Customs Act | Claimant Entitled To Interest On Delayed Return Of The 'Duty Drawback' : Supreme Court

The Supreme Court on Monday (February 5) observed that if there is a delay in refund of the 'duty drawback' to the claimant under the Customs Act, 1962, then the claimant would be entitled to interest in addition to the amount of drawback at the rate of interest which was fixed by the Central Government at the relevant point of time.

It was contended on behalf of the Directorate General of Foreign Trade (DGFT) that there was no provision for payment of interest on delayed refund of duty drawback.

Rejecting such contention, the Bench of Justices Abhay S. Oka and Ujjal Bhuyan while affirming the findings of the High Court, observed that the claimant would be entitled to receive the interest on the belated refund of the 'duty drawback' by the Director General of Foreign Trade (“DGFT”) under the Customs Act.

“It was, therefore, not correct on the part of the appellants to contend that there was no provision for payment of interest on delayed refund of duty drawback. That apart, it is wholly untenable for the appellants to contend that refund of duty drawback was granted to the respondent as a concession, not to be treated as a precedent. As we have seen, respondent is entitled to refund of duty drawback as a deemed export under the Duty Drawback Scheme. The applications for refund were made in 1996. Decision to grant refund of duty drawback was taken belatedly on 07.10.2002 where after the payments were made by way of cheques on 31.03.2003 and 20.05.2003. Admittedly, there was considerable delay in refund of duty drawback.”

As per Section 75A (1) of the Customs Act, where duty drawback is not paid within three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback. This section provides that the interest would be at the rate fixed under Section 27A from the date after expiry of the said period of three months till the payment of such drawback.

Briefly put, the Respondent in the instant case is a class-I contractor, herein to be referred to as a contractor, specializing in the field of civil contract works, especially funneling and hydroelectric power projects. The Contractor completed the contractual work allotted by the Central Government in March 1996 which was funded by the International Bank for Reconstruction and Development (IBRD), an arm of the World Bank.

The contractor has made an application for the refund of the claim of the 'duty drawback' from the DGFT in 1996 on the basis that the supplies in civil construction work were eligible for 'deemed export' benefit under the Exim Policy 1992-1997. The decision to return the duty-drawback was however taken 07.10.2002 i.e., after a huge delay.

It is against the delay in the return of the duty drawback that the contractor claimed interest on the delayed payment of the duty drawback, the application of which was turned down by the DGFT.

Assailing the order rejecting the application claiming interest on the delayed payment of the duty drawback, the contractor preferred a Writ Petition before the High Court which was subsequently allowed by the Single Judge, and the DGFT was directed to pay the interest on the delayed return of the duty-drawback. The order of the Single Judge remained undisturbed by the Division Bench.

It is against the impugned order/judgment of the Division Bench, that the appellant-DGFT preferred a Civil Appeal before the Supreme Court.

At the outset, after referring to various provisions of the Customs Act, 1962 and the impugned Judgment of the High Court, the court rejected the contention made by the DGFT that the contractor wouldn't be entitled to the benefits of the Duty drawback scheme, and noted as follows:

“Therefore, on a conjoint and careful reading of the relevant provisions of the Exim Policy, 1992-1997 in conjunction with the Central Excise Act and the Customs Act, it is evident that the supply of goods to the project in question by the respondent was a case of 'deemed export' and thus entitled to the benefit under the Duty Drawback Scheme. The language employed in the policy made this very clear and there was no ambiguity in respect of such entitlement.”

Further, the court disagreed with the contention of the DGFT that the return of duty drawback to the contractor was provided as a matter of concession and not be treated as a precedent. The court referred to the minutes of the meeting of the Policy Interpretation Committee to indicate that nothing such benefit was being extended to the respondent as a one-off case or by way of concession.

“The Policy Interpretation Committee discussed the case of the respondent and opined that in case any such firms were still competitive and able to supply goods at international prices despite including the component of excise duty in the price quoted before the project authority, the deemed export benefit could not be denied to such firms…..From a perusal of the minutes of the meeting of the Policy Interpretation Committee held on 07.10.2002, it is evident that the committee had opined to extend the deemed export benefit to those firms which included excise duty component in the tender pricing quoted before the project authority such as the respondent. There is nothing in the minutes to indicate that such benefit was being extended to the respondent as a one off case or by way of concession”

The court seconded the opinion of the High Court which observed that the contractor would be entitled to interest from the date of expiry of three months after submission of applications for refund back in the year 1996 till the time the payment was made at the rate of fifteen percent.

