2025 (11) TMI 317 - HC - Customs

Interest awarded on excess customs duty after unreasonable delay; s.27A 6% p.a. applied to withheld refunds, substance over technical objections

HC directed payment of interest on excess customs duty retained by the department after an unexplained, inordinate delay in adjudication. The court held ... Direction to pay the interest on the excess amount of custom duty retained by the Department for a considerable period of time and even the adjudication to an application claiming refund was done after unexplained inordinate delay - no ambiguity that the excess amount of the duty was paid by the respondent and an adjudication spanned over more than one decade - HELD THAT:- In an identical situation, a Division Bench of the Jharkhand High Court in the case of M/s. Bihar Foundry & Castings Ltd., vs. Union of India [2024 (3) TMI 371 - JHARKHAND HIGH COURT] considered the claim of an interest awarded by the Tribunal that there has been a considerable delay in adjudicating and/or determining the duty. In the said report, there was a delay of ten years in taking a decision and the amount was paid by the Department taking advantage of the statutory provisions, particularly the period within which the same has to be paid. The Division Bench taking note of the said instructions/circulars, as quoted hereinabove, held that the said period given in the said circular should not be construed simpliciter and instructions are to be kept in a file and non-adherence does not invite any consequences. The Division Bench was of the view that the limitation for finalization should be governed by paragraph-3.1 of the CBIC instructions and if any departure is seen therefrom, there is no fetter on the part of the Tribunal to impose the interest. Admittedly, the order of the Appellate Authority was assailed before the Tribunal and it admits of no ambiguity that the moment the Tribunal exercises the jurisdiction, it can take note of the mandates of law and may award the compensatory interest. It is inconceivable that the authority sat over the issue for considerable period of time despite paragraph-3.1 of the CBIC instructions and unreasonably taking advantage of the nuances of the law that the provision mandates the payment within three months from the date of the order despite such order is passed after fourteen years from the date of an approach having made in this regard. The Court cannot remain a mute spectator and may extend the substantial justice after balancing the technical objections. If the substantial justice is pitted against the technical objections or of such nature, the former must prevail - there are no obstacle in activating the provisions of the statute conferring power upon the authorities to impose interest and the moment the authorities have exercised such power, it does not raise any question of law. Even a Division Bench of the Jharkhand High Court has interpreted that the delayed disposal of the matter despite the mandate given in the said manual of instruction having a statutory flavour cannot be subverted taking aid of the technical rules, which cannot stand on the way of the Tribunal in deciding the same. The contention of the appellant on the Notification dated 12th September, 2003, where for the purpose of Section 27A of the Customs Act, the Central Government has fixed the rate of an interest at the rate of 6% per annum, accepted. The Tax Appeal stands disposed of. ISSUES PRESENTED AND CONSIDERED 1. Whether an appellate tribunal has jurisdiction to award compensatory interest under Section 27A of the Customs Act where the Department retained excess customs duty for an inordinate period following provisional assessment. 2. Whether statutory provisions, rules, notifications or departmental instructions (including Notification fixing interest rate and CBIC Manual of Instructions on finalisation of provisional assessment) limit or preclude the Tribunal from awarding interest beyond the statutory/notification rate or otherwise disentitle the claimant to interest when refund/payment was made within statutorily specified period. 3. Whether undue delay in finalising provisional assessment (here, ˜14 years) despite CBIC instructions prescribing expeditious finalisation (para 3.1) justifies imposition of interest as compensatory justice notwithstanding technical objections based on statutory timelines or hierarchical adjudicatory limits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Tribunal's jurisdiction to award compensatory interest under Section 27A Legal framework: Section 27A contemplates payment of interest in respect of refunds; the appellate/tribunal jurisdiction is governed by Chapter provisions of the Customs Act and the powers conferred upon appellate authorities and the Tribunal. Precedent Treatment: The Court refers to decisions of other High Courts (Punjab & Haryana, Gujarat, Jharkhand) addressing delayed finalisation of provisional assessments and the power of higher fora to quash delayed action or award relief for undue delay; the Jharkhand Division Bench was followed for the proposition that a Tribunal is not precluded from imposing interest for delay. Interpretation and reasoning: The Tribunal, when exercising appellate jurisdiction, may take note of mandates of law and impose compensatory interest where excess duty was retained unreasonably long. The hierarchical adjudicatory scheme does not oust the Tribunal's power to