Can Customs Charge Interest While Confiscation Proceedings Remain Undecided? Delhi High Court Says Interest Cannot Run Before Underlying Liability Is Determined
Customs Cannot Treat Undetermined Liability as Delayed Payment and Charge Interest Retrospectively, Delhi High Court Rules in Imported Used-Oil Dispute
Facts
Vishal Oil and Lubricants Co., a proprietorship engaged in importing and selling petroleum products, filed a Bill of Entry on 8 May 2015 at ICD Tughlakabad declaring 90 drums as “Bitumen,” valued at ₹36,73,758. Customs assessed duty of ₹9,22,210 but withheld the consignment for examination. VISHAL OIL
Laboratory testing subsequently identified the material as “Used Oil” rather than “Bitumen.” Customs treated it as a restricted item and seized the goods on 5 June 2015 under Section 110 of the Customs Act. The importer maintained that its overseas supplier had mistakenly supplied Used Oil instead of the Bitumen ordered. VISHAL OIL
A Show Cause Notice dated 15 September 2015 proposed confiscation and penalties. The petitioner replied on 1 October 2015 and participated in the proceedings, but adjudication remained pending for years despite requests for an early decision. VISHAL OIL
Ultimately, on 28 February 2023, the Additional Commissioner passed the Order-in-Original. The goods were reclassified as Used Oil, but were found to be non-hazardous. No additional customs duty was held payable beyond the ₹9,22,210 already determined and appropriated. VISHAL OIL
The goods were nevertheless held liable to confiscation. The petitioner was permitted to redeem them upon payment of ₹1.83 lakh redemption fine, with penalties of ₹5,000 under Section 112(a)(ii) and ₹1.83 lakh under Section 114AA. VISHAL OIL
When the petitioner thereafter attempted clearance, the Customs EDI System showed “interest charges” of approximately ₹11.74 lakh in November 2023, rising ultimately to about ₹15.21 lakh by 1 May 2026. VISHAL OIL
The writ petition therefore sought waiver of the interest/late charges.
Issues
The principal question before the Delhi High Court was:
Can Customs charge interest from the original assessment in May 2015 when the liability arising from confiscation and redemption proceedings was itself finally determined only on 28 February 2023?
A connected issue was whether the petitioner should be relegated to the statutory appellate remedy instead of invoking Article 226.
Petitioner’s Arguments
The petitioner argued that it could not be made liable for interest during the period when the goods remained seized and the adjudication proceedings were pending entirely before Customs.
The Bill of Entry had been filed promptly on 8 May 2015. Therefore, this was not a case of delayed presentation of the Bill of Entry under Section 46(3). VISHAL OIL
The petitioner emphasised that it had repeatedly sought an expeditious decision. It replied to the Show Cause Notice in 2015, participated in the personal hearing, specifically requested early adjudication in 2016, and again appeared when the matter was finally taken up in 2023. VISHAL OIL
It argued that Customs could not keep proceedings pending for more than seven years and then treat the entire intervening period as a period of delayed payment attracting interest.
The petitioner relied upon Swatch Group India Pvt. Ltd. v. Union of India and Gala International Pvt. Ltd. v. Additional Director General, DRI to contend that departmental delay should not prejudice the importer. VISHAL OIL
Respondent’s Arguments
Customs contended that the writ petition was not maintainable because an efficacious statutory appellate remedy was available.
It further argued that the petitioner had accepted the Order-in-Original and exercised the redemption option. Having accepted confiscation and redemption, it could not avoid the statutory consequences flowing from the order. VISHAL OIL
Customs clarified that the amount was not a late filing charge under Section 46(3). Rather, according to the Department, it arose from the confiscation and subsequent redemption of goods under Section 125 of the Customs Act.
Relying upon the Supreme Court’s decision in Navayuga Engineering Co. Ltd. v. Union of India, Customs argued that once confiscated goods are redeemed, the owner remains liable for applicable customs duty, charges and consequential statutory interest. VISHAL OIL
Analysis of the Law
Liability Under Section 125 Arises From Confiscation and Redemption
The High Court treated Navayuga Engineering as the central precedent.
It noted that the Supreme Court had distinguished between:
(a) the occasion when liability under Section 125(2) arises; and
(b) the statutory machinery through which duty is assessed and determined.
Where confiscated goods are redeemed, the obligation under Section 125(2) arises in the context of the owner exercising the redemption option and the Department accepting it. The duty liability is then required to be determined through the statutory mechanism, following which statutory interest may become applicable. VISHAL OIL
This distinction became decisive.
Liability Was Not Determined in 2015
The original May 2015 assessment was based upon the petitioner’s declaration that the goods were Bitumen.
Almost immediately thereafter, Customs disputed that declaration, examined and seized the goods, and commenced confiscation proceedings on the basis that the goods were actually Used Oil. VISHAL OIL
Those proceedings remained unresolved for more than seven years.
Until the Order-in-Original dated 28 February 2023, questions concerning the nature and classification of the goods, confiscation, redemption and the consequences of the proceedings remained undecided. VISHAL OIL
The High Court therefore held that Customs could not retrospectively treat the liability arising from those proceedings as though it had remained payable since May 2015 merely for the purpose of generating interest. VISHAL OIL
Crucial Principle Laid Down by the Court
The Court carefully limited its ruling.
