2025 (11) TMI 21 - AT - Customs

Provisional release payments treated as customs duty, Section 35FF inapplicable; interest under Section 27A from three months after refund claim

CESTAT (AT) held the amounts paid during provisional release were customs duty not deposits under protest, so Section 35FF did not apply; the refund ... Improper valuation and not affixing MRP stickers - amounts in question were in the nature of pre-deposit or in the nature of duty - invocation of provision of Section 27A of Customs Act, 1962 - HELD THAT:- It is an apparent fact that the amount in question i.e. Rs. 3,83,645/- and Rs. 3,94,331/- were paid by the appellant with respect to the goods seized at the time of search and goods seized of the live Bill of Entry. All those goods were ordered to be released as per the provisions of Customs Act, 1962 at appellant’s own request for provisional release of the goods. This apparent and admitted fact is sufficient to hold that the amounts in question cannot be considered as an amount deposited under protest. Hence Section 35FF is held to not be applicable to the given set of circumstances. The perusal of Section 27A of the Customs Act, makes it clear that any duty of customs if has to be refunded, the refund shall accompany the interest in case it is not sanctioned within three months of the application of refund. In the present case, the refund application was filed on 31.12.2020 whereas the orders sanctioning the refund is dated 30.06.2021 hence the appellant is entitled for interest for the period after the expiry of three months from the date of receipt of such application till the date of refund of such duty. No question arises for sanctioning interest from the date of payment of the amount in question, for the amount in question being the amount of customs duty instead of an amount of pre-deposit. The rate of interest has already been curtailed to 6% by Hon’ble High Court, Delhi in another matter vide order dated 30.12.2022. Otherwise also as per Section 27A of Customs Act itself, the rate of interest has to be such as fixed by the Central Government by a notification in the official gazette. It has been brought to notice that the N/N. 67/2003 restricts the rate of interest at 6% in case of delayed refund. This observation is sufficient to hold that the interest calculated in such manner as mentioned above @ of 6% from the date immediately after the expiry of three months till the disbursement thereof has rightly been sanctioned by Commissioner (Appeals). The impugned order is upheld - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts paid by the appellant at the time of provisional release of seized goods constitute 'pre-deposit' (entitling to interest under Section 35FF of the Central Excise Act, 1994 or analogous provisions) or are properly characterised as customs duty refundable under Section 27 read with Section 27A of the Customs Act, 1962. 2. If characterised as refundable customs duty, the date from which interest on delayed refund is payable - whether from date of payment/deposit or from the date specified under Section 27A (i.e., after expiry of three months from receipt of refund application). 3. The applicable rate of interest on delayed refund - whether the rate contended by the appellant (12% or other) or the rate fixed by Central Government notification (6%), and the effect of judicial orders reducing the rate. 4. Whether the Commissioner (Appeals)'s invocation and application of Section 27A of the Customs Act to calculate and award interest on the refunds was legally sustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of amounts paid at provisional release: customs duty refundable vs pre-deposit Legal framework: Provisional release of seized goods under the Customs Act permits release on furnishing bond/guarantee and payment of differential duty; Section 27/27A of the Customs Act govern refunds of customs duty and interest on delayed refunds. Section 35FF of the Central Excise Act (and jurisprudence under central excise) deals with interest on amounts paid under protest or pre-deposit in the excise context. Precedent treatment: Appellant relied on decisions (e.g., Sony Picture Network; Duggar Fibre) to contend parallels with central excise/pre-deposit interest. Revenue relied on Ranbaxy (Supreme Court) and other authorities applying Section 27A for customs refunds. Interpretation and reasoning: The Court noted the undisputed factual matrix that the sums were paid as differential customs duty to secure provisional release of seized goods and were not paid under protest as pre-deposit of disputed tax. The nature of payment being made for release under customs provisions meant the payments were properly characterised as customs duty for the purposes of refund law, not as a 'pre-deposit' within the sanctuary of Section 35FF of the Central Excise Act. Ratio vs. Obiter: Ratio - payments made for provisional release under the Customs Act are to be treated as customs duty refunds governed by Sections 27/27A, not as excise pre-deposits entitling to interest under Section 35FF. Obiter - references to analogous excise jurisprudence were considered but rejected on facts. Conclusion: Section 35FF of the Central Excise Act is not applicable; the payments are refundable customs duty and fall to be dealt with under Section 27/27A of the Customs Act. Issue 2 - Commencement of interest on delayed refund Legal framework: Section 27A of the Customs Act provides that where refund is not sanctioned