Interest On Delayed SAD Refund U/S 27A Customs Act Accrues From Initial Application Date, Not From Subsequent Communications Post-Remand: Bombay High Court - 2025-05-08

Bombay High Court Orders Customs to Pay Interest on Decade-Long Delayed SAD Refund from Original Application Date

Mumbai: The Bombay High Court, in a significant ruling, has directed the Customs department to pay interest at 6% per annum on a Special Additional Duty (SAD) refund that was delayed for nearly ten years. Justice M.S.Sonak held that the interest, as stipulated under Section 27A of the Customs Act, 1962, is payable from the expiry of three months from the date of the original refund application, and not from any subsequent date arising from communications made after appellate remands.

The Court emphasized that the revenue's approach was "far from fair," forcing the petitioner to litigate extensively for the refund and then unreasonably resisting the payment of statutory interest.

Case Background: A Ten-Year Ordeal for Refund

The petitioner, a manufacturer of water management products (identified in related communications as M/s Ajay Industries Corporation Ltd.), filed a claim for a SAD refund amounting to Rs. 7,40,458/- on August 4, 2014, under Notification No. 102/2007-Cus.

The journey to reclaim this amount was arduous: 1. The initial application was rejected by the respondent (Customs department) on February 17, 2017. 2. The petitioner successfully appealed to the Commissioner (Appeals), who set aside the rejection and remanded the matter. 3. The respondent again rejected the claim on October 16, 2020. 4. A subsequent appeal to the Commissioner (Appeals) on June 30, 2022, once again resulted in the order being set aside and the matter remanded.

Despite these appellate orders, the refund application remained pending. The petitioner resorted to filing a grievance on the CPGRAMS portal in September 2023, leading to an admission from the respondent about misplaced files. Even after resubmitting documents, the claim was not processed, prompting the petitioner to file Writ Petition (C) No. 773 of 2024, wherein the court directed the respondent to decide the interest claim within four weeks.

Finally, on April 1, 2024 – almost ten years after the initial application – the respondent sanctioned the refund of Rs. 7,40,458/-. However, no interest was awarded on the delayed payment. The petitioner contended an entitlement to Rs. 4,21,940/- as interest at 6% per annum for the delay of 9 years and 182 days.

Arguments Presented

Petitioner's Stance: The petitioner argued that interest was payable from November 4, 2014 (three months after the initial application date of August 4, 2014), as per Section 27A of the Customs Act. The subsequent letter dated August 8, 2022, requesting implementation of the Commissioner (Appeals) order, was merely a follow-up and not a fresh application for refund.

Respondent's Defense: The Customs department contended that interest should be calculated only from November 8, 2022 (three months after the petitioner's letter dated August 8, 2022, following the second remand). They argued that the case fell under the Explanation to Section 27A, as the refund was a consequence of the Commissioner (Appeals) order dated June 30, 2022. They also cited the Customs Refund Application (Form) Regulations, 1995, stating an application is deemed received when it's complete.

Court's Analysis and Interpretation of Section 27A

The High Court meticulously dismantled the respondent's arguments.

On the Applicability of Explanation to Section 27A: The Court found the respondent's reliance on the Explanation to Section 27A "untenable."

"This is not a case of an order of refund made by the Commissioner (Appeals). The Commissioner (Appeals) only remanded the matter to the respondent, who ultimately ordered the refund. Assuming we were to accept the respondent’s contention, the first part of section 27A provides for the order by which the refund arose. Still, the period for calculating interest provided in the later part of the section states that the starting point is the date of application."

On the Nature of the Initial Application: The Court noted that the respondent never claimed the initial application of August 4, 2014, was incomplete or deficient.

"There is no allegation about the initial application for refund being incomplete... Admittedly, no deficiencies were pointed out... The application dated 08 August 2022 only requested the respondent to implement the order dated 30 June 2022... This application can not be styled or construed as an application for refund under Section 27A... Based upon such misconceived construction... the respondent can not avoid payment of interest..."

Statutory Entitlement to Interest: The Court referred to its earlier order in Writ Petition No. 773 of 2024, which held that interest payment under Section 27A is a "statutory entitlement" even if not explicitly prayed for.

Precedents Supporting the Petitioner: The judgment drew strength from several precedents:

* Supreme Court in Union of India Vs. Hamdard (Waqf) Laboratories (AIR 2016 SC 1124): Interpreting the analogous Section 11BB of the Central Excise Act, the Supreme Court held that the liability for interest is statutory and commences from the expiry of three months from the date of receipt of the refund application.

* Delhi High Court in S.R. Polyvinyl Ltd. vs. Commissioner of Customs (2020 (371) ELT 283 (DL)).

* Karnataka High Court: Held that the period for calculating interest starts from the date of application even if the refund arose from appeal orders.

* Madras High Court in Global United Shipping India (P) Ltd. Vs. Assistant Commissioner of Customs (W.P. No. 17506 of 2019): > "The intention of the legislature clearly spelt out in the above provision of law was that the interest was liable to be paid after the expiry of three months from the date of receipt of the application for refund and not from the date of passing of the order of refund... Liability to refund begins when it was actually due and not when it is actually determined." The Madras High Court likened the situation to revenue collecting interest and penalties on overdue duties from the date they become due, stating the same analogy applies to refunds.

The Court distinguished cases cited by the respondent, finding them factually dissimilar (e.g., involving defective applications, which was not the scenario here).

Court's Scathing Remarks on Revenue's Conduct

Justice Sonak expressed strong disapproval of the department's handling of the matter:

"The revenue's entire approach has been far from fair. The petitioner was forced to litigate for the refund's recovery, and after the refund was sanctioned belatedly, the revenue, quite unreasonably, resisted interest payment on the delayed refunds. It is not as if the stakes were high for the revenue. The interest claim of the Petitioner comes to Rs.4,21,940/-." Further: "All this while the respondent has wrongfully retained and utilised the excess amount of Rs.7,40,458/- and now, the respondent is raising untenable defences to deny interest at a rate of 6% per annum, Section 27A of the customs act notwithstanding."

Final Decision and Directions

The High Court allowed the petition, directing the respondent to pay the petitioner the interest amounting to Rs. 4,21,940/- on the delayed SAD refund within two months .

Furthermore, the Court ordered: * If the payment is not made within two months, interest at 8% per annum will be applicable on this amount. This enhanced interest is without prejudice to potential contempt of court proceedings. * Critically, if the amount is not paid within the stipulated two months, the additional interest (the 8% on Rs. 4,21,940/-) "will have to be recovered from the officer responsible for the delay instead of burdening the exchequer and, consequently, the taxpayer." * The respondent was also directed to pay costs of Rs. 15,000/- to the petitioner within two months.

This judgment reinforces the statutory right of assessees to timely refunds and compensatory interest for undue delays, holding the revenue accountable for its dilatory tactics.