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Hindustan Distributors Wins 12% Interest on Refund in
The , has ruled that an importer is entitled to 12% interest per annum on deposits from the date of deposit until actual repayment. The decision came in two appeals filed by , who had deposited ₹45 lakh in redemption fines to secure release of imported iron and steel products. After successfully challenging the and having the fines set aside, the importer sought refund but was initially denied interest.
The Genesis of the Dispute
Hindustan Distributors imported iron and steel products, which were freely importable at the time of shipment. However, the imposed a restriction via a notification dated . confiscated the goods and levied a under . The appellant paid the fine to redeem the goods.
Subsequently, the set aside the and the . The appellant promptly filed refund claims— ₹18 lakh and ₹27 lakh—corresponding to the two import consignments. While the Department sanctioned the refunds, it rejected the claim for interest, contending that , which provides interest on delayed refunds of duty, was inapplicable as the was not a duty. The upheld this rejection, prompting the appeals before CESTAT.
Arguments Over
Appearing for Hindustan Distributors, advocates and argued that the was never legally payable and the Department had retained the money for an extended period. They emphasised that interest is and relied on a line of precedents, including , , and the ’s decision in .
The Department, represented by Special Counsel with authorised representative , countered that no specific provision exists under the Customs Act for granting . They cited , , and to argue that interest can only be awarded under Section 27A.
The Key Legal Distinction
The Tribunal, presided over by Judicial Member S. S. Garg , drew a clear distinction between refund of statutory duty and refund of a revenue deposit. The judgment observed that the money deposited as was a —not a duty—and was retained by the Department even after the fine was set aside. Since the amount was never legally due, the retention was without authority.
The Bench relied heavily on the Division Bench decision of in M/s Parle Agro Pvt. Ltd. , which dealt with an identical issue under the (whose Section 11B is with ). In Parle Agro, the Tribunal noted that there is no specific provision for interest on refund of revenue deposits, but that interest at 12% is appropriate given the compensatory character of interest. This view was upheld by the in .
Additionally, the Tribunal referred to Pace Marketing Specialties v. Commissioner of Central Excise (, 2011) and Riba Textiles Pvt. Ltd. v. Commissioner of Central Excise and ST, Panchkula (), which granted 12% interest on amounts deposited during investigation and adjudication. The had affirmed Riba Textiles in , making it a binding precedent for the region.
Why Section 27A Did Not Bar Interest
The Tribunal rejected the Department’s argument that Section 27A governs only duty refunds. It held that since the was not a duty, the rigour of Section 27A did not apply. The earlier refund of the principal amount without interest was insufficient. The core reasoning was that the Department had no right to retain the money after the fine was set aside, and interest was due from the date of deposit.
Key Observations from the Judgment
The judgment crystallised its reasoning with the following observation:
“Since, the interest is , therefore, the Department is liable to pay the interest on the said amount for the period, the amount remained deposited with the Department.”
It further noted that the precedents cited by the Department were distinguishable as they pertained to refunds under Section 27A, not to refund of redemption fines.
The Final Decision and Implications
Setting aside the impugned orders, CESTAT allowed both appeals and directed the Department to pay interest at 12% per annum on the refunded amounts of ₹18 lakh and ₹27 lakh, from the date of the original deposit until the date of actual repayment. The decision reinforces a consistent line of tribunal and high court rulings that interest on compulsory deposits is compensatory and must be granted when the deposit is later found to be legally unjustified.
For the Customs Department, the ruling serves as a clear signal that retention of amounts after the underlying is set aside can attract interest liability, even absent a specific statutory provision. Importers aggrieved by such retention may now have a stronger basis to claim along with the principal refund.
