2026 (2) TMI 1222 - AT - Customs

Interest under Section 27A payable from expiry of three months after refund application; appellate grant does not bar interest.

Where a refund application under the Customs Act was not refunded within three months, Section 27A creates a mandatory entitlement to interest from the ... Interest u/s 27A - compensatory interest for delayed refund - commencement of interest from expiry of three months from receipt of refund application - deeming fiction in Explanation does not postpone commencement of interest - prohibition on departmental inconsistency and requirement of fairness in tax administration - HELD THAT:- It is admitted that the Appellant filed refund applications in respect of 28 Bills of Entry during the period January–March 2003 pursuant to issuance of Essentiality Certificates by the Directorate General of Hydrocarbons and in terms of the directions of the Hon’ble Delhi High Court dated 11.03.2003. It is further undisputed that refund in respect of 15 Bills of Entry was ultimately sanctioned only on 26.11.2015, i.e., after a lapse of more than twelve years from the date of filing of the original refund applications. We note that the entitlement to interest on delayed refund is governed by Section 27A of the Customs Act, 1962. The provision is unambiguous and mandatory in nature and provides that where any duty ordered to be refunded under Section 27(2) is not refunded within three months from the date of receipt of the refund application under Section 27(1), interest shall be paid from the date immediately after the expiry of three months till the date of refund. The language of the statute leaves no discretion with the authorities once the conditions stipulated therein are satisfied. Since the refund claims were initially rejected by the adjudicating authority in 2005–06 and refund was granted only after the matter was remanded by this Tribunal in 2015, the refund became “due” only after the appellate order and, therefore, interest cannot be computed from 2003. We find this reasoning to be wholly untenable and directly contrary to the settled position of law. The fact that the refund claims were wrongly rejected by the Department and the Appellant was compelled to pursue appellate remedies cannot be used to deny statutory interest. The Department cannot take advantage of its own erroneous actions or prolonged adjudicatory process to defeat the Appellant’s entitlement under Section 27A. We also find force in the Appellant’s contention that the rejection of refund claims on the ground that assessments were not challenged was itself held to be unsustainable by the Hon’ble Supreme Court in the Appellant’s own case in RBF Rig Corporation [2011 (2) TMI 1 - SUPREME COURT] wherein it was held that in the peculiar facts of the case, especially in view of the directions of the Hon’ble Delhi High Court, the refund could not be denied for want of appeal against assessment. Therefore, the delay in granting refund was entirely attributable to the Department and not to any lapse on the part of the Appellant. We hold that interest under Section 27A of the Customs Act, 1962 is payable to the Appellant from the expiry of three months from the dates of receipt of the original refund applications filed during January–March 2003, till the date of actual refund. The denial of interest on the ground that refund was sanctioned only pursuant to appellate orders is legally unsustainable and contrary to binding judicial precedents. Thus, we hold that the Appellant is entitled to interest under Section 27A of the Customs Act, 1962 on the refund amount sanctioned vide Order-in-Original dated 26.11.2015, with effect from the expiry of three months from the respective dates of filing of the original refund applications in the year 2003 till the date of actual refund. Consequently, the impugned Order-in-Appeal dated 29.09.2016 is set aside. The appeal is accordingly allowed, with a direction to the adjudicating authority to compute and pay the interest payable in terms of Section 27A of the Customs Act, 1962 within a period of three months from the date of receipt of this order. Issues: (i) Whether interest under Section 27A of the Customs Act, 1962 is payable from the expiry of three months from the date of the original refund applications filed during January-March 2003; (ii) Whether interest can be denied on the ground that refund was granted only pursuant to appellate orders passed subsequently.Issue (i): Whether interest under Section 27A of the Customs Act, 1962 is payable from the expiry of three months from the date of the original refund applications filed during January-March 2003.Analysis: Section 27A mandates payment of interest where duty ordered to be refunded is not refunded within three months from receipt of the refund application. The statutory language is mandatory and the provision operates automatically once its conditions are satisfied. Binding precedent interpreting the pari materia provision confirms that the starting point for computation of interest is the expiry of three months from the date of the original refund application and not the date of an appellate order.Conclusion: Interest under Section 27A is payable from the expiry of three months from the dates of the original refund applications filed during January-March 2003 until the date of actual refund.Issue (ii): Whether interest can be denied on the ground that refund was granted only pursuant to appellate orders passed subsequently.Analysis: Denial of interest on the ground that refunds were ultimately allowed only after appellate or reassessment proceedings is inconsistent with the statutory mandate. Procedural delays, reassessments, or departmental errors cannot postpone the operation of Section 27A. Granting interest in respect of some identical cases but denying it in others is contrary to principles of consistency and fairness in tax administration.Conclusion: Interest cannot be denied merely because the refund was granted pursuant to appellate orders; such denial is legally unsustainable.Final Conclusion: The Appellant is entitled to interest under Section 27A of the Customs Act, 1962 on the refund amounts sanctioned, computed from the expiry of three months from the respective dates of filing of the original refund applications in 2003 until the date of actual refund; the impugned appellate order is set aside and the adjudicating authority is directed to compute and pay the interest.Ratio Decidendi: Where a refund application under Section 27 of the Customs Act is not refunded within three months, Section 27A requires payment of interest from the day after the three-month period irrespective of subsequent appellate or reassessment proceedings.