Legal principle

Where duty drawback on a deemed export is not refunded within three months of the claim, the claimant is statutorily entitled to interest under Section 75A(1) of the Customs Act at the rate fixed under Section 27A (15% per Notification No.32/1995-NT dated 26.05.1995), and a departmental grant of drawback 'as a special case not to be treated as a precedent' cannot defeat that statutory right.

Court decision

The Supreme Court dismissed the Union of India's appeal and affirmed the Division Bench's judgment dated 22.08.2008, holding that the respondent was entitled to refund of duty drawback as a deemed export under the Duty Drawback Scheme, and, since refund was belated, to interest at 15% per annum (the rate fixed by the Central Government under Section 27A) from the expiry of three months after its 1996 refund applications until payment.

Facts

M/s B.T. Patil and Sons Belgaum (Construction) Pvt. Ltd., a class-I civil contractor, executed civil works as a sub-contractor in the World Bank (IBRD)-aided Koyna Hydro Electric Power Project. Between March and December 1996 it filed applications claiming duty drawback of about Rs.2.10 crore on the footing that its supplies were 'deemed exports' under the Exim Policy 1992-1997. The DGFT repeatedly rejected the claims, but after a Policy Interpretation Committee decision dated 07.10.2002, an order dated 01.11.2002 granted drawback of Rs.2,05,79,740 (cheques totalling Rs.2,25,79,470 paid on 31.03.2003 and 20.05.2003), clarifying it would not be treated as a precedent. The respondent's requests for interest on this delayed payment were rejected by the DGFT, leading to writ proceedings in which the Single Judge and, on appeal, the Division Bench of the Karnataka High Court awarded interest at 15%.

Key provisions

• Section 27A, Customs Act, 1962 — Interest of delay refunds
• Section 75, Customs Act, 1962 — Drawback on imported materials used in the manufacture of goods which are exported
• Section 74, Customs Act, 1962 — Drawback allowable on re-export of duty-paid goods
• Section 7, Customs Act, 1962 — Appointment of customs ports, airports
• Section 75A(1), Customs Act, 1962 — Interest on drawback
• Rule 2(a), Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 — Definitions