No Interest or Penalty on Past IGST Imports Under Advance Authorization: Bombay HC Rules 2024 Amendment Applies Prospective [Read Order]

In a recent ruling, the Bombay High Court held that no interest, penalty, or redemption fine could be levied on importers for unpaid Integrated Goods and Services Tax (IGST) under the Advance Authorization Scheme for imports made before August 16, 2024, and held amendment applies prospectively.

A. R. Sulphonates Pvt. Ltd., the petitioner, a manufacturer of chemical products filed a writ petition challenging an order issued by the Customs Commissioner (Adjudication), Mumbai, which confirmed the demand of Rs. 7.18 crore towards IGST, along with interest, penalty of Rs. 70 lakh, and a redemption fine of Rs. 2 crore.

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These charges arose from imports made by the petitioner between October 13, 2017, and January 9, 2019, using Advance Authorization Licenses without fulfilling the “pre-import” condition prescribed at the time.

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The petitioner argued that it was willing to pay the IGST amount, but the levy of interest, fine, and penalty lacked legal backing. The petitioner’s counsel relied on the Bombay High Court’s earlier ruling in Mahindra & Mahindra Ltd. v. Union of India, which was upheld by the Supreme Court, to prove this argument.

They argued that the court in that case had held that prior to legislative amendment, Section 3 of the Tariff Act did not include references to interest or penalty, making such impositions unlawful.

The petitioner also pointed out that the Central Board of Indirect Taxes and Customs (CBIC), through Circular No. 16/2023 dated June 7, 2023, had issued instructions allowing the regularization of such imports by paying the applicable IGST. The circular’s inclusion of interest liability was beyond the scope of the law as it existed then.

The customs authorities countered, stating that the term “including” in the pre-amendment Section 3(12) of the Tariff Act implied that provisions relating to interest and penalty from the Customs Act were already applicable. They also cited a CESTAT Kolkata decision that supported the imposition of interest in similar circumstances.

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The bench comprising Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla observed that the amendment to Section 3(12) made by the Finance Act (No. 2) of 2024 introduced a specific reference to interest, offences, and penalties, thereby confirming that such provisions were not previously applicable.

The court explained that fiscal statutes imposing penalties or liabilities must be interpreted strictly and cannot operate retrospectively unless expressly stated. The court further observed that the Customs Commissioner had failed to respect the binding precedent of the Bombay High Court in Mahindra & Mahindra, instead relying on a non-binding decision of a tribunal in a different jurisdiction.

The court ruled that once the petitioner voluntarily agreed to pay the IGST, the matter stood regularized. So, the imposition of a redemption fine and penalty under Section 111(o) of the Customs Act was invalid. The court held that the CBIC’s circular, to the extent it sought to recover interest, was ultra vires the law.

The court set aside the impugned adjudication order to the extent that it imposed interest, penalty, and fine, and declared that the 2024 amendment to Section 3(12) of the Tariff Act applies only prospectively. The writ petition was allowed.

To Read the full text of the Order CLICK HERE

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