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. The petitioner surrendered un-utilized MEIS scrips, and no provision mandates interest on such surrender. The impugned demand for interest was issued without proper application of mind and contrary to the relevant public notice. Consequently, the HC quashed the demand notices for interest and allowed the petition.

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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.

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