2025 (9) TMI 771 - HC - Customs

Appeal allowed: Interest only from reassessment order dated 05.09.2023; Section 154 rectification refusal upheld, no interest for earlier delay

HC allowed the revenue's appeal, set aside the tribunal's order and answered the substantial question of law in favour of the appellant. The court held ... Entitlement to interest on the amount refunded belatedly - date from which the interest is payable - percentage of interest - rejection of request for rectification of error in respect of the 12 shipping bills - existence of any mistake either clerical or arithmetical in respect of the assessment - HELD THAT:- Section 27A of the Act which deals with interest on delayed refund. It states that if any duty ordered to be refunded under Sub Section (2) of Section 27 to an applicant is not refunded within three months from the date of receipt of the application under Sub Section (1) of Section 2, there shall be paid to the applicant interest at such rate not below 5% not exceeding 30% as is for the time being fixed by the Central Government by notification in the official gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty. The explanation states that where any order of refund made by the Commissioner (Appeals) the appellate tribunal or any court against the order of Assistant Commissioner of Customs or Deputy Commissioner of Customs under Sub Section (2) of Section 27, the order passed by the Commissioner (Appeals), the appellate tribunal or as the case may be, by the court shall be deemed to be an order passed under that Sub Section for the purpose of Section 27A. The Customs Act is an Act to consolidate and amend the law relating to customs. The Act aims to sternly or expeditiously deal with smuggled goods and curbs the dent on revenue thus caused. The Act provides for confiscation of goods and conveyance and imposition of penalties where any goods which are imported contrary to any prohibition imposed or under the Act or any other law for the time being enforced. This is the object and the scheme of the Act as explained by the Hon’ble Supreme Court in Commissioner of Customs (Preventive), Mumbai Versus M. Ambalal and Company [2010 (12) TMI 16 - SUPREME COURT]. The department is right in contending that the amount of refund got crystalized for the first time only after Order-in-Original dated 05.09.2023 was passed. Prior to that neither the order of the Commissioner of Appeals nor the tribunal nor the court quantified the amount or crystalized the amount of refund to which the respondent was entitled to. Therefore to allege that the department had slept over the matter is a wrong conclusion considering the facts and circumstances of the case. As could be seen from the dates and events filed by the learned advocates of both sides, it is seen that the department had been consistent in its stand that the request made by the respondent cannot be entertained under Section 154 of the Act. The department is entitled to raise legal and factual contention as the statute provides for such avenue - The learned tribunal erred in shifting the date from which the respondent would be entitled to interest to a date much prior to the application for refund was made in terms of Section 27(1) of the Act which was made only on 05.08.2022 and therefore the award of interest from 11.01.2011 is not sustainable. The refund payable to the respondent got crystalized only after the order dated 05.09.2023. Therefore, to shift the date to an anterior date prior to the date on which refund got crystalized would tantamount to rewriting the statutory provision and rendering Section 27 and 27A negatory. That apart, by operation of law (i.e.) in terms of Sub-Section (2) of Section 27, the date gets postposed to the date of reassessment order which was passed on 05.09.2023. Refund proceedings are in the nature of execution for refunding the amount, it is not assessment or reassessment proceedings at all. Further, while processing a refund application, reassessment is not permitted nor conditions of exemption can be adjudicated and reassessment is permitted only under Section 17(3), (4) and (5) of the amended provisions. Further it was held that similar was position prior to the amendment. Further, the scope of the provisions of refund under Section 27 cannot be enlarged and it has to be read with a provision of Sections 17,18, 28 and 128. After taking note of the overall effect of the provisions prior to the amendment and post amendment under Finance Act, 2011 it was held that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 154 or under other relevant provisions of the Act. In the case of Reliance Transport and Travel Ltd. [2022 (3) TMI 1169 - BOMBAY HIGH COURT] it was a matter pertaining the amount deposited during investigation and amount was directed to be refunded with interest at 12% when the Department failed to adjudicate show-cause notices for several years and kept it pending in the call book without intimation to the assessee. This decision is wholly inapplicable to the facts of the