INTEREST ON DELAYED PAYMENT OF REFUND OF COUNTERVAILING DUTY

[Mr. M. GOVINDARAJAN]

Countervailing duty

Countervailing duties (CVDs), also known as anti-subsidy duties, are trade import duties imposed under World Trade Organization (WTO) rules to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country. According to World Trade Organization rules, a country can launch its own investigation and decide to charge extra duties, provided such additional duties are in accordance with the GATT Article VI and the GATT Agreement on Subsidies and Countervailing Measures.

Refund of duty

Countervailing duty is considered as excise duty. In case of refund of countervailing duty refund application is to be filed under the provisions of section 11B of the Central Excise Act. 

Interest on delayed refund

If the refund is not refunded within three months from the date of receipt of application,  Section 27A of the Act provides that there shall be paid to that applicant interest at such rate, not below 5% and not exceeding 30% per annum as is for the time being fixed by the Central Government by notifications in the official gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of receipt of such application till the date of refund of such duty.

Case law

In ‘Global United Shipping India Private Limited v. Assistant Commissioner of Customs (Refund), Chennai’ – 2019 (10) TMI 700  (Mad) the petitioner is a shipping company.   A vessel belong to the petitioner company carried 2040 pieces of wooden logs and docked in Chennai port to unload the said cargo.  The said vessel is foreign going vessel and the cargo carried was cleared after following the customs procedures for import.  The Customs authorities considered the said vessel as goods imported to India.  Therefore the petitioner was directed to file the Bill of Entry and collected CVD at 5% with applicable education cess amounting to ₹ 2.38 crores. 

Since circular dated 25.03.2011 provides that no duty shall be payable in respect of foreign going vessel.  Despite this the petitioner was forced to pay the CVD.  The petitioner applied for refund which was rejected by the Department on the ground that the petitioner did not file appeal against the assessment order. Therefore the petitioner filed appeal before Commissioner (Appeals).  The Commissioner (Appeals) allowed the appeal setting aside the order of the lower authority and held that the petitioner is at liberty to file refund for the said amount. 

The petitioner, based on the order of the Appellate Authority filed an application for refund on 22.08.2012.  This time also the refund application was rejected by the Department on the ground that the petitioner has availed the CENVAT credit of the CVD paid.  Though the petitioner has initially availed CENVAT credit he reversed the same before utilization in October 2013.  This fact has not considered by the Adjudicating Authority as well as by the first Appellate Authority.  The petitioner filed appeal before CESTAT against the order of the first Appellate Authority.  The CESTAT, vide their order, remanded the matter to the Original Authority with directions to verify the reversal of CENVAT credit by the petitioner.

The Original Authority, in remand proceedings, confirmed the reversal done by the petitioner and sanction refund order for ₹ 2.38 crores.  However the petitioner was not granted interest for the delayed refund of duty.  On 20.08.2018 the petitioner filed an application before the Authorities claiming interest on the refund granted which was rejected by the Authority on the ground that CVD paid is only a ‘deposit’ and not ‘duty’.   The petitioner filed the present writ petition before the High Court challenging the rejection order of the Authority.

The Revenue submitted the following before the High Court-

• The amount collected from the petitioner was only deposit and not duty.
• Therefore, the same was not eligible for interest under Section 27A of the Customs Act, 1962
• the deposit was refunded under Order in Original dated 02.07.2018, pursuant to the CESTAT order dated 19.02.2018. Hence, there is no delay warranting payment of interest on the aforesaid deposit amount. 
• The petitioner had failed to put forth the facts that they had availed the CENVAT credit on the duty paid and the reversal of credit was made only in October 2013. 
• Any amount collected without authority of law only qualifies to be a ‘Deposit’, which is not covered under the time frame for refund of the duty prescribed under the Customs provisions. 
• The petitioner, having claimed the refund by defining the amount deposited during the course of litigation as “deposit” distinct from ‘Customs duty’, is not entitled to claim for interest under Section 27A of the Customs Act, 1962.
• Therefore, the claim of interest was rightly rejected through the impugned order. Article 226 of the Constitution cannot be invoked to direct the Authorities to act contrary to law.
• There is no enabling provision under the Customs Act, 1962 to grant interest for ‘Deposit’, which is distinct from ‘Duty’.
• The writ petition is not maintainable, since a statutory appellate remedy is available to the petitioner. The refund application was rejected by the Original and Appellate Authority.

