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Rules No Customs Interest On Capital Goods For Acme Aklera
A Division Bench of the has firmly rejected a ₹2.88 crore customs interest demand on solar modules imported by , holding that no interest is payable under on capital goods in a Section 65 warehouse until their clearance.
The judgment, delivered by Justice Arun Monga and Justice Ashutosh Kumar, upheld the of the and the , dismissing the appeal filed by the .
A ₹2.88 Crore Question on Customs Interest
The case arose after Acme Aklera imported 8,37,288 solar modules for a solar power project between and . The goods were deposited in the company’s customs bonded warehouse, which was licensed under Section 58 and permitted for manufacture and other operations under , read with the .
The , reported that out of 7,728 modules covered by 10 , only 1,379 had been installed. The remaining modules lay at the project site in the same condition as imported. The Department took the view that interest was payable on the duty for the uninstalled modules, as they had remained in the warehouse beyond the prescribed period of ninety days under Section 61(2). The , assessed interest at ₹2,88,17,955.
Acme Aklera had already submitted demand drafts for the duty but, aggrieved by the interest demand, appealed to the , who set aside the assessment. The CESTAT later dismissed the Department’s appeal, prompting the Revenue to approach the High Court.
The Statutory Framework: Amended Section 61
The High Court’s analysis turned on the interpretation of Section 61 of the Customs Act as substituted by the with effect from . The court contrasted the unamended and amended provisions, highlighting three key changes.
First, under the amended Section 61(1)(a), capital goods in a warehouse where manufacture or other operations are permitted under Section 65 may remain in the warehouse “till their clearance” — removing any fixed outer time limit. Second, the amended provision expressly extends this treatment to Section 65 warehouses, which were absent in the unamended law. Third, and most critically, the amended Section 61(2) charges interest only on goods falling under clause (c) — the residuary category — and not on clause (a) goods.
The court observed: “The ninety day trigger in the amended Section 61(2) operates, by its plain terms, only ‘where any warehoused goods specified in clause (c) of sub-section (1)’ remain beyond ninety days. The ninety day period is therefore wholly irrelevant to clause (a) goods.”
Intention vs. : A Critical Distinction
The Department argued that since the solar modules were not actually installed, they should be treated as goods under Section 61(1)(c), attracting interest. The High Court rejected this contention, holding that the expression “” in clause (a) does not require .
The court relied on the ’s decisions in and , which distinguish between “” and “.” The intention must be gathered at the time of import and warehousing, not judged retrospectively.
On facts, the court noted that only 48,742 modules — a mere 5.82% of the total import — could not be installed due to a subsequent change in the project’s design and layout, as well as insufficient land. Acme Aklera had ex-bonded these modules upon realizing they could not be accommodated and paid full applicable duty. The of the and the CESTAT established that the goods were at all times in the Section 65 warehouse.
Court Rejects Reliance on Circular
The Department leaned heavily on paragraph 12 of Circular No. 34/2019-Customs dated , which states that a warehouse operating under Section 65 also functions as a warehouse licensed under Section 58, and goods may be cleared for under Section 68 on payment of import duties along with interest under Section 61(2).
The High Court clarified that the circular addresses a narrow situation — goods cleared “as such” without being subjected to manufacturing or other operations under Section 65. Such goods fall in the (c) and attract interest. The court emphasized that the circular itself requires monthly returns in Form B only for non-Section 65 purposes, drawing a clear line between the two categories.
The court further held: “A circular which is contrary to a statutory provision cannot whittle down, supplant or travel beyond the statutory provision it purports to explain.” It noted that accepting the Department’s interpretation would effectively revive a levy that Parliament had deliberately repealed by the 2016 amendment — an impermissible administrative fiat.
Precedents Distinguished
The Department relied on the decisions in , , and , which recognised the statutory liability to pay interest on warehoused goods remaining beyond the permitted period.
The High Court distinguished these cases, noting that they were rendered under the unamended Section 61, where every category of goods was subject to a fixed warehousing period. Under the amended clause (a), no such period exists for capital goods in a Section 65 warehouse. “The foundation of the cited decisions is thus absent in the amended scheme,” the court held.
Final Verdict: No
The court concluded that the goods fell squarely under the amended Section 61(1)(a), and since Section 61(2) charges interest only on clause (c) goods, there was no substantive charging provision for interest on clause (a) goods. “Interest, like tax, must be levied by . In the absence of a substantive charge, no interest can be demanded,” the judgment stated.
The court acknowledged the Department’s policy argument that its interpretation could allow goods to remain warehoused indefinitely without interest, but held that this was a conscious by Parliament to promote investment in bonded manufacturing. Duty on clause (a) goods remains deferred until clearance and is fully secured, as it is payable in full at the time of clearance. Acme Aklera had paid the entire applicable duty, and the Revenue had suffered no loss.
The High Court held that the questions raised by the Department were, in substance, questions of fact, and no arose. The appeal was dismissed with no order as to costs.
