paid (differential duty) - revenue deposit vs. duty payable Legal framework: The assessment and payment of customs duty may result in a refundable differential where an assessing officer enhances transaction value; upon successful appeal, the differential may be ordered refunded. Article 300A of the Constitution protects property rights against deprivation except by authority of law. Precedent Treatment: The Tribunal relied on pronouncements (including Supreme Court decisions referenced in the judgment) holding that amounts not payable as duty and retained by the revenue amount to deposits or monies of the taxpayer which the Revenue has no authority to retain. Interpretation and reasoning: The Court reasoned that once appellate authority set aside value enhancement and affirmed transaction value declared by importer, the differential amount previously paid ceased to be a duty or a payment made under authority of law and remained the property of the payer. Consequently, such sums were held to be mere deposits with the department from the date of payment until sanction of refund. Ratio vs. Obiter: Ratio - Where an assessing error leads to recovery of amounts that are later held not payable, those amounts are to be treated as deposits/revenue not lawfully retained by the Revenue, making the payer owner of the amounts during the intervening period. Obiter - Reference to Article 300A and broader constitutional protections supports the conclusion but the operative holding focuses on the proprietary character of wrongly retained sums. Conclusions: The Tribunal concluded the differential amounts were deposits/revenue retained without authority and, having been refunded, were subject to interest for the period they remained with the department. Issue 2: Applicability of statutory interest provisions (Section 27A) to such deposits Legal framework: Section 27A of the Customs Act prescribes payment of interest where duty ordered to be refunded under Section 27(2) is not refunded within three months from receipt of application; the provision fixes a permissible range of rates. There is jurisprudence distinguishing interest on refunds of duty versus refunds of deposits not constituting duty. Precedent Treatment: The judgment cites Supreme Court authority (and allied High Court decisions) holding that statutory provisions dealing with interest on refunds of duty do not automatically apply to amounts which are deposits not constituting duty. The Tribunal also relied on earlier tribunal decisions holding similar positions. Interpretation and reasoning: The Tribunal accepted that Section 27A is the only provision in the Customs Act explicitly dealing with interest on refunds of duty but recognized precedent that refund of amounts that are not duty (i.e., deposits) falls outside the strict ambit of statutory refund-interest provisions. However, the Tribunal treated the entitlement to interest as established by principle and precedent that a person deprived of his property (wrongfully retained) is entitled to interest for the period of deprivation. Ratio vs. Obiter: Ratio - Statutory interest provisions do not exclusively govern entitlement to interest where sums retained are deposits not constituting duty; courts may grant interest/compensation based on equity and established jurisprudence. Obiter - Discussion of the absence of an express provision for deposits in the Customs Act is contextual support. Conclusions: The Tribunal held that despite Section 27A's textual scope, the appellant is entitled to interest on refunded differential amounts because those sums were deposits wrongfully retained; entitlement derives from legal principle and precedent rather than a narrow reading that confines interest solely to statutory duty-refunds. Issue 3: Rate of interest payable on the refunded deposits Legal framework: Section 27A prescribes a range (5%-30% per annum) for interest on refunds of duty; executive notifications have in practice fixed specific rates from time to time (e.g., notifications cited fixing 6% and later 15% per annum for refund interest). Precedent Treatment: The Tribunal referred to a Commissioner (Appeals) decision and tribunal precedents awarding interest at applicable/prevailing rates and to Supreme Court reasoning emphasizing fairness where the department benefits from assessors' funds while delaying refund interest. Interpretation and reasoning: The Tribunal noted the absence of unreasonableness in awarding a commercially reasonable rate where the statutory provision permits a wide range and where executive notifications have varied. Considering the facts (deposit retained since 2013) and the department's own prior stance (Commissioner (Appeals) held appellant entitled to interest), the Tribunal deemed 12% per annum appropriate for compensation of delay, aligning with equitable considerations and precedent recognizing long-term withholding of funds warrants meaningful interest/compensation. Ratio vs. Obiter: Ratio - For wrongful retention of depositional sums later refunded, the Tribunal may award interest at a rate within the statutory range (or otherwise justified by reason and precedent); in the present facts, 12% per annum was an appropriate award. Obiter - References to specific notifications (6% and 15%) and the statutory maximum/minimum contextualize but do not strictly limit the equitable determination of rate. Conclusions: The Tribunal modified the impugned order to award interest at 12% per annum on the three refunded amounts, to be calculated from the date of payment (deposit) until actual disbursement. Cross-references and Miscellaneous Reasoning Points - The Tribunal relied on analogue authority from excise and income tax jurisprudence (including cited Supreme Court decisions) to establish entitlement to interest/compensation where departmental conduct unjustifiably withholds taxpayers' funds for prolonged periods. - The Tribunal distinguished the narrow statutory mechanism for duty refunds from equitable reliefs applicable where retained sums are not duties but deposits; hence entitlement to interest can be recognized notwithstanding textual limits of Section 27A. - The Tribunal considered the departmental appellate acceptance (allowing the underlying appeals and sanctioning refunds) as reinforcing that the sums were not lawfully retained and that interest was therefore warranted. Net Disposition (operational conclusion) The impugned appellate order is modified to the extent that interest is payable at 12% per annum on the three refunded differential amounts, calculated from the respective dates of payment (deposit) until the date of disbursement; appeals disposed accordingly.