Legal principle

Where Rule 96(10) of the CGST Rules is deemed omitted since inception so that repayment of additional duties of customs was itself not legally required, and the unamended Customs Tariff Act, 1975 contained no provision empowering levy of interest on belated payment of such duties, interest collected on that repayment is without authority of law and must be refunded.

Court decision

The Bombay High Court allowed the writ petition. It held that, following Mahindra & Mahindra and A.R. Sulphonates, there were no provisions under the Customs Tariff Act, 1975 during the relevant period empowering levy and collection of interest on belated payment of additional duties of customs, and that since Rule 96(10) of the CGST Rules is deemed omitted since inception (Goodluck India Ltd., SC), there was no legal requirement or obligation on the petitioner to make the repayment, so interest on it could not arise. Respondent Nos. 2, 4 and 6 or the proper authorities were directed to process the petitioner's refund application and refund the interest described in tables (a), (b) and (c) of paragraph 8 of the petition expeditiously, with no order as to costs.

Facts

Leben Laboratories Pvt. Ltd. imported raw materials under the Advance Authorisation Scheme, claiming exemption from the additional duties of customs leviable under Section 3(7) of the Customs Tariff Act, 1975, and used them to manufacture goods that were exported on payment of IGST, with refunds claimed under Section 16 of the IGST Act. Between 4th October 2018 and 27th November 2020 the petitioner effected 25 such imports and exports, thereby claiming both the import-side exemption and the export-side IGST refund. Invoking the explanation to Rule 96(10) of the CGST Rules introduced retrospectively w.e.f. 23rd October 2017, which required repayment of one of the two benefits, the petitioner chose to repay the additional duties of customs by recalling its bills of entry and getting them reassessed in March/April 2022. While repaying, the petitioner also paid approximately Rs. 43 lakhs as interest to the customs authorities. After the Bombay High Court struck down the levy of interest on additional duties of customs, the petitioner sought return of this interest, which the department resisted.

Key provisions

• Section 3(7), Customs Tariff Act, 1975 — Levy of additional duty equal to excise duty, sales tax, local taxes and other charges