The petitioner submitted the following before the High Court-

• Though a statutory appellate remedy is available against the order impugned, still the writ petition is maintainable on the reason that only this Court has to interpret the scope and ambit of Section 27A of the Customs Act, 1962, dealing with interest claim, more particularly, with regard to the maintainability of the application filed by the petitioner under the said provision of law in the aforesaid facts and circumstances.
• The duty wrongly collected originally, was found to be incorrect by the Appellate Authority, also by permitting the petitioner to apply for refund of the same. Therefore, the interest is liable to be paid from the date of the application. 
• The CENVAT credit availed by the petitioner was already reversed in October 2013 itself, before the date of rejection of refund petition. Therefore, availing of CENVAT credit also cannot be cited as a reason to reject the claim.
• No fresh application was filed in 2018 for interest and on the other hand, the application filed in 2018 is only a reminder of the application filed in 2012.
• The liability to pay interest commences from the date of receipt of the application for refund and not from the date on which the order for refund was made.

The High Court heard both sides and framed the following points for consideration-

• Whether the writ petition is maintainable?
• If the writ is maintainable, whether the petitioner is entitled for the relief sought for?

Maintainability of writ petition

The High Court observed that it is true that as against the order in Original, impugned in this writ petition, an appellate remedy is available before the Commissioner of Customs (Appeals). However, it is well settled that availability of such alternative remedy itself cannot be a bar for this Court to exercise its jurisdiction under Article 226 of the Constitution of India, purely a discretionary one.  In this case, the High Court did not find any factual disputes between the parties except on the nomenclature of the amount paid by the petitioner, pursuant to the order of assessment. In other words, according to the Revenue, the amount collected from the petitioner was only a 'deposit' and not a 'duty' qualifying application of Section 27A of the Customs Act, 1962. The Revenue also sought to rely upon the claim made by the petitioner that the amount so collected was only a 'deposit' and thus, they are entitled for refund of the same.

The High Court is of the view that in order to decide the nature of the amount so collected and subsequently refunded to the petitioner, as to whether it is the 'duty' or 'deposit', this Court can exercise its jurisdiction and decide the same, so as to further decide as to whether the consequential benefit of interest on the belated refund is payable or not. Thus, the High Court held that the present writ petition is maintainable.

Duty or deposit?

The High Court next considered the point as to whether the payment made by the petitioner is a duty or deposit.  The High Court, before answering for the second point it gives a detailed note on the difference between duty and deposit.  The ‘deposit’, either offered by the importer/assessee on their own or in compliance of statutory obligation, pending disposal of a proceedings, is an act as an interim measure.  The ‘deposit’ is made to safeguard the interest of the Revenue pending adjudication/determination of the liability of the importer to pay the duty. The ‘duty’ is the statutory liability collected as revenue to the Revenue on determination of the liability of the importer.  The ‘duty’ is paid and collected by discharging the statutory obligation of such payment.

The right to credit or forfeit such deposit would arise only after determination of the liability to pay the ‘duty’. On the other hand, the right over the duty so paid is instant on the revenue and not a postponed entitlement. Therefore, an amount so determined as ‘duty’ by processing the Bill of Entry and collected by the Revenue can never be termed as a ‘deposit’, even assuming that such collection, later, is found to be either unlawful or excessive.

Eligibility of interest

The High Court analyzed the facts of the case and also the provisions of section 11B and 11BB of the Central Excise Act.  The High Court observed that it is evident that the liability to pay interest would commence from the date of expiry of three months from the date of application for refund and not on the expiry of the said period from the date on which the order of refund was made.  In this case, admittedly, the refund application was made by the petitioner on 20.09.2012.  Merely because the petitioner has not succeeded before the Original and Appellate Authority, it does not mean that the date of his application for refund gets altered as the one in pursuant to the order of the CESTAT.  In other words, his application for refund dated 20.09.2012 was ultimately considered and granted on 02.07.2018 and therefore, the interest under Section 27A of the Customs Act, 1962 is liable to be paid to the petitioner from the date of expiry of 3 months from the date of receipt of their refund application. The Adjudicating Authority in this case has erroneously rejected the interest claim by misconstruing the payment as deposit instead of duty.

The High Court allowed the petition filed by the petitioner.  The High Court further directed the Revenue to pay interest with permissible percentage under law, from the date of expiry of 3 months from the date of receipt of the refund application dated 20.09.2012. The refund shall be made within 4 weeks from the date of receipt of order of the High Court.