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2025 (6) TMI 1608 - HC - CustomsRefund of Special Additional Duty (SAD) of Customs paid under Section 3(5) of the Customs Tariff Act 1975 - interest under Section 27A of the Customs Act 1962 on delayed refunds of SAD - alleged mismatches or deficiencies in invoices or documents - HELD THAT - In Union of India and others Vs. B.T.Patil Sons Belgaum (Construction) Private Limited 2024 (2) TMI 324 - SUPREME COURT involving refund of duty drawback the Hon ble Supreme Court held that under sub-section (1) of Section 75-A of the Customs Act where duty drawback is not paid within a period of three months from the date of filing of claim the claimant would be entitled to interest in addition to the amount of drawback. This section provides that the interest would be at the rate fixed under Section 27-A from the date after expiry of the said period of three months till the payment of such drawback. If we look at Section 27-A the interest rate prescribed thereunder at the relevant point of time was not below ten per cent and not exceeding thirty per cent per annum. The Petitioners are entitled to interest u/s 27A of the Customs Act 1962 from the date of the expiry of three months from the date of filing of the refund application. Conclusion - i) The Petitioners are entitled to refund of SAD paid under Notification No.102/2007-Cus. subject to fulfillment of statutory conditions which they have complied with. ii) The Petitioners are entitled to interest under Section 27A of the Customs Act 1962 on delayed refunds payable from three months after filing of refund applications until actual payment. Petition allowed.
1. ISSUES PRESENTED and CONSIDERED
- Whether the Petitioners are entitled to refund of Special Additional Duty (SAD) paid under Section 3(5) of the Customs Tariff Act, 1975, pursuant to Notification No.102/2007-Cus., dated 14.09.2007, upon fulfilling prescribed conditions including payment of appropriate sales tax or VAT on sale of imported goods. - Whether the Customs authorities can deny refund claims based on alleged mismatches or deficiencies in invoices or documents, especially concerning VAT returns and particulars of buyers. - Whether the Petitioners are entitled to interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD. - The applicability and interpretation of Circulars issued by the Central Board of Excise and Customs (CBEC), specifically Circular No.6 of 2018, Circular No.18/2013-Cus., and Circular No.869/7/2008-CX, in relation to refund claims and procedural requirements. - The validity and effect of earlier orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), including both Single Bench and Division Bench decisions, on the entitlement to refund of SAD. - The scope of judicial review under Article 226 of the Constitution of India concerning the impugned Orders-in-Original rejecting or partially allowing refund claims. 2. ISSUE-WISE DETAILED ANALYSIS Entitlement to Refund of Special Additional Duty (SAD) under Notification No.102/2007-Cus. The legal framework governing the refund of SAD is primarily Notification No.102/2007-Cus., issued under Section 25 of the Customs Act, 1962, which exempts certain goods from SAD subject to conditions including payment of SAD at import, issuance of invoices indicating no credit of SAD, filing of refund claims, and payment of appropriate sales tax or VAT on sale of imported goods. The refund is sanctioned upon satisfaction of these conditions by the jurisdictional customs officer. CESTAT's Division Bench judgment dated 02.06.2017 in the matter of M/s. Kubota Agricultural Machinery India Pvt. Ltd. clarified that refund cannot be denied if the importer has discharged appropriate sales tax or VAT and can establish that nil VAT/Sales Tax was payable on the impugned goods. The Tribunal emphasized that the refund claim cannot be rejected solely on the ground of document mismatches if the essential conditions are met. The Court noted that earlier, the Single Bench of CESTAT had denied refund on the ground of "Nil" VAT, but this was overruled by the Division Bench, which held that the importer's compliance with VAT payment or establishing nil VAT liability sufficed for refund entitlement. The Petitioners relied on this precedent and sought refund claims certified by Chartered Accountants as per Circular No.6 of 2018, which mandates certification of returns for refund claims. The Court observed that once such certified returns are filed, customs authorities cannot deny refunds by scrutinizing individual invoices or raising demands for particulars of buyers, as this would contravene the procedural safeguards and the conditions stipulated in the Notification. The Respondents contended that refund claims were rejected partly due to incomplete documents, non-filing of VAT returns, and suspicion of non-bona fide transactions. They relied on Circular No.18/2013-Cus. and Circular No.869/7/2008-CX, which prescribe pre-audit and procedural requirements for refund claims exceeding Rs. 5 lakhs and emphasize cash payment of SAD for refund eligibility. The Court examined these contentions and held that the Circulars do not override the statutory provisions or the binding precedents of the Tribunal and Courts. The Circulars serve as administrative guidelines but cannot