within three months of receipt of refund application, interest (within notified rate band) is payable from the day immediately after the expiry of three months from receipt of application until refund. Precedent treatment: Revenue relied on Supreme Court authority holding that interest on refund is allowed after three months from date of refund application where delay occurs. Authorities cited by the Tribunal include decisions applying Section 27A timelines. Interpretation and reasoning: Applying the statutory language, the Court held that the right to interest accrues only after three months from the date of receipt of the refund application, not from date of payment of the duty. The refund application in the present case was filed on 31.12.2020 and the refunds were sanctioned on 30.06.2021/31.05.2021; therefore interest is payable only for the period after the three-month window expired until the date of sanction/disbursement. Ratio vs. Obiter: Ratio - interest under Section 27A begins to run only from the date indicated in the provision (immediately after three months from receipt of refund application) where there is delay in sanctioning the refund. Obiter - discussion rejecting appellant's contention for interest from date of payment as inconsistent with statutory scheme. Conclusion: Interest is payable from the date immediately after expiry of three months from receipt of the refund application until the date of refund; no interest is payable from the date of deposit/payment of the sums for provisional release. Issue 3 - Applicable rate of interest on delayed refund Legal framework: Section 27A prescribes interest at a rate to be fixed by the Central Government by notification (within a floor and ceiling). Notifications issued by the Central Government fix specific rates from time to time; judicial orders interpreting or varying rates are relevant precedent. Precedent treatment: The Tribunal observed that the Central Government's notification (referred to as Notification No. 67/2003 and other notifications) fixes the rate at 6% for delayed refunds; a High Court order in another matter had reduced claimed rates to 6% where challenged. Interpretation and reasoning: Given Section 27A's express delegation to the Central Government to fix the rate, the Tribunal applied the rate as fixed by the applicable notification (6%). Reliance was placed on prior decisions and the notification restricting the applicable rate; the Tribunal considered judicial reductions of higher claimed rates persuasive in sustaining 6% as the proper rate. Ratio vs. Obiter: Ratio - where Section 27A governs interest on delayed customs refunds, the applicable rate is that fixed by the Central Government notification; judicial reductions in other matters support application of the notified rate. Obiter - references to conflicting rates in other authorities were examined and distinguished. Conclusion: Interest on the delayed refunds is to be calculated at 6% per annum (as per the relevant Central Government notification) for the statutory period specified under Section 27A. Issue 4 - Validity of Commissioner (Appeals)'s application of Section 27A and dismissal of appellant's claim for higher interest Legal framework: Commissioner (Appeals) may direct refund and interest in accordance with applicable statutory provisions; Tribunal reviews correctness of legal characterisation, timing and rate of interest under Section 27A. Precedent treatment: Tribunal referred to decisions upholding similar applications of Section 27A (cited orders include decisions of High Court/CESTAT and recent final orders consistent with the statutory scheme). Interpretation and reasoning: The Tribunal held that Commissioner (Appeals)'s invocation of Section 27A and award of interest at 6% from the date after expiry of three months from the refund application was in consonance with the statute and relevant notifications. Appellant's reliance on excise interest provisions (Section 35FF) and higher rates was rejected on factual and legal grounds (nature of payment and statutory mechanism). Prior decisions supporting the Tribunal's approach were relied upon. Ratio vs. Obiter: Ratio - application of Section 27A by Commissioner (Appeals) to calculate interest at the notified rate from the statutory commencement date is legally sound where payments are customs duty refunded after provisional release; denial of interest from date of payment is consistent with Section 27A. Obiter - discussion of other judicial authorities brought by parties for comparative purposes. Conclusion: Commissioner (Appeals) correctly applied Section 27A and the notified rate; there was no legal infirmity in denying interest from date of payment and awarding interest at 6% from the date prescribed by Section 27A. The appellate challenge to the interest award was dismissed. Cross-references See Issue 1 for the foundational characterisation which determines applicability of issues 2-4. The conclusions on commencement and rate of interest (Issues 2 and 3) flow directly from the legal characterisation under Issue 1 and the statutory scheme of Section 27/27A. Final Disposition The appeals against the interest calculation and refund orders were dismissed; interest rightly awarded under Section 27A at the notified rate of 6% for the period commencing immediately after three months from receipt of refund application until disbursement; no interest payable from date of deposit/payment. (This conclusion is the operative ratio of the Court.)