Interest Payable on Delayed Refund of Extra Customs Duty Deposit After Final Assessment: CESTAT [Read Order]

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal ruled that interest is payable on delayed refund of Extra Duty Deposit after finalisation of provisional assessment in Special Valuation Branch cases.

The appeals were filed by Vardhman Acrylics Limited against denial of interest on refund of Extra Duty Deposit paid during import of equipment from Marubeni Corporation, Japan.

The imports were made during 1997-98. Since the supplier was a related party, the Bills of Entry were assessed provisionally pending Special Valuation Branch examination. The appellant paid Extra Duty Deposit at 1% to 5% of declared assessable value under CBEC instructions.

The Assistant Commissioner, GATT Valuation Cell, passed an order dated 26 October 1998, with corrigendum dated 17 November 1998. The order held that the relationship had not influenced pricing and accepted the declared transaction value under Rule 4(3)(a) of the Customs Valuation Rules, 1988.

The appellant filed two refund applications dated 22 January 1999 for Rs. 96,42,224 and Rs. 74,23,079. The matter went through several rounds of litigation. The refund was delayed on issues including departmental appeal and unjust enrichment.

The provisional assessments were finalised through orders dated 26 March 2008 and 22 May 2008. The refund was sanctioned, but the amount was directed to be credited to the Consumer Welfare Fund. The unjust enrichment issue later travelled through appeals.

In an earlier round, the tribunal held that the incidence of the revenue deposit had not been passed on. Refunds were then sanctioned to the appellant through orders dated 13 November 2015 and 6 November 2015. No interest was granted.

The appellant’s counsel argued that the refund had been delayed and interest was payable. The revenue relied on CBEC Circular No. 59/95 dated 5 June 1995, which stated that no interest is payable on revenue deposits.

The two-member bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) examined Sections 17, 18, 27 and 27A of the Customs Act, 1962. The tribunal observed that Extra Duty Deposit is a deposit and not customs duty. It also held that once final assessment is complete and the deposit becomes refundable, the department cannot retain it without interest.

The tribunal held that Section 27A principles apply to delayed refund of Extra Duty Deposit. Interest was held payable after expiry of three months from the finalisation orders dated 26 March 2008 and 22 May 2008 till the actual refund orders in 2015.

The impugned order denying interest was set aside and the appeals were allowed.

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