Interest On Duty Drawback Payable From LEO Date Not Adjudication Order: Delhi High Court

The Delhi High Court on 3 August held that interest on delayed duty drawback becomes payable one month after issuance of the Let Export Order (LEO), and the pendency of adjudication proceedings cannot postpone the statutory liability under Section 75A of the Customs Act (which provides for payment of interest on delayed drawback).

A Division Bench of Justices Anil Kshetrapal and Shail Jain dismissed the Revenue's appeal against Siddhachalam Exports Pvt. Ltd., holding that the exporter was entitled to interest on the duty drawback amount of Rs. 49.75 lakh from 13 April 2003 until the date of actual payment. The judges held:

“Section 75A... does not make the commencement of interest dependent upon completion of adjudication proceedings or upon the date on which the claim ultimately attains finality. The legislature has consciously linked the liability to pay interest with the date of filing of the claim and not with the date of its eventual sanction.”

The dispute arose after Siddhachalam Exports exported consignments of garments under seven shipping bills dated 24 February 2003 and claimed duty drawback of Rs. 49.75 lakh. The goods were cleared for export after issuance of the LEO on 13 March 2003. However, the Department initiated proceedings alleging overvaluation of the export goods.

The duty drawback was sanctioned only on 2 April 2022 after prolonged litigation. While the Commissioner (Appeals) granted interest from one month after the adjudication order dated 31 May 2012, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that interest was payable from one month after issuance of the LEO.

Before the High Court, the Revenue argued that CESTAT lacked jurisdiction to examine an appeal relating to interest on duty drawback. It further contended that interest could accrue only after the drawback claim attained finality through adjudication and that the statutory deeming provision under the Drawback Rules could not operate while the admissibility of drawback remained disputed.

Rejecting the Revenue's submissions, the High Court held that a dispute regarding statutory interest is separate from a dispute concerning grant of drawback and therefore falls within CESTAT's appellate jurisdiction. It further held that Rule 13 of the Drawback Rules treats a shipping bill as a drawback claim upon issuance of the LEO, and Section 75A does not postpone the commencement of interest merely because adjudication proceedings are pending. It observed:

“Acceptance of the Appellant's interpretation would... enable the Department, by initiating adjudication proceedings and carrying the matter through successive appellate stages, to postpone its statutory liability to pay interest for an indefinite period... Such an interpretation would substantially dilute the object underlying Section 75A, namely, compensating the exporter for delayed disbursement of the drawback amount.”

Accordingly, the High Court found no infirmity in the CESTAT order, dismissed the Revenue's appeal and held that no substantial question of law arose for consideration.

Counsel for Appellant: Mr. Gibran Naushad, Senior Standing Counsel, with Mr. Suraj Shekhar Singh, Mr. Hasan Haider and Mr. Anish Mishra, Advocates