examine legality of below orders and to award interest as part of relief. Technical objections as to limits of powers of subordinate authorities cannot defeat substantive justice; the higher forum is competent to balance technicalities against substantial justice. Ratio vs. Obiter: Ratio - the Tribunal is not denuded of power to award compensatory interest under Section 27A when excess duty is retained for an inordinate period; higher fora may impose such interest. Obiter - general remarks on balancing substantial justice over technical objections serve as guidance but are not elaborated into new rules. Conclusion: The Tribunal had jurisdiction to award compensatory interest for the period of unreasonable retention of excess customs duty. Issue 2 - Effect of Notification fixing interest rate and limitation of interest quantum Legal framework: Central Government notification (No.75/2003-Customs (N.T.), 12-9-2003) fixes the rate of interest for purposes of Section 27A at 6% per annum; statutory scheme prescribes manner and timing of payment of refunds and interest. Precedent Treatment: The Court notes other authorities but does not overrule any precedent on the quantum of interest; it treats the notification as determinative of the appropriate rate for Section 27A awards. Interpretation and reasoning: While the Tribunal may award interest, the applicable rate for Section 27A claims is governed by the notification fixing 6% p.a. The Tribunal's grant of 12% p.a. exceeded the statutory/notification rate; therefore, the appellate court modifies the award to the notified rate. The Department's submission that payment within statutory period negates interest is considered but not accepted where delay in adjudication/finalisation is unreasonable. Ratio vs. Obiter: Ratio - the rate of interest payable under Section 27A is governed by the Central Government notification; a Tribunal's award higher than the notified rate is subject to correction. Obiter - comments that payment within a statutory period may not attract interest where no unreasonable retention occurred are contextual and not determinative here. Conclusion: Interest is payable but must be calculated at the rate fixed by the notification (6% p.a.); a higher rate awarded by the Tribunal (12% p.a.) is modified accordingly. Issue 3 - Consequence of prolonged delay in finalisation of provisional assessment and role of CBIC instructions (para 3.1) Legal framework: Section 18 permits provisional assessment; CBIC Manual of Instructions (Chapter-VII, para 3.1) expects finalisation expeditiously, well within six months (with limited exceptions); Rule/Regulation schemes (e.g., Customs (Finalization of Provisional Assessment) Regulation, 2018) may apply prospectively. Precedent Treatment: The Court relies on a Division Bench of the Jharkhand High Court that treated the CBIC instructions as material and held that non-adherence to the instructions could justify imposition of interest; other High Court decisions quashing excessively delayed finalisations are cited in support. Interpretation and reasoning: The CBIC instruction para 3.1 carries significant weight in mandating expeditious finalisation and establishes an administrative expectation with 'statutory flavour' by virtue of the Manual being issued under Section 151A. A delay of about fourteen years in finalising provisional assessment constitutes unexplained and inordinate delay, rendering retention of excess duty unreasonable and justifying compensatory interest. The fact that certain regulations apply only prospectively (e.g., 2018 Regulation) reinforces reliance on earlier CBIC instructions for assessing reasonable timeline. Ratio vs. Obiter: Ratio - unexplained delay far beyond the timeframes indicated in CBIC instructions can justify an award of interest for delayed refund of excess duty; administrative instructions on finalisation timelines are relevant in judging reasonableness of delay. Obiter - observations on specific applicability of later regulations to older assessments (e.g., 2018 Regulation) are contextual. Conclusion: Prolonged unexplained delay in finalising provisional assessment (approx. 14 years) warranted imposition of interest; CBIC para 3.1 is a valid benchmark for expected finalisation and supports awarding compensatory interest. Cross-references and Integrated Conclusions 1. Issues 1 and 3 are interlinked: the Tribunal's jurisdiction to award interest (Issue 1) is affirmed where unreasonable retention occurs, and the CBIC instruction on expeditious finalisation (Issue 3) supplies the standard for what constitutes unreasonable retention. 2. Issue 2 qualifies the relief: although the Tribunal may award interest for delay, the quantum must conform to the statutory/notification rate (6% p.a.), and an award exceeding that rate is amenable to modification. Final Determinations (Ratio) 1. The appellate Tribunal is competent to award compensatory interest under Section 27A where excess customs duty was retained for an inordinate period and refund crystallized in favour of the claimant. 2. The CBIC Manual instruction requiring expeditious finalisation of provisional assessments (para 3.1) is an appropriate benchmark; non-adherence leading to prolonged retention justifies interest. 3. The rate of interest payable under Section 27A is governed by the Central Government notification fixing 6% per annum; awards at higher rates are to be modified to that notified rate.