Customs Can't Levy Interest For Period Before Liability Was Determined In Confiscation Proceedings: Delhi High Court

The Delhi High Court has held that Customs authorities cannot calculate interest for a period during which the liability sought to be subjected to interest had itself not been determined.

The Division Bench of Justices Anil Kshetarpal and Shail Jain made the observation while partly allowing a petition filed by Vishal Oil and Lubricants Co., challenging the interest reflected in the Customs EDI System in respect of a Bill of Entry filed in 2015.

The Court directed the Customs authorities to recompute the interest liability and specifically exclude the period from the original assessment in May 2015 until February 28, 2023, when the liability arising from the confiscation proceedings was determined.

Petitioner had imported goods declared as “Bitumen” in May 2015. The consignment was subsequently examined by Customs, following which the authorities found that the goods contained “Used Oil” and seized them under Section 110 of the Customs Act, 1962.

A show cause notice was issued in September 2015 proposing confiscation and imposition of penalties. Although Petitioner submitted its reply and appeared at a personal hearing, the adjudication proceedings remained pending for more than seven years. The matter was ultimately adjudicated on February 28, 2023.

The adjudicating authority altered the description and classification of the goods from “Bitumen” to “Used Oil”, while confirming customs duty of Rs.9,22,210/- which had already been paid. It also imposed a redemption fine of Rs.1.83 lakh and penalties under Sections 112(a)(ii) and 114AA of the Customs Act. The authority recorded that the used oil was non-hazardous and that no additional duty over and above the duty already determined was payable.

After the Bill of Entry was reassessed in August 2023, Petitioner found that an amount described as “interest charges” was reflected in the Customs EDI System. The amount, which was approximately Rs.11.74 lakh in November 2023, continued to increase and was stated to have reached Rs.15.21 lakh by May 2026.

Petitioner argued that it could not be made liable for interest for the period during which the goods remained seized and the confiscation proceedings were pending. It submitted that it had repeatedly sought early adjudication and that the prolonged pendency could not be attributed to it.

Customs on the other hand relied upon Section 125 of the Customs Act and the Supreme Court's judgment in M/s Navayuga Engineering Co. Ltd. v. Union of India, contending that once confiscated goods were redeemed upon payment of fine, the owner became liable to pay the duty and other charges, including statutory interest on delayed payment.

The High Court however distinguished between the original assessment of the Bill of Entry and the liability arising from the subsequent confiscation and redemption proceedings.

Referring to Navayuga Engineering, the Court observed that the liability under Section 125(2) of the Customs Act arises in the context of the exercise and acceptance of the redemption option, while the assessment and determination of the duty liability takes place through the statutory machinery under Section 28.

“Interest cannot be calculated for a period during which the liability sought to be subjected to interest had itself not been determined,” the Court held.

It emphasised that the original assessment in May 2015 was based on the declaration that the goods were “Bitumen”. This was followed by physical examination, seizure and confiscation proceedings, which ultimately altered the description and classification of the goods. Therefore, the liability arising from those proceedings could not retrospectively be treated as having remained payable from the date of the original assessment merely for calculating interest.

At the same time, the Court clarified that departmental delay by itself does not extinguish a statutory liability to pay interest.

“If an amount has been determined and has thereafter remained unpaid, the statutory consequences of delayed payment may follow in accordance with law,” the Court said, adding that where the amount itself is determined only upon culmination of confiscation proceedings, the period before such determination cannot automatically be treated as delayed payment of that subsequently determined liability.

As such, the Court directed the authorities to recompute the interest within four weeks.

For Petitioner: Advocate Rohit Kapur

For Respondent: Advocates Piyush Beriwal, Ruchita Srivastava, Sparsh Jain