2017 (3) TMI 1069 - HC - Customs

Entitlement of interest - The assessee seeks payment of interest on the moneys deposited pursuant to investigation carried out at its premises by DRI, while the Revenue resists the claim for payment of interest, as it is the stand of the Revenue that the moneys so deposited was in the nature of security deposit - Held that; - while a sum of ₹ 4,57,892/- was adjusted towards duty payable qua October and November, 1995 clearances, in so far as the balance amount was concerned, it was also adjusted towards duty liability , albeit, in respect of past clearances. Therefore, to our minds, the nature of deposit, even if the best case scenario qua the customs authorities is accepted, which is that it was a voluntary deposit, changed after 30.06.1997 - the officers of DRI had clearly no jurisdiction to demand and collect any amounts from the assessee, in view of the fact that they are not vested with powers of an Assessing Officer. It only be right that the Revenue be called upon to pay interest to the assessee because, by its nature, any such collection of money by Revenue can only be termed as exaction under ostensible authority of law - appeal allowed - decided in favor of assessee.

Issues Involved:
1. Entitlement to interest on the differential duty paid during the investigation.
2. Nature of the deposit made by the assessee—whether it was a security deposit or duty.
3. Applicability of Section 27A of the Customs Act, 1962, for interest on delayed refund.

Detailed Analysis:

1. Entitlement to Interest on Differential Duty:
The primary issue revolves around whether the assessee is entitled to interest on the differential duty paid during the investigation. The Tribunal had held that the appellants were not entitled to interest on the differential duty, but the assessee contended that interest should be payable as per the law laid down by the Supreme Court in Sandvik Asia Ltd. vs. Commissioner of Income Tax-I, Pune.

2. Nature of the Deposit:
The controversy in the appeal is centered on the nature of the deposit made by the assessee during the investigation by the Directorate of Revenue Intelligence (DRI). The Revenue claimed that the deposit was in the nature of a security deposit, while the assessee argued that it took the color of duty following the adjudication order dated 30th June 1997 by the Commissioner of Customs (Imports). The Commissioner had adjusted the deposit against the duty liability, indicating that the deposit was treated as duty.

3. Applicability of Section 27A of the Customs Act:
The assessee sought interest under Section 27A of the Customs Act, 1962, which provides for interest on delayed refunds of duty. The Tribunal had partly allowed the appeal, granting interest on a portion of the deposit but denying it on the remaining amount, which it deemed a security deposit.

Detailed Judgment:

Nature of the Deposit:
The High Court examined the sequence of events and the nature of the deposit. The assessee had imported goods and made a deposit of ?14,23,600/- during the investigation by the DRI. The Commissioner, in the adjudication order dated 30th June 1997, adjusted ?4,57,892/- towards duty and directed that the balance amount be adjusted against the duty liability for past clearances. This adjustment indicated that the deposit was treated as duty, not merely a security deposit.

Refund and Interest:
Following the adjudication, the assessee applied for a refund and received ?9,70,865/- on 1st April 2003. The remaining amount was refunded later, but the assessee was denied interest on the refund. The Tribunal had granted interest only on the amount of ?4,52,735/- but denied it on ?9,70,865/-.

Arguments and Court's Findings:
The assessee argued that the entire deposit should be treated as duty, and interest should be payable on the delayed refund. The Revenue contended that the deposit was initially made as a security deposit and not as duty, hence no interest was payable on it. The High Court found that the nature of the deposit changed after the adjudication order, which adjusted the deposit against the duty liability. Therefore, the assessee was entitled to interest on the entire deposit under Section 27A of the Customs Act.

Conclusion:
The High Court allowed the appeal, setting aside the Tribunal's judgment to the extent it denied interest on ?9,70,865/-. The Court directed that interest be paid to the assessee on the sum of ?9,70,865/- for the period from 17th January 1996 to 1st April 2003, in terms of Section 27A of the Customs Act. There was no order as to costs.

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