Customs Cannot Deny Interest On Refunds By Calling Applications “Incomplete”: CESTAT Mumbai

On 8 May, the Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that customs authorities cannot delay refund claims for years and later deny statutory interest by calling them “incomplete”.

A Bench comprising Judicial Member Dr. Suvendu Kumar Pati ruled that interest under Section 27A of the Customs Act, 1962 becomes payable three months after the refund application is filed, even if the department later raises deficiency memos or seeks additional documents. It observed:

“Respondent Commissioner was duty bound to pay the interest three months after 02.06.2004, on which date applications were filed before them for refund…”

The dispute concerned whether interest should run from 2004, when the refund applications were first filed, or from 2017, when the importer submitted further clarifications and Chartered Accountant certificates.

PNP Polytex Pvt. Ltd. imported PVC coated cloth in 2003 and paid Goods of Special Importance (GSI) duty at 5%. It later challenged the levy, relying on Notification No. 7/2003-CE, and succeeded before the Commissioner (Appeals), who granted consequential relief.

Following this, the company filed 17 refund applications in 2004 for about Rs. 48.28 lakh. The department kept the claims pending for years, issued multiple deficiency memos, and processed the refund only in November 2018.

The Department granted interest only from March 2018, treating the applications as complete after a 2017 personal hearing. The importer challenged this, arguing that the applications were valid from the start.

The Tribunal agreed and relied on Section 27A of the Customs Act and the Supreme Court ruling in Ranbaxy Laboratories Ltd. v. Union of India. It held that authorities cannot extend limitation by repeatedly raising procedural objections.

Accordingly, the CESTAT allowed the appeal and directed the department to pay interest from three months after the 2004 applications until the date of actual refund, within two months.

Appearance for the Appellant: Ms. Neha Anchlia, Advocate

Appearance for the Respondent: Shri L.B.D'Coasta, Dy. Commissioner, Authorised Representative