be used to deny refunds where statutory conditions are fulfilled. The Court further noted that the Department had itself accepted refund claims in similar cases, sanctioning substantial amounts, thereby acknowledging compliance with procedural and substantive requirements. Denial of Refund on Grounds of Document Mismatches and Non-Filing of VAT Returns The Respondents argued that refund claims were rejected due to alleged mismatches in invoices and non-filing of VAT returns as per Circular No.6 of 2018 and other guidelines. They contended that such deficiencies justified partial or full rejection of refund claims. The Court analyzed the evidence and submissions, observing that the Petitioners had filed returns duly certified by Chartered Accountants, which is the prescribed mode of compliance. The Court held that it is not within the Customs Authority's jurisdiction to conduct detailed invoice-wise scrutiny to deny refunds once certified returns are filed. The Court emphasized that the statutory scheme and the Notification do not require individual invoice audits by Customs but rely on the overall compliance evidenced by certified returns and payment of VAT or sales tax. The Court also referred to earlier orders sanctioning refunds in cases involving similar facts, underscoring that the Department's inconsistent approach undermined the justification for rejection based on document mismatches. The Court concluded that the denial of refunds on such grounds was unsustainable. Entitlement to Interest under Section 27A of the Customs Act, 1962 on Delayed Refunds The Petitioners claimed interest under Section 27A of the Customs Act, 1962 on delayed refunds of SAD, which mandates payment of interest if refund is not paid within three months from the date of receipt of the refund application. The Petitioners contended that interest was wrongly denied even for sanctioned claims. The Court extensively examined authoritative decisions, including the Supreme Court's ruling in Union of India v. B.T. Patil & Sons (2024), Bombay High Court's Ajay Industrial Corporation Ltd. case (2024), and other High Court decisions including Karnataka Power Corporation Limited (2023) and Madras High Court precedents. These decisions uniformly held that interest under Section 27A is payable from the expiry of three months from the date of refund application until actual payment, regardless of delays caused by the Revenue. The Court rejected the Department's reliance on explanations to Section 27A and administrative decisions that sought to limit interest liability to the date of refund order. It held that the statutory mandate is clear and interest cannot be denied on technical or procedural grounds where refund claims are valid and delayed. The Court directed the Respondents to pay the accrued interest within a stipulated period and imposed a cost order, warning that failure to comply would attract further interest and potential contempt proceedings. The Court also directed recovery of additional interest from officers responsible for delay to prevent unjust enrichment at the cost of the Petitioners and the public exchequer. Application of Law to Facts and Treatment of Competing Arguments The Court carefully balanced the Petitioners' compliance with statutory and procedural requirements against the Respondents' concerns about incomplete documentation and bona fide transactions. It found that the Petitioners had met the conditions under the Notification, filed certified returns, and that the Department had itself sanctioned refunds in analogous cases. The Court held that administrative circulars and guidelines cannot override statutory provisions or judicial pronouncements. It also emphasized that the Customs authorities must act fairly and consistently, and cannot arbitrarily reject refund claims or withhold interest when statutory conditions are fulfilled. The Court rejected the Respondents' arguments regarding non-filing of VAT returns and document mismatches as insufficient to deny refunds or interest, especially in light of the Tribunal's Division Bench ruling and the Department's own prior orders sanctioning refunds. 3. SIGNIFICANT HOLDINGS "It is held that the appellant have discharged appropriate sales tax/VAT for the sale of the goods imported by them. As such the refund claimed by them under Notification No. 102/2007-Cus. cannot be denied to them, as long as the appellants are able to establish that nil VAT/Sales Tax was required to be discharged on the impugned goods." (CESTAT Division Bench, 2017) "Interest under Section 27A of the Customs Act, 1962 is payable from the date immediately after the expiry of three months from the date of receipt of the refund application till the date of refund of such duty." (Supreme Court and various High Court decisions) "Once returns duly certified by the Chartered Accountant are filed, it is not for the Customs Authority to look into each of the individual invoices to deny the refund of the Special Additional Duty (SAD)." (Madras High Court) "Administrative circulars cannot override the statutory provisions or judicial precedents. The Customs authorities must act fairly and consistently in sanctioning refunds and payment of interest." (Madras High Court) Final determinations:
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