2025 (5) TMI 421 - HC - Customs

Refund of interest paid on import duty due to technical glitches in the Electronic Cash Ledger (ECL) system during the phased implementation starting 01.04.2023 - rejection on the ground that such refund is not admissible in light of the Customs (Waiver of Interest) Third Order 2023 Order No. 03/2023-Customs (NT) dated 17.04.2023 (Customs Order) read with Section 27 of the Customs Act 1962. Bone of contention is that while the phased implementation of ECL in Customs was being initiated from 01.04.2023 there arose certain technical glitches in the functioning of ECL facility at the Common Portal and thus the delay in payment has attracted interest which the petitioner seeks refund of. HELD THAT - The circular dated 17.04.2023 had of course provided for the refund of interest until the date of system inability removal and for an additional three days thereafter as stipulated in Annexure-7. This circular specifically addressed the waiver of interest payable under Section 47 (2) of the Act of 1962 for the period from 01.04.2023 upto and including 13.04.2023 in respect of such goods where the payment of import duty was to be made from the amount available in ECL. This Court finds that the advisory issued by the D.G. Systems which is the backbone of the determination of the date of the technical glitches which would be there in the implementation of the ECL facility which require the D.G. Systems to pronounce and certify the same - the advisory thus clearly envisages that for ICEGATE registered users the date of removal of the system inability in context to the third order dated 17.04.2023 would be the date of issue of advisory which is 27.07.2023. Thus practically the D.G. Systems has acknowledged that the technical glitches were existing till 27.07.2023. This Court finds that the order dated 17.04.2023 acknowledged the technical difficulties to have been resolved only to a large extent but not entirely. The order dated 17.04.2023 itself stipulates the requirement of waiver of the interest as per the certification given by the D.G. Systems regarding the duty and interest from the date of removal of such system inability at the Common Portal. Since the date of removal of system inability at the common portal has been certified by the D.G. Systems vide advisory dated 27.07.2023 to be 27.07.2023 itself therefore the respondents cannot claim interest and will have to refund any interest which has been taken by them for the transaction in question particularly when the petitioner made the necessary payments in pursuance of the bill of entry having been returned though the payment itself may have a third party failure which cannot be attributed to the present petitioner. The certification by the D.G. Systems of the technical difficulties in existence making the system having inability at the Common Portal upto 27.07.2023 clinches the issue of refund in accordance with Section 27 of the Act of 1962 read with the Circular dated 17.04.2023. Conclusion - This Court is firmly of the opinion that the impugned order dated 21.11.2023 suffers from inconsistency with conjoint reading of Section 47 and Section Act of 1962 order dated 17.04.2023 the advisory issued on 27.07.2023 and the effort of the petitioner to make the necessary payments to the Banks successfully on 20.04.2023 vide Annexure-8. Petition allowed.

Summary

The core legal questions considered by the Court in this matter are:

1. Whether the petitioner is entitled to a refund of interest paid on import duty due to technical glitches in the Electronic Cash Ledger (ECL) system during the phased implementation starting 01.04.2023.

2. The applicability and interpretation of the Customs (Waiver of Interest) Third Order, 2023 dated 17.04.2023 ("Customs Order") in conjunction with Section 27 and Section 47 of the Customs Act, 1962.

3. The determination of the "date of removal of system inability" as certified by the Director General of Systems (D.G. Systems) and its impact on the waiver of interest and refund claims.

4. Whether the petitioner's delay in payment, caused by third-party technical failures, can be attributed to the petitioner for the purpose of levying interest.

5. The scope and limitations of refund claims under Section 27 of the Customs Act, 1962, particularly in cases involving system errors and technical glitches.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Refund of Interest Due to Technical Glitches in ECL System

The phased implementation of the Electronic Cash Ledger (ECL) by the Central Board of Indirect Taxes & Customs (CBIC) commenced on 01.04.2023. Circular No. 09/2023-Customs dated 30.03.2023 acknowledged initial technical difficulties in the Common Portal integration with authorized banks, which affected timely payment of import duties. The petitioner, engaged in commercial solar projects, made payments promptly after the bill of entry was returned, but due to technical glitches, payments were not successfully processed, resulting in the imposition of interest.

The petitioner relied on the Customs (Waiver of Interest) Third Order, 2023 dated 17.04.2023, which provided for waiver of interest payable under Section 47(2) of the Customs Act for the period during which the system inability persisted. The petitioner argued that since the delay was caused by technical failures beyond its control, the interest imposed was not legally sustainable and should be refunded.

The respondents contended that the technical glitches were substantially resolved by 13.04.2023, and since the payment was initiated after this date (on 20.04.2023), the waiver did not apply. They emphasized that the waiver was limited to the period from 01.04.2023 to 13.04.2023 as per the order dated 17.04.2023.

