Interest on Customs Refund Not Automatic: Delhi HC Differentiates Based on Delay in Processing [Read Order]

In a recent ruling, the Delhi High Court held that interest on customs refund is not automatic and depends on whether there was delay in processing attributable to the department, while granting relief in cases where reassessment and refund were delayed and denying it where refunds were issued within the statutory period.

The batch of petitions was filed by importers including Jaina Marketing & Associates, Lava International Ltd., Intex Technologies and others, seeking interest on refund of excess customs duty paid on imported goods. The petitioners had paid higher Countervailing Duty during 2014-2015 and later sought reassessment of Bills of Entry and refund of excess amounts.

The petitioners argued that they had paid excess duty due to system-related issues and that the department retained their money for several years without justification. They argued that reassessment applications were filed as early as 2015 but were decided only in 2022, and interest should be granted as compensation for such delay.

The department argued that refund and interest are governed strictly by Sections 27 and 27A of the Customs Act. They argued that interest is payable only if refund is not made within three months from the date of a complete refund application, and that in some cases refunds were granted within the prescribed time.

The Division Bench comprising Justice Yashwant Varma and Justice Dharmesh Sharma observed that reassessment of Bills of Entry is a necessary step before grant of refund and is governed by the law laid down by the Supreme Court.

The court explained that interest is compensatory and becomes payable when delay is attributable to the department. It pointed out that in certain cases, refunds were granted within three months of application and hence no interest was payable.

At the same time, the court observed that in other cases there was significant delay by the department in deciding reassessment applications and processing refunds. It explained that such delay cannot deprive the petitioners of interest.

The court held that in cases where refund was granted within the statutory period, no interest would be payable. In cases where delay in reassessment and refund was attributable to the department, the petitioners were entitled to interest.

The court directed the department to pay interest in such cases from the date of filing of the reassessment application till the date of refund, within a period of three months. The petitions were disposed of accordingly.

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