present case. Other decisions relied on by the learned Advocate appearing for the respondent with regard to the rate of interest are not required to be gone into in the light of the conclusion that the respondent is not entitled for any interest as there is no delay in effecting the refund. Therefore, for all purposes the refund stood crystalized in favour of the respondent only on and after 05.09.2023 when the re-assessment order was passed - the order passed by the learned tribunal is set aside and the substantial questions of law are answered in favour of the appellant revenue - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the statutory procedure under Section 27(1) of the Customs Act required a formal refund application (Form No. 102) before any claim for refund and interest could be processed, and whether a covering letter or earlier communications could substitute for that statutory form. 2. Whether interest on delayed refund under Section 27A accrues from an antecedent date (pre-crystallization) where appellate directions existed earlier, or only from the date the refund amount crystalized by a reassessment/order-in-original. 3. Whether the Revenue's conduct in pursuing remedies and remands bars entitlement to interest (i.e., whether delay is attributable to Revenue or to the claimant), and whether the Tribunal's finding fixing an earlier accrual date was perverse or contrary to the statute. 4. Whether amounts voluntarily paid following self-assessment constitute a 'deposit' (not 'duty paid') such that limitations and Section 27/27A do not apply, and whether rectification under Section 154 can convert such voluntary payments into refundable sums from an earlier date. 5. If interest is payable, what is the applicable rate (statutory band under Section 27A versus higher rates awarded in some precedents) and whether the Tribunal exceeded its jurisdiction in awarding 12% from an antecedent date. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Requirement of statutory refund application (Form No. 102) Legal framework: Section 27(1) prescribes that a person claiming refund of duty/interest must make an application 'in such form and manner as may be prescribed' within the statutory period; the Court emphasized that statutory procedure cannot be bypassed by writ directions. Precedent treatment: The Court noted relevant high-court and apex pronouncements interpreting the scheme of refund provisions and the need to read refund provisions with assessment provisions; these authorities were applied to support statutory compliance. Interpretation and reasoning: The Court held that a covering letter or prior communications cannot substitute the statutorily mandated application; a writ court's direction does not dispense with the requirement that the claimant file the prescribed form before the Assistant/Deputy Commissioner, who must then act. Ratio vs. Obiter: Ratio - statutory application in prescribed form is mandatory; obiter - comments on the practical effect of writ orders vis-à-vis statutory process. Conclusion: Finding by the Tribunal that Form No. 102 was unnecessary was erroneous and set aside. Issue 2 - Date of accrual of interest under Section 27A (crystallization principle) Legal framework: Section 27A prescribes interest for delayed refunds from the date after expiry of three months from receipt of the statutory refund application, and the Explanation treats appellate/court orders as orders under Section 27(2) for Section 27A purposes; combined reading requires identification of when the refund amount was determinable (crystallized). Precedent treatment: The Court relied on leading authority explaining that refund proceedings are akin to execution and that refund cannot be processed unless assessment/self-assessment is modified in accordance with law; such precedent was followed and applied. Interpretation and reasoning: The Court emphasized that an amount becomes payable (crystallizes) only when an assessing authority finally quantifies the refundable sum (e.g., by reassessment/order-in-original). Earlier appellate remands and non-specific directions did not quantify or fix the refundable amount; hence interest cannot be backdated to a date before the reassessment crystallized the claim. Ratio vs. Obiter: Ratio - interest under Section 27A cannot run from a date anterior to the date when the refund sum was finally quantified; obiter - observations on what constitutes a sufficient appellate direction to be treated as crystallizing refund. Conclusion: Interest cannot be awarded from the Tribunal's chosen antecedent date; the refund crystallized only on the reassessment/order dated 05.09.2023. Issue 3 - Attribution of delay and permissibility of penalizing Revenue for pursuing statutory remedies Legal framework: Statutory scheme permits both Revenue and assesse to avail appellate remedies; time spent in legitimate exercise of statutory appeals/remands cannot be treated as inordinate delay attributable to Revenue for Section 27A purposes absent a final order crystallizing refund