The Court examined Annexure-8, which showed successful payment entries on 20.04.2023 but failure in third-party integration, confirming the technical difficulties persisted beyond 13.04.2023. The Court also noted the order dated 17.04.2023 itself acknowledged that the technical glitches were only resolved "to a large extent" by 13.04.2023, not fully.

Issue 2: Interpretation of Customs (Waiver of Interest) Third Order, 2023 and Sections 27 and 47 of the Customs Act, 1962

Section 47 of the Customs Act, 1962 mandates payment of import duty on the date of presentation of the bill of entry (self-assessment) or within one day of the bill of entry being returned (assessment/reassessment). Failure to pay within the prescribed time attracts interest at rates notified by the Central Government.

Section 27 provides the mechanism for claiming refunds of duty or interest paid, subject to prescribed conditions and limitations.

The Customs (Waiver of Interest) Third Order, 2023 dated 17.04.2023 specifically waived interest payable under Section 47(2) for the period from 01.04.2023 to 13.04.2023 due to system inability in the Common Portal. Paragraph 3 of the order stipulated conditions for the waiver, including payment within three days from the date of removal of system inability certified by the D.G. Systems, and compliance with Section 27 for refund claims.

The Court emphasized that the waiver order was conditional and linked to the certification of the date when the system inability was removed by the D.G. Systems. The Court found that the respondents' interpretation limiting the waiver strictly to 13.04.2023 ignored the certification requirement and the subsequent advisory issued by the D.G. Systems.

Issue 3: Determination of Date of Removal of System Inability and Its Legal Consequences

The D.G. Systems issued an advisory dated 27.07.2023, operationalizing the Customs (Waiver of Interest) Third Order, 2023, and clarifying the "Date of Removal of System Inability" for ICEGATE registered users. The advisory declared 27.07.2023 as the deemed date of removal of system inability for users whose wallets containing released blocked funds were accessible as of that date.

This advisory effectively extended the period of system inability beyond the initially presumed date of 13.04.2023. The Court held that this certification by the D.G. Systems was decisive and binding for the purpose of interest waiver and refund claims, as per the order dated 17.04.2023.

The Court rejected the respondents' argument that the waiver was limited to 13.04.2023, noting that the order itself required certification by the D.G. Systems, which was only given on 27.07.2023.

Issue 4: Attribution of Delay Due to Third-Party Technical Failures

The petitioner demonstrated, through Annexure-8, that payments were initiated promptly within one day of the bill of entry being returned, but the third-party integration failures caused the actual delay in payment processing. The Court held that such technical difficulties on the part of the Common Portal and banks could not be attributed to the petitioner for the purpose of levying interest.

The Court relied on the principle that interest is not payable when delay is caused by factors beyond the control of the importer, especially when the importer has made genuine efforts to comply with payment obligations.

The petitioner's reliance on the judgment from the Gujarat High Court was noted, which held that it would be unreasonable and inequitable to saddle interest on taxpayers due to system errors not attributable to them.

Issue 5: Scope and Limitations of Refund Claims under Section 27 of the Customs Act, 1962

Section 27 of the Act empowers any person to claim refund of duty or interest paid, subject to prescribed procedures and time limits. The Court observed that the petitioner's refund claim complied with these requirements, and the refund was justified under the waiver order and the D.G. Systems advisory.

The Court emphasized that the refund of interest is permissible where the interest was wrongly levied due to system failures and where the importer has not passed on the incidence of such interest to any other person, in line with the provisos of Section 27.

The respondents' contention that the refund was not admissible beyond 13.04.2023 was rejected as inconsistent with the combined reading of Section 27, Section 47, the waiver order, and the D.G. Systems advisory.

Significant Holdings

"The waiver contained in this Order shall be given effect if the following conditions are fulfilled: (a) the duty and interest has been paid within 3 days (including holidays) from the date of removal of such system inability at the Common Portal, which shall be certified by the DG Systems."

"The certification by the D.G. Systems of the technical difficulties in existence making the system having inability at the Common Portal upto 27.07.2023 clinches the issue of refund in accordance with Section 27 of the Act of 1962 read with the Circular dated 17.04.2023."

"The delay in payment caused by third-party technical failures cannot be attributed to the petitioner for the purpose of levying interest."

"It would be unreasonable and inequitable on the part of the respondents to saddle the petitioner with interest on the amount of tax payable, despite the fact that the petitioner had discharged its tax liability well within time and the delay was due to system errors."

The Court quashed the impugned order dated 21.11.2023 rejecting the refund claim and directed the respondents to refund the interest amount paid by the petitioner within three months.

The Court established the principle that interest on import duty is not payable where delay is caused by technical glitches in the payment system beyond the importer's control, and that refund claims under Section 27 read with the Customs (Waiver of Interest) Third Order, 2023 and the D.G. Systems advisory must be allowed accordingly.