It did not hold that departmental delay automatically extinguishes statutory interest.
Instead, it formulated the narrower principle:
“interest cannot be calculated for a period during which the liability sought to be subjected to interest had itself not been determined”. VISHAL OIL
Thus, once an amount is determined and remains unpaid, statutory interest may follow.
But where the liability itself crystallises only at the conclusion of confiscation proceedings, the earlier period cannot automatically be characterised as a period of delayed payment of that subsequently determined liability. VISHAL OIL
This is the central ratio of the judgment.
EDI System Cannot Create a Statutory Liability
The Court also made an important observation concerning the Customs EDI System.
The electronic system merely reflects liabilities arising under law. It cannot independently create a liability that the Customs Act does not authorise.
Conversely, an amount validly payable under the statute does not become avoidable merely because it appears in the EDI system.
The real question was therefore whether the period adopted for computing interest was legally permissible. VISHAL OIL
The Court held that it was not permissible to calculate the interest arising from the confiscation/redemption proceedings from the original May 2015 assessment. VISHAL OIL
No Blanket Waiver After 28 February 2023
The Court did not completely absolve the importer from interest.
Once the liability had been determined by the Order-in-Original dated 28 February 2023, any statutory consequences for subsequent delayed payment could apply according to law.
Accordingly, Customs was directed to recalculate the amount beginning from the legally relevant date and to take into account the subsequent reassessment of the Bill of Entry on 29 August 2023 and payments or appropriations already made. VISHAL OIL
Alternate Remedy Objection Rejected
The High Court also declined to dismiss the petition merely because a statutory appellate remedy existed.
The petitioner was not challenging the underlying classification, confiscation, redemption fine or penalties.
The limited controversy concerned the period from which consequential interest could legally be calculated.
Because the material facts were undisputed and the question involved application of the statutory scheme to an admitted chronology, the Court considered a limited writ direction for recomputation appropriate. VISHAL OIL
Precedent Analysis
M/s Navayuga Engineering Co. Ltd. v. Union of India & Anr.
This was the principal Supreme Court authority.
The Delhi High Court understood Navayuga as establishing that liability associated with confiscated goods redeemed under Section 125 must be distinguished from the original assessment. The statutory machinery for determination of the duty liability remains important in deciding when consequential interest becomes attracted. VISHAL OIL
Rather than supporting Customs’ claim for interest from 2015, the High Court found that Navayuga supported the distinction between the original assessment and the subsequently determined confiscation/redemption liability. VISHAL OIL
Swatch Group India Pvt. Ltd. v. Union of India
The petitioner relied upon this authority regarding prolonged departmental delay.
Gala International Pvt. Ltd. v. Additional Director General, DRI
This was similarly cited for the proposition that statutory proceedings cannot remain indefinitely pending to the prejudice of an importer. VISHAL OIL
However, the High Court expressly said that it was unnecessary to rely upon these two cases to grant a complete waiver. The relief principally followed from the statutory scheme under Sections 125 and 28, as explained in Navayuga Engineering. VISHAL OIL
Court’s Reasoning
The Court’s reasoning can be reduced to one important chronology:
8/9 May 2015: Original assessment based on goods being Bitumen.
5 June 2015: Goods seized after laboratory identified Used Oil.
15 September 2015: Show Cause Notice issued.
2015–2023: Confiscation/adjudication proceedings remained pending.
28 February 2023: Liability arising from those proceedings finally determined.
29 August 2023: Bill of Entry reassessed.
Therefore, Customs could not take a liability crystallised through the 2023 adjudication and retrospectively deem it overdue since 2015.
The Court nevertheless preserved Customs’ right to charge whatever interest was lawfully payable after determination of the liability.
Conclusion
The writ petition was partly allowed.
The Delhi High Court directed Customs to recompute the interest and specifically ordered it to exclude the period from the original assessment in May 2015 until 28 February 2023. VISHAL OIL
Any interest payable after 28 February 2023 must be calculated strictly under the applicable statutory provisions, while giving credit for the subsequent reassessment and amounts already paid or appropriated.
Customs was directed to issue a fresh computation within four weeks. VISHAL OIL
The Court set aside the EDI interest computation insofar as it treated the period before 28 February 2023 as delayed payment, while leaving the underlying findings regarding classification, confiscation, redemption fine and penalties completely undisturbed. VISHAL OIL
Case Details
Case: Vishal Oil and Lubricants Co. v. Commissioner of Customs (Import)
Court: High Court of Delhi at New Delhi
Case Number: W.P.(C) 7004/2026 with CM APPL. 34395/2026
CNR: DLHC010229892026 VISHAL OIL
Coram: Justice Anil Kshetrapal and Justice Shail Jain VISHAL OIL
Reserved: 16 September 2026
Pronounced: 28 September 2026 VISHAL OIL
Result: Petition partly allowed; interest for May 2015 to 28 February 2023 excluded, fresh computation directed within four weeks, and underlying confiscation order left undisturbed.