earlier. Precedent treatment: The Court applied authorities recognizing that the Revenue is entitled to litigate; decisions awarding interest where revenue acted unreasonably or inordinate delay occurred were distinguished on facts. Interpretation and reasoning: The Court found the Revenue consistently maintained a legal position (that Section 154 rectification was not maintainable) and availed appellate remedies. As no authority earlier quantified the refundable amount, the Revenue's exercise of remedies did not amount to inordinate delay triggering interest from an earlier date. Ratio vs. Obiter: Ratio - legitimate exercise of appellate remedies by Revenue does not itself create entitlement to interest from pre-crystallization dates; obiter - factors that may make Revenue's delay unreasonable in other factual matrices. Conclusion: Tribunal's finding that Revenue slept on file or ought to have refunded earlier was unsustainable on the record; delay was not attributable so as to support interest from the earlier date. Issue 4 - Nature of payment (deposit vs voluntary duty) and scope of Section 154 Legal framework: Section 154 permits correction of clerical or arithmetical errors or accidental slips/omissions; provisional assessment under Section 18 involves specific statutory conditions and security; Section 27 refund rights are connected to proper modification/rectification of assessment. Precedent treatment: The Court referred to authorities distinguishing errors of department versus errors of assessee and to decisions holding that voluntary payment following self-assessment is an assessment and not a deposit; these precedents were applied and some analogous cases distinguished on facts. Interpretation and reasoning: On facts the initial assessments were self-assessments accepted by the Department with no provisional procedures (no samples, no security). Thus payments were voluntary duties, not provisional deposits. Section 154 cannot be used to recharacterize voluntary self-assessed payments into refundable deposits absent circumstances fitting Section 154; accordingly the claimant's assertion that amounts were deposits was rejected for the present factual matrix. Ratio vs. Obiter: Ratio - voluntary payments under accepted self-assessment are not deposits simply because later found refundable; Section 154 has limited scope and does not convert such payments into deposit status except where true clerical/arithmetical/accidental omissions by the authorities are shown; obiter - distinctions where payments made under compulsion/protest/investigation may be treated differently. Conclusion: Payment was voluntary duty as assessed on declarant's figures; contention that it was a deposit was rejected. Issue 5 - Rate of interest and Tribunal's jurisdiction to award 12% from antecedent date Legal framework: Section 27A prescribes that interest shall be paid at a rate notified by Central Government (within a specified band); courts determine rate and commencement in light of statutory provisions and factual matrix. Precedent treatment: The Court reviewed authorities where higher rates were awarded in contexts involving pre-deposits or inordinate delay; those were examined and distinguished on factual grounds (e.g., payments under investigation, pre-deposit, or delay traceable to Revenue's conduct). Interpretation and reasoning: Given the conclusion that refund crystallized only on reassessment dated 05.09.2023 and that there was no statutory delay post-application (Form filed on 05.08.2022 and refund sanctioned promptly after reassessment), the Tribunal's exercise to award 12% from 11.01.2011 was beyond the statutory scheme and founded on impermissible backdating. The Court further held that precedents awarding higher rates were fact-sensitive and did not govern where refund only crystallized in 2023. Ratio vs. Obiter: Ratio - Tribunal exceeded jurisdiction by awarding higher rate from an anterior date unsupported by statutory accrual; obiter - guidance that higher interest rates may be appropriate in other fact patterns where revenue's prolonged, unjustifiable inaction is established. Conclusion: Award of interest at 12% from 11.01.2011 is unsustainable; no interest is payable for the period alleged because refund crystallized only on 05.09.2023 and was paid promptly. OVERALL CONCLUSION The Court held that the statutory procedures under Sections 27 and 27A govern refund and interest; the refund amount here crystallized only upon the reassessment/order-in-original dated 05.09.2023, the statutorily prescribed application (Form No. 102) was required and was filed only on 05.08.2022, and the Tribunal's backdating of interest to 11.01.2011 and award of 12% was erroneous. The Tribunal's order on interest was set aside and substantial questions were answered in favour of the Revenue. (Ratio: mandatory compliance with Section 27, accrual of interest only after crystallization by reassessment or deemed order under Section 27(2)/27A, voluntary self-assessment payments are not deposits merely because later found refundable.)