2011 (4) TMI 142 - HC - Customs

EPCG Scheme - Refund - It is seen from the facts herein that the assessee imported certain capital goods for the manufacture of Ammonium Nitrate and Nitric Acid - if any duty ordered to be refunded under sub section (2) of Section 27 of the Customs Act is not refunded within a period of three months from the date of receipt of application interest shall be payable by the Central Government on the refund claim - it is a well settled principle of law that Section does not call for any interpretation - Given the settled principle of law that the Legislature knows the law prevailing at the time when the amendment was brought forth and that the Legislature has chosen to restrict the grant of interest on delayed refunds alone it is difficult to stretch the language in Section 27A to accept the plea of the assessee that it is entitled to interest on the interest too on the score that Section 27(2) contemplated refund of duty and interest - It must be noted herein that the decision of the Apex Court is based on the interpretation of the word any amount as appearing in Sections 240 and 244(1A) of the Income Tax Act and in the absence of any specific provision on grant of interest on the belated refund of the interest component it applied the general principles - Decided against the assessee

Issues Involved:
1. Whether the Appellate Tribunal is correct in ordering for payment of interest on interest when there is no provision for payment of interest on interest under the Customs Act or its Rules.
2. Whether the Appellate Tribunal is correct in relying on the Supreme Court decision in Commissioner of Income Tax vs. Narendra Doshi when the facts and provisions of the Income Tax Act are not applicable to the Customs Act.

Analysis of the Judgment:

Issue 1: Payment of Interest on Interest

The Revenue challenged the Appellate Tribunal's order that mandated the payment of interest on interest, arguing that there is no provision under the Customs Act or its Rules for such payment. The assessee had applied for registration of six contracts under Project Import Regulations and imported certain capital goods for manufacturing. Following a show cause notice and subsequent adjudication, the Commissioner of Customs confirmed the duty demand and imposed penalties, which the assessee paid. On appeal, CESTAT set aside the duty and interest liability, leading the assessee to seek a refund of the paid amounts. The Deputy Commissioner sanctioned the refund but adjusted it against outstanding dues, leading to further appeals. Ultimately, CESTAT ordered the payment of interest on the refunded interest, relying on the Supreme Court's decision in Commissioner of Income Tax vs. Narendra Doshi. The High Court, however, emphasized that Sections 27 and 27A of the Customs Act deal with the claim for refund of duty and interest on delayed refunds, respectively. Section 27A specifically provides for interest on delayed refunds of duty but does not extend to interest on interest. The Court concluded that the language of Section 27A is clear and does not warrant interpretation to include interest on interest.

Issue 2: Applicability of the Supreme Court Decision in Narendra Doshi

The assessee argued that interest on interest should be granted based on the Supreme Court's decision in Narendra Doshi, where interest payment was considered compensatory and thus part of the principal duty. The High Court noted that while the Income Tax Act provisions and general principles applied in Narendra Doshi, the Customs Act has specific provisions. The Court highlighted that the decision in Sandvik Asia Ltd. v. CIT, which dealt with interest on delayed refunds under the Income Tax Act, was based on the interpretation of the phrase "any amount" and general principles. However, the Customs Act's Section 27A explicitly limits interest to the delayed refund of duty, not extending to interest on interest. The Court emphasized that the legislative intent was clear when enacting Section 27A, and it should not be stretched to include interest on interest. The Court also noted that the reliance on general principles or decisions under the Income Tax Act is not relevant when specific statutory provisions under the Customs Act govern the issue.

Conclusion:

The High Court allowed the Revenue's appeal, setting aside the CESTAT's order that granted interest on interest. The Court held that under the Customs Act, the assessee is entitled to interest only on the delayed refund of duty and not on the interest amount. The substantial questions of law were answered in favor of the Revenue, emphasizing that the statutory provisions of the Customs Act do not support the payment of interest on interest.

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