Section 75A Customs Act | If Duty Drawback Remains Unpaid Three Months After Claim Is Filed, Claimant Is Entitled To Interest Also: SC
The Supreme Court held that per Section 75A of the Customs Act, 1962 (Act) if the duty drawback remains unpaid three months after the claim is filed, the claimant is entitled to an interest in addition to the drawback amount.
The Court dismissed an Appeal filed by the Union against the order of the Division Bench affirming the Single Judge’s order that the Respondent was entitled to duty drawback awarding interest at 15% for the delay.
“under sub-section (1) of Section 75A of the Customs Act, where duty drawback is not paid within a period of three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback”, the Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan observed.
Additional Solicitor General N Venkatraman appeared for the Appellant and Advocate Amit Sharma appeared for the Respondent.
The Union of India, DGFT, and Joint Director of Foreign Trade appealed against the judgment of the Karnataka High Court, which upheld the Single Judge's decision. The respondent, a class-I contractor involved in civil contract works, was awarded a subcontract for the Koyna Hydro Electric Power Project, funded by the World Bank. Despite initial rejections, the respondent sought duty drawback under the Exim Policy, 1992-1997, for supplies in civil construction work.
The Court noted that the Single Judge, referring to the notification, ruled in favour of the respondent, awarding interest at 15% for the delay. The Division Bench upheld this decision, emphasizing that civil construction works were entitled to deemed export benefits. It considered the 1998 and 2000 notifications clarificatory, having a retrospective effect. The Division Bench ruled that the respondent was entitled to interest three months after the 1996 refund application until payment at the rate of 15%.
The Court noted that Section 11A of the Central Excise Act, 1944 (Act, 1944) outlines the recovery of duties not levied, paid, short-levied, short-paid, or erroneously refunded. It specifies the notice period for duty recovery, and interest, in cases not involving fraud or collusion. Duty payers are required to pay interest in addition to duty, and the interest rate is determined by the Central Government. Section 11B allows persons to claim a refund of excise duty and interest, with Section 11BB providing for interest on delayed refunds.
The Bench observed that Section 27 of the Act deals with refund claims and Section 27A addresses interest on delayed refunds. Chapter X of the Act (Sections 74 to 76) pertains to drawbacks, with Section 75A covering interest on drawback payments. The Exim Policy, 1992-1997, governed foreign trade, deemed to be under the Foreign Trade (Development and Regulation) Act, 1992 (Act, 1992). Section 4 of the Act, 1992 preserved existing orders, including the Exim Policy. Section 5 empowered the Central Government to formulate and announce export and import policies, and Rule 2(e) of the Foreign Trade (Regulation) Rules, 1993, defined "policy" in the context of the Act, 1992.
The Court further noted that Section 11A of the Central Excise Act outlines the recovery of duties not levied, paid, short-levied, short-paid, or erroneously refunded. It specifies the notice period for duty recovery, and interest, in cases not involving fraud or collusion. Duty payers are required to pay interest in addition to duty, and the interest rate is determined by the Central Government. Section 11B allows persons to claim a refund of excise duty and interest, with Section 11BB providing for interest on delayed refunds.
The Court noted that the Exim Policy, 1992-1997, defines terms relevant to the policy's application. It introduces the Duty Exemption Scheme in Chapter VII, allowing duty-free imports for export production under specified licenses. Section 120 of Chapter X introduces the concept of "deemed exports," where goods remain in the country, but payment is received in Indian rupees, benefiting the country's foreign exchange. Section 121(f) specifies that supplies to projects financed by international agencies qualify as deemed exports. Section 122 extends benefits, including under the Duty Drawback Scheme, to deemed exports.
The Bench observed Customs, Central Excise Duties, and Service Tax Drawback Rules, 1995 (Drawback Rules), define terms related to duty rebates. Rule 3 allows drawback on exports, determined by the Central Government. Rule 14 addresses payment of drawback and interest, specifying that they are paid by customs officers to exporters or their authorized agents. The date of payment is determined based on the method of payment. A notification issued under Section 27A of the Act fixes the interest rate at fifteen per cent.
The Court noted that the Central Board of Excise and Customs issued notifications fixing the rate of interest at fifteen per cent per annum under Section 11BB of the Central Excise Act and Section 27A of the Customs Act. Circulars issued by the Directorate General of Foreign Trade (DGFT) clarified the availability of deemed export benefits for supplies to civil construction projects. They confirmed that goods supplied to such projects would qualify as deemed exports and be eligible for benefits, including duty drawback.
The Bench observed that a Policy Interpretation Committee meeting held discussed extending deemed export benefits to firms including the excise duty component in their pricing quoted before project authorities. Following this, DGFT issued a letter allowing duty drawback to the respondent for materials used in the Koyna Hydro Electric Project. However, the grant of drawback was stated not to set a precedent.
Subsequently, the Court noted that the respondent sought interest on the delayed refund of duty drawback, citing the notification fixing interest at fifteen per cent. Despite representations, the DGFT rejected the request for interest. The Bench observed that the Single Judge ruled that the respondent was entitled to interest from the date of the clarificatory circular until the date of payment. Both parties appealed this decision.
The Central Board of Excise and Customs had fixed the interest rate at fifteen per cent per annum, but the High Court did not reference this notification when awarding interest. Despite this, the Supreme Court affirmed the respondent's entitlement to the refund of duty drawback and held that they were entitled to interest at the rate of fifteen per cent per annum.
Accordingly, the Court dismissed the Appeal.
Cause Title: Union Of India And Ors. v M/S. B. T. Patil And Sons Belgaum (Construction) Pvt. Ltd. (2024 INSC 83)
Appellant: Raj Bahadur Yadav, Shashank Bajpai, Sweta Singh Verma, V C Bharathi, A K Kaul and Praneet Pranab, Advocates.
Respondent: Dipesh Sinha, Pallavi Barua and Aparna Singh, Advocates.