Levy of interest on customs duty: amended notification limits rate to 18% and interest on CVD/SAD disallowed

Amendment to the statutory interest regime requires applying the later notification reducing the applicable interest rate on delayed compliance under EPCG licences to 18%; charging 24% was without legal authority and must be replaced by the amended rate. Separately, interest levied on countervailing duty and special additional duty is not sustainable because the levy of CVD/SAD is governed by an independent provision that does not authorize interest on those components; consequence: interest on CVD/SAD must be set aside. The impugned order was quashed and the appeal allowed with consequential benefits.

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Issues: (i) Whether the interest charged on delayed payment of customs duties (including interest rate applicable after amendment) is legally sustainable; (ii) Whether interest can be levied on Special Additional Duty (SAD).

Issue (i): Whether interest on delayed payment of Basic Customs Duty (BCD) after the amendment by Notification No.113/2002-Customs should be charged at the amended rate rather than the earlier higher rate.

Analysis: Relevant notifications prescribing interest rates and subsequent amendment by Notification No.113/2002-Customs govern the rate applicable to delayed payment of duty. The amended notification was in force and available at the time of the original order, and the levy of interest must follow the statutory prescription in the applicable notification rather than the pre-amendment rate. The authorities failed to apply the amended rate when making the demand.

Conclusion: Interest on delayed payment of BCD for the period after the amendment shall be charged at the amended rate prescribed by Notification No.113/2002-Customs (reduced rate) and not at the earlier 24% rate; the demand at 24% is without authority of law.

Issue (ii): Whether interest can be levied on the portion of demand attributable to Special Additional Duty (SAD).

Analysis: The legal framework in Sections 3 and 3A of the Customs Tariff Act, 1975 and Section 90 of the Finance Act, 2000 does not expressly provide for levy of interest or penalty on CVD, SAD or surcharge. Judicial interpretation establishes a distinction between substantive provisions creating liability and procedural machinery; absent explicit statutory authority, interest cannot be imposed on amounts of CVD/SAD.

Conclusion: Interest charged on the portion of the demand attributable to 4% SAD is not sustainable and must be set aside.

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