Customs Dept Cannot Retain Excess Duty for 14 Years and Evade Interest by Technicalities: Orissa HC Directs Payment of 6% Interest to Vedanta Ltd [Read Order]
The courts have consistently ruled that departments cannot retain taxpayers’ money for years without compensation. It further clarified that the Tribunal has the power to award compensatory interest under Section 27A when the delay in adjudication is unconscionable and unjustified.
Customs Dept - Evade Interest - Technicalities - Orissa HC - Interest - Vedanta Ltd - taxscan
Customs Dept - Evade Interest - Technicalities - Orissa HC - Interest - Vedanta Ltd - taxscan
The Orissa High Court upheld the Customs Appellate Tribunal’s decision directing the Customs Department to pay interest to Vedanta Ltd. on the excess customs duty retained for over 14 years, firmly holding that the department cannot take shelter behind technicalities to deny compensatory relief.
The Division Bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman observed that the authorities’ “unexplained and inordinate delay” in finalizing the provisional assessment violated procedural fairness and the statutory mandate under the Customs Act, 1962.
The case began from a provisional assessment under Section 18 of the Customs Act, during which Vedanta had paid duty on imported goods. Later, after completion of testing and classification, the Customs Department accepted that the company had overpaid duty and refunded the excess amount.
GST Clarity, Direct from the Bare Act! Click here
However, this finalization came only after 14 years, and no interest was paid on the amount wrongfully retained.
Vedanta sought interest for the delayed refund, which was allowed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) at a rate of 12% per annum.
The Department challenged the order before the High Court, arguing that interest under Section 27A is payable only from the date of application for refund, not from the date of overpayment, and that the refund was made within the statutory period after the order.
The court, while rejecting the Department’s arguments, criticized the prolonged delay and held that justice must prevail over procedural technicalities.
The Bench cited Chapter VII of the CBIC Manual of Instructions, which mandates that provisional assessments must ordinarily be finalized within six months, or, in complex cases, within six months of import of the last consignment.
The Court pointed out that the Customs authorities could not avoid responsibility by using legislation that was designed to regulate interest computation because they did not even remotely follow these deadlines.
The bench, depending on judgments from the Jharkhand High Court (Bihar Foundry & Castings Ltd. v. Union of India, 2024 and other High Courts such as Punjab & Haryana and Gujarat, the Bench held that courts have consistently ruled that departments cannot retain taxpayers’ money for years without compensation. It further clarified that the Tribunal has the power to award compensatory interest under Section 27A when the delay in adjudication is unconscionable and unjustified.
GST Clarity, Direct from the Bare Act! Click here
However, while confirming Vedanta’s right to interest, the High Court modified the interest rate from 12% to 6% per annum, in line with Notification No. 75/2003-Customs (N.T.) dated 12 September 2003, which prescribes 6% as the statutory rate for refund interest under Section 27A.
The Court concluded that the Customs Department cannot sit over refund claims for over a decade and take shelter under statutory time limits to avoid liability.
By directing to pay 6% interest to Vedanta Ltd, the court dismissed the Department’s appeal.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
