2025 (5) TMI 1765 - AT - Customs

Levy of interest on short paid duty under section 28AA of the Customs Act - error in the EDI system - Differential Countervailing Duty (CVD) - Show Cause Notice issued to demand interest - HELD THAT -Following the decision of M/s. Titagarh Wagons Ltd. 2024 (2) TMI 876 - CESTAT KOLKATA and considering the fact that the short payment of duty was due to the fault of the EDI system and as and when the same was pointed out to the appellant the appellant paid the duty we hold that no interest in payable by the appellant. In these terms we set aside the impugned order qua demand of interest and allow the appeal with consequential relief if any as per law.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether interest under Section 28AA of the Customs Act, 1962 is payable on differential Countervailing Duty (CVD) when the short payment arises due to an error in the Customs Electronic Data Interchange (EDI) system, and the importer pays the differential duty promptly upon being notified.

2. Whether the payment of duty as assessed and allowed clearance under Section 47 of the Customs Act precludes the demand of interest on subsequently detected differential duty.

3. The applicability and interpretation of Sections 28AA and 47 of the Customs Act in the context of delayed payment of differential duty arising from system errors rather than importer fault.

Issue-wise Detailed Analysis:

1. Liability to pay interest under Section 28AA on differential CVD arising from EDI system error

Relevant legal framework and precedents: Section 28AA mandates payment of interest on delayed payment of duty at rates notified by the Central Government, calculated from the date the duty ought to have been paid. Sub-section (3) exempts interest where duty becomes payable due to Board's order and is voluntarily paid within 45 days without reservation of appeal rights. Section 28AA applies to duty payable under Section 28.

The appellant relied on the Tribunal's decision in M/s. Titagarh Wagons Ltd., which held that no interest is payable when the short payment is due to an EDI system error and the differential duty is paid promptly upon notice.

Court's interpretation and reasoning: The Tribunal noted that the short levy was not due to any fault or misdeclaration by the importer but due to an error in the EDI system showing a lower CVD rate (6% instead of 12%). The appellant paid the differential duty immediately upon being informed. The Tribunal emphasized that interest under Section 28AA is compensatory, not punitive, and since the short payment was not attributable to the appellant, interest demand was unwarranted.

Key evidence and findings: The appellant had filed 27 Bills of Entry, paid CVD at 6% as per EDI system, and goods were cleared. Later, the Department detected the correct rate was 12%. The appellant promptly paid the differential duty. The Show Cause Notice demanded interest on this differential.

Application of law to facts and treatment of competing arguments: The Department argued that the importer should have paid the correct duty voluntarily. However, the Tribunal distinguished this case from others where the importer delayed payment or suppressed facts. The Tribunal found no delay or suppression here. The appellant's payment complied with Section 47 clearance requirements and the short payment was due to system error, not importer fault. The Tribunal relied on the Titagarh Wagons Ltd. decision and other precedents to hold that interest under Section 28AA was not payable.

Conclusion: No interest under Section 28AA was payable on the differential CVD arising from EDI system error, given prompt payment and absence of fault on part of the importer.

2. Effect of clearance under Section 47 on interest liability

Relevant legal framework and precedents: Section 47(1) allows clearance of goods for home consumption when the proper officer is satisfied that import duty has been paid. Section 47(2) imposes interest if duty is not paid within two days of Bill of Entry return. The Tribunal referred to the decision in Commissioner of Customs, Vijayawada vs. Ruchi Soya Industries Ltd., where it was held that once duty is paid and clearance granted under Section 47, interest cannot be demanded for subsequent differential duty paid without delay.

Court's interpretation and reasoning: The Tribunal observed that the appellant paid the duty as per EDI system and goods were cleared under Section 47. The subsequent demand for differential duty arose due to a change or correction in duty rate after clearance. Since the appellant paid the differential duty promptly, there was no delay under Section 47(2). The Tribunal held that the provisions of Section 47 cease to apply once duty is paid and clearance is granted, and no interest is payable on the differential duty paid subsequently without delay.

Key evidence and findings: The appellant paid the initially assessed duty promptly, and clearance was granted. The differential duty was paid immediately after being informed of the error.

Application of law to facts and treatment of competing arguments: The Department contended that the importer should have paid the correct duty at the outset. The Tribunal rejected this, emphasizing that the clearance under Section 47 was valid as per the information available, and the subsequent correction and payment did not attract interest as there was no delay or fault by the importer.

Conclusion: Clearance under Section 47 following payment of duty as assessed precludes interest liability on subsequently paid differential duty, provided it is paid promptly.

3. Interpretation of Sections 28AA and 47 in context of system errors and importer's liability

Relevant legal framework and precedents: Section 28AA imposes interest on delayed payment of duty under Section 28, while Section 47 governs clearance upon payment of assessed duty. The Tribunal analyzed the interplay between these provisions, relying on the Titagarh Wagons Ltd. and Ruchi Soya Industries Ltd. decisions.

Court's interpretation and reasoning: The Tribunal noted that Section 28AA's interest liability presupposes a delay or fault in payment of duty. Where the short levy is due to system error and the importer pays the differential duty immediately upon notice, the compensatory interest is not warranted. Section 47's provisions for clearance and interest on delayed payment apply only to the initially assessed duty. Subsequent corrections do not attract interest if paid without delay.

Key evidence and findings: The appellant paid the initially assessed duty as per EDI system and cleared goods. The differential duty was paid immediately after notification, with no suppression or misdeclaration.

Application of law to facts and treatment of competing arguments: The Department's argument that the importer should have known the correct rate was rejected, as the error was in the EDI system. The Tribunal emphasized that the law should not impose undue hardship on importers where the fault lies with the system and the importer acts in good faith.

Conclusion: The Tribunal interpreted Sections 28AA and 47 harmoniously to protect importers from interest liability arising solely from system errors, provided differential duty is paid promptly and in good faith.

Significant holdings:

"While we note that it is settled law that interest is compensatory in character and not punitive, we also take note of the fact that the short levy in the present case, in no way can be attributed to the assessee's fault."

"In view of the fact that short paid duty amount was paid without demur or protest and in time, no sooner the Department brought the same to the importer's notice, besides the fact that duty short paid in the first instance, can in no way be attributed to any fault on the part of the importer/appellant, we note sufficient compliance of the requirements of Section 47 as at the time of clearance, and that is why order permitting clearance for home consumption was granted by the proper officer. Under the circumstances, subjecting the importer to levy interest on duty as short paid in terms of Section 28 is not warranted besides being unduly harsh, particularly when there is no omission on account of any fault attributable to the importer."

"Once the assessed duty stands paid, orders for clearance of the cargo are issued under Section 47 and the cargo is cleared, the provisions of Section 47 stop having any applicability. As the respondents have deposited the assessed duty in terms of the provisions of the said section, and there was no late payment of duty so assessed by the Customs, no demand for interest can be raised under Section 47(2) of the Act."

The Tribunal set aside the impugned order qua demand of interest and allowed the appeal, holding that no interest was payable on the differential CVD paid due to the EDI system error, given the prompt payment and absence of importer fault. The core principle established is that interest under Section 28AA is not payable where the short payment of duty arises from system errors and the importer pays the differential duty promptly upon notification, especially after clearance under Section 47 has been granted based on the initially assessed duty.