“Be that as it may, having regard to our discussions made above, we have no hesitation in holding that the respondent was entitled to refund of duty drawback. Appellants had belatedly accepted the said claim and made the refund. Since there was belated refund of the duty drawback to the respondent, it was entitled to interest at the rate which was fixed by the Central Government at the relevant point of time being fifteen percent.”. the court observed while referring to Sec. 75A (1) of the Customs Act.

Accordingly, the court dismissed the appeal preferred by the DGFT, there being no merit in the appeal.

“That being the position, we find no good reason to interfere with the judgment and order of the Division Bench of the High Court dated 22.8.2008. There is no merit in the appeal, which is accordingly dismissed. No costs.”

Case Details:

UNION OF INDIA AND ORS. VERSUS M/S. B. T. PATIL AND SONS BELGAUM (CONSTRUCTION) PVT. LTD. CIVIL APPEAL NO.7238 OF 2009

Citation : 2024 LiveLaw (SC) 90

Click Here To Read/Download the Judgment

Head Notes:

Section 11B of the Central Excise Act- It entitles any person claiming refund of any duty of excise and interest to make an application for refund of such duty and interest before the expiry of one year from the relevant date (prior to 12.05.2000, it was six months instead of one year) (para 9.2)

Section 11BB of the Central Excise Act- It provides for interest on delayed refund. It says that if any duty ordered to be refunded under sub-section (2) of Section 11B to any applicant is not refunded within three months from the date of receipt of the application under subsection (1) of that section, there shall be paid to such applicant interest at such rate not below five percent and not exceeding thirty percent per annum as for the time being fixed by the Central Government, by notification in the Official Gazette. (para 9.3)

Section 27 of the Customs Act- Deals with claim for refund of duty. As per sub-section (1), any person claiming refund of any duty or interest paid by him or borne by him, may make an application in the prescribed form and manner, for such refund addressed to the designated authority before the expiry of one year from the date of payment of such duty or interest. Explanation below sub-section (1) clarifies that for the purpose of sub-section (1), the date of payment of duty or interest in relation to a person, other than an importer, shall be construed as the date of purchase of goods by such person. (para 10)

Section 27(2) of the Customs Act- It says that if on the receipt of such application the designated authority is satisfied that the whole or any part of the duty and interest, if any, paid on such duty, paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Consumer Welfare Fund established under Section 12C of the Central Excise Act. However, as per the proviso, the amount of duty and interest so determined shall be paid to the applicant instead of being credited to the Consumer Welfare Fund if such amount is relatable, 13 amongst others, to drawback of duty payable under Sections 74 and 75 of the Customs Act. (Para 10.1)

Section 27A of the Customs Act- Provides for interest on delayed refund. It says that, if any duty ordered to be refunded under sub-section (2) of Section 27 to an applicant is not refunded within three months from the date of receipt of the application, there shall be paid to that applicant interest at such rate not below five percent and not exceeding thirty percent per annum as is for the time being fixed by the Central Government, by notification in the Official Gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty. (para 11)

Section 75A of the Customs Act- Deals with interest on drawback. Sub-section (1) of Section 75A says that, where any drawback payable to a claimant under Section 74 or Section 75 is not paid within a period of one month (earlier it was two months and prior thereto it was three months) from the date of filing a claim for payment of such drawback, there shall be paid to that claimant in addition to the amount of drawback, interest at the rate fixed under Section 27A from the date after the expiry of the said period of one month till the date of payment of such drawback. (para 12)

For Appellant(s) Mr. N Venkatraman, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Shashank Bajpai, Adv. Mrs. Sweta Singh Verma, Adv. Mr. V C Bharathi, Adv. Mr. A K Kaul, Adv. Mr. Praneet Pranab, Adv.

For Respondent(s) Mr. Amit Sharma, AOR Mr. Dipesh Sinha, Adv. Ms. Pallavi Barua, Adv. Ms. Aparna Singh, Adv.