2025 (8) TMI 107 - HC - Customs

Section 28AA of Customs Act applies only to unpaid duties; no interest on surrendered un-utilized MEIS scrips

The HC held that Section 28AA of the Customs Act, 1962 applies only where duty is unpaid, short paid, or erroneously refunded, which is not the case here. ... Levy of interest on the MEIS scrips surrendered by the petitioner - Section 28AA of the Customs Act, 1962 - HELD THAT:- Section 28AA of the Customs Act, 1962 makes it clear that only in cases, where the person, who is labile to pay duty in accordance with the provisions of Section 28, shall in addition to such duty, be liable to pay interest, if any. The case of the petitioner will not fall under Section 28 or Section 28AA of the Customs Act, 1962. In the case on hand, the petitioner has surrendered the MEIS scrips with the respondents and it is not a case involving duties not levied, or not paid or short levied or short paid or erroneously refunded. Only in those cases, Section 28AA of the Customs Act gets attracted. As seen from the provisions of the Customs Act, the levy of interest on account of surrendering the un-utilized MEIS scrips is not specifically provided. Though the petitioner may have paid interest earlier for certain shipments on account of surrendering the MEIS scrips, the learned counsel for the petitioner has clarified to this Court that the said interest was paid since the amounts were negligible. But the petitioner has never agreed that they are liable to pay interest, on account of surrender of un-utilized MEIS scrips. By total non-application of mind to the fact that Section 28AA does not get attracted for the cases where an eligible exporter has surrendered the un-utilized MEIS scrips, the impugned demand has been issued, calling upon the petitioner to pay interest on account of the surrender of the MEIS scrips. The public notice dated 03.07.2018, based on which the impugned demand has been made also does not stipulate payment of interest for surrendering of the un-utilized MEIS scrips - it is clear that the respondents cannot claim interest on the petitioner for the un-utilized MEIS scrips surrendered by the petitioner. The impugned letters of demand issued by the 6th respondent dated 27.11.2019 and 12.03.2021 are hereby quashed and this Writ Petition is allowed. ISSUES: Whether Section 28AA of the Customs Act, 1962 applies for levy of interest on surrendered un-utilized MEIS scrips.Whether surrendering un-utilized MEIS scrips by an eligible person attracts interest liability under the Customs Act.Whether interest can be demanded by Customs Authorities without a specific charging provision under the Customs Act. RULINGS / HOLDINGS: Section 28AA of the Customs Act, 1962 'gets attracted only in cases where there is a delay in payment of the customs duty' and does not apply to the surrender of un-utilized MEIS scrips.The petitioner, being an eligible person who surrendered the un-utilized MEIS scrips, is not liable to pay interest as claimed by the Customs Authorities under Section 28AA.There must be a 'specific charging Section under the Customs Act' for charging interest, which is absent in the context of surrendering un-utilized MEIS scrips; thus, interest cannot be levied.The respondents' own admission in their counter affidavit that the original holder may refund over claims by surrendering scrips 'without interest' supports the conclusion that interest is not payable. RATIONALE: The Court applied the statutory framework of Sections 28 and 28AA of the Customs Act, 1962, which govern recovery of duties and interest on delayed payment of duty, respectively.Section 28 deals with recovery of duties not levied, short paid, or erroneously refunded, and Section 28AA mandates interest only in relation to such duty payment delays.The Court relied on precedent establishing that 'for charging interest, there must be a specific charging Section under the Customs Act,' referencing a Kerala High Court decision following the Supreme Court ruling in J.K. Synthetics Ltd. v. Commercial Tax Officer.The Court noted that the public notice governing MEIS scrips does not stipulate payment of interest on surrender of un-utilized scrips, reinforcing that interest demand is unsupported.The Court identified a 'total non-application of mind' by the Customs Authorities in invoking Section 28AA for interest on surrendered MEIS scrips, which do not fall under Section 28.