CESTAT Mumbai Orders Interest On Delayed Refund Of Extra Duty Deposit Collected During SVB Probe

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Vardhman Acrylics Limited is entitled to interest on the delayed refund of Extra Duty Deposit (EDD) collected during a Special Valuation Branch (SVB) investigation.

The tribunal ruled that interest became payable because the refund was not granted within the prescribed period after the amount became refundable.

A bench of Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban allowed the company's appeals. It set aside orders denying interest on the refund. The tribunal observed that EDD, though in the nature of a deposit and not customs duty, becomes refundable when no differential duty is found payable after completion of the valuation exercise.

Observing that the EDD was refundable in the facts of the case, the tribunal held:

“the amount of EDD is eligible to be paid back/refunded to the appellants importer.”

The dispute arose from imports of machinery made by Vardhman Acrylics from its related overseas supplier, Marubeni Corporation, Japan, during 1997-98. As the transactions involved related parties, customs authorities provisionally assessed the imports. The company was also required to pay EDD pending examination by the SVB.

After examining the transactions, the SVB accepted the declared transaction value. It directed that the pending provisional assessments be finalised accordingly. The SVB also ordered that the revenue deposit or EDD be refunded, subject to applicability.

Vardhman Acrylics subsequently filed refund claims for about ₹96.42 lakh and ₹74.23 lakh in January 1999. The matter remained tied up in litigation for several years. The disputes concerned valuation and unjust enrichment.

Although the refund amounts were ultimately sanctioned in November 2015, no interest was granted on the delayed payment.

Before the tribunal, Vardhman Acrylics argued that interest was payable because the refund had not been released within the period contemplated under the Customs Act. Customs authorities contended that EDD was merely a deposit. Relying on a CBEC circular, they argued that interest was not payable on such amounts.

Examining the nature of EDD, the tribunal noted that it is collected to secure timely submission of information during SVB investigations. It also observed that EDD is distinct from customs duty.

The bench further observed that once the declared value was accepted and no deficiency in duty was found, the EDD became refundable.

The tribunal noted that the law does not permit refund claims to be kept pending indefinitely merely because the underlying order is under challenge before an appellate forum. Once the refund amount had been determined, the authorities were required to process it within the statutory period.

On the issue of delayed payment, the tribunal held:

“non-payment of refund of EDD within three months from the date of passing of Orders-in-Original dated 26.03.2008 and 22.05.2008, is saddled with the liability to pay interest at the prescribed rate.”

Holding that the company was entitled to interest, the tribunal directed the jurisdictional authorities to quantify the amount payable. It ordered that interest be paid from three months after the refund orders issued in March and May 2008. The interest will run until the date on which the refund was actually released.