12% Interest Payable On Redemption Fine Deposits From Date Of Deposit: CESTAT Chandigarh

The Chandigarh Customs Excise and Service Tax Appellate Tribunal (CESTAT) on 21 August held that interest at 12% per annum is payable on redemption fine amounts deposited by an importer for securing release of goods, from the date of deposit until the date of actual refund, holding that such interest is compensatory in nature.

A Bench comprising Judicial Member S.S. Garg allowed two appeals filed by Hindustan Distributors seeking interest on refunds of Rs. 18 lakh and Rs. 27 lakh representing redemption fines deposited for release of imported goods and directed payment of 12% interest on the redemption fine amounts. It observed:

“Since, the interest is compensatory in nature, therefore, the Department is liable to pay the interest on the said amount for the period, the amount remained deposited with the Department.”

Hindustan Distributors had imported iron and steel products which were freely importable when the Directorate General of Foreign Trade (DGFT) subsequently introduced a Minimum Import Price (MIP) restriction through a notification dated 5 February 2016.

Customs authorities initially ordered confiscation of the goods and imposed redemption fine. Hindustan Distributors paid the fine to redeem the goods and subsequently succeeded in getting the confiscation and redemption fine set aside. It then sought refund of the amounts deposited.

The Department sanctioned the refund of Rs. 18 lakh but rejected the claim for interest, taking the view that the refund had been granted within three months of the refund application and that Section 27A of the Customs Act, 1962, which provides for interest on delayed refunds of duty, governed entitlement to interest. The Commissioner (Appeals) upheld the rejection, leading to the appeals before the CESTAT.

The Tribunal rejected the Department's approach, holding that the amounts were not refunds of statutory duty governed by Section 27A but revenue deposits which Hindustan Distributors had been compelled to make for redemption of the goods and which, after the redemption fine was set aside, were no longer legally payable.

It noted that the statutory provisions relied upon by the Department dealt with interest on delayed refunds of duty, whereas the present case concerned money that had remained with the Department despite there ultimately being no legal liability to pay the redemption fine.

Further, the Bench relied on the legal position concerning interest on amounts deposited during investigation and adjudication. It noted that the Allahabad High Court had upheld the grant of 12% interest in the context of such revenue deposits. It also noted that the Punjab and Haryana High Court had affirmed the grant of 12% annual interest on delayed refunds of amounts deposited during investigation.

The Tribunal also found the authorities cited by the Department distinguishable as they concerned refunds governed by Section 27A and therefore held that they could not govern a case involving refund of a redemption fine that had subsequently been set aside.

Accordingly, the CESTAT set aside the impugned orders and allowed both appeals, holding that Hindustan Distributors was entitled to interest at 12% per annum from the date of the revenue deposits until actual payment of the refunded amounts.

Counsel for the Appellant: Aman Garg and Aryan Bindal, Advocates

Counsel for the Revenue: Naman Jain, Special Counsel, with Keerti Sandhu, Authorised Representative