Court’s decision
CESTAT dismissed both appeals and upheld the Commissioner (Appeals)’ order rejecting the demand for interest from the date of deposit. The Tribunal held in clear terms that the amounts paid during provisional release of seized imported tyres constituted “customs duty” and not pre-deposit, removing the case from the ambit of Section 35FF. The Tribunal emphasized the statutory mandate of Section 27A of the Customs Act, which obligates payment of interest only after expiry of three months from the date of the refund application, and not from the date of payment.
The Tribunal relied on the statutory notification fixing the interest rate at 6%, upheld the Commissioner’s approach, and rejected the appellant’s reliance on decisions that dealt with pre-deposit situations. It found no legal infirmity in the sanctioning of refund interest only for the post-three-month period. Strong reliance was placed on decisions such as Nino Chaks, Essjay Telecom, and Dinesh Tobacco Industries, all affirming that interest on delayed refunds under Section 27A can only commence after three months from the refund claim date. Consequently, both appeals were dismissed, and the Commissioner’s order was affirmed in full.
Facts
The appellant was engaged in the import of Chinese tyres of two well-known brands. During the investigation into a large-scale smuggling case involving another entity allegedly managed by the same individual controlling the appellant, the preventive authorities searched the appellant’s premises. The goods found did not bear mandatory MRP stickers required for exemption from Special Additional Duty, leading to seizure. A further search at a related residential premises led to recovery of documents and a computer device. A live consignment declared through a Bill of Entry was also seized on allegations of improper valuation and non-compliance with statutory labeling requirements. The appellant sought provisional release and deposited differential duty amounts accordingly.
Issues
- Whether the differential duty amounts paid during provisional release constituted “pre-deposit” or “customs duty”.
- Whether interest on refund should be granted from the date of deposit or only after three months from filing the refund claim.
- Whether Section 27A of the Customs Act or Section 35FF of the Central Excise Act governed the interest liability in the present case.
- Whether the 6% interest rate applied correctly in light of judicial precedents and statutory notifications.
Petitioner’s arguments
The Petitioner argued that the amounts paid for provisional release should be treated as pre-deposit, as the duty liability itself was later set aside by the Tribunal in an earlier round. It was urged that Section 35FF applied to all forms of amounts paid during an ongoing dispute, making interest payable from the date of deposit. The Petitioner asserted that the payments were not voluntary but were compelled by the provisional release mechanism, which, according to them, aligned with the concept of pre-deposit. Relying on several High Court decisions, including Sony Picture Network and Duggar Fibre, it was argued that interest at 12% should be granted from the very date of payment until refund.
Respondent’s arguments
The Revenue submitted that the refund applications were sanctioned strictly in accordance with law and that interest was granted as per Section 27A. It was contended that the amounts were paid not as pre-deposit but as differential customs duty assessed for the purpose of provisional release, making Section 35FF irrelevant. The Respondent cited the Supreme Court ruling in Ranbaxy Laboratories, asserting that interest on refund arises only after three months from the date of refund application. The Respondent further referred to a Delhi High Court decision reducing interest to 6%, which aligned with the statutory notification limiting the rate for delayed refunds. The Revenue therefore argued that the appeal deserved dismissal.
Analysis of the law
The Tribunal conducted an extensive analysis of Section 27A, clarifying that the statutory trigger for interest is explicitly the expiry of three months from the date of receipt of a refund application. This creates a precise legal timeline unaffected by the date of deposit. The Tribunal distinguished Section 35FF, noting that its applicability requires the amount to be a pre-deposit made under appellate provisions—which was absent here, as the deposits were made to secure provisional release under the Customs Act, not as a statutory prerequisite for appeal.
The legal foundation relied heavily on the nature of differential duty paid under Section 110 proceedings, confirming that such payments are treated as duty and not provisional or deposit-based payments. Given that the refund arose only after the earlier Tribunal order set aside the appropriation, Section 27A’s mechanism became relevant. The Tribunal also evaluated the binding nature of statutory notifications and clarified that interest liability under Section 27A must mirror the rate notified by the Central Government, which is currently 6%.
Precedent analysis
The Tribunal considered three precedents to strengthen its interpretation. Nino Chaks reiterated that interest under Section 27A adheres strictly to the statutory clock, beginning only after three months from the refund claim. Essjay Telecom reaffirmed that amounts paid during seizure or investigation cannot be reclassified as pre-deposit merely because duty liability is later overturned. Dinesh Tobacco Industries further established that interest cannot be claimed from the date of deposit when the deposit is made in connection with provisional release procedures. These precedents collectively underlined the distinction between “duty” and “pre-deposit,” guiding the Tribunal toward rejecting the appellant’s interpretation.
Court’s reasoning
The Tribunal reasoned that the factual matrix clearly showed the amounts were paid to facilitate provisional release of seized goods, making them duty-related payments. Since the earlier final order of 2020 permitted consequential benefits and refund, the refund sanctioned in 2021 logically fell under Section 27A. The Tribunal observed that the refund was processed within the statutory deadline of three months from the filing date, and interest was rightly computed thereafter. The Tribunal emphasized the statutory nature of interest under Section 27A and rejected attempts to import principles applicable to pre-deposit refund cases. It also endorsed the validity of the 6% rate notified through official gazette.
Conclusion
The Tribunal held that the Commissioner (Appeals) had correctly applied Section 27A and lawfully computed interest only for the post-three-month period at the statutory 6% rate. As the payments constituted customs duty, Section 35FF had no application. Finding no illegality or perversity, the Tribunal dismissed both appeals. The decision reinforces the principle that refund interest under customs law cannot be claimed from the date of deposit unless the payment qualifies as a true pre-deposit, a distinction that plays a critical role in refund jurisprudence.
Implications
This decision carries significant implications for importers seeking refunds after successful appeals. It underscores that amounts paid for provisional release will not be treated as pre-deposit and therefore cannot attract interest from the date of payment. Importers must recognize that interest under customs law is tightly regulated and anchored to statutory timelines. Further, by reaffirming the 6% cap, the Tribunal highlights that even higher judicial precedents cannot override explicit statutory notifications. The ruling will influence refund disputes across customs investigations where provisional release mechanisms are invoked.
