2019 (8) TMI 1388 - HC - Customs

Demand of interest on recovery of excess duty drawback claim - Section 75A (2) of the Customs Act, 1962 - when the petitioner realized that there was an excess claim and grant of drawback to the extent of ₹ 4,92,251/-, he had deposited the same on 18.10.2004 and the show cause notice came to be issued subsequently on 13.12.2004 - Demand raised without issuance of SCN - HELD THAT - Section 75A(2) stipulates that if any erroneous drawback has been paid, the claimant shall repay the said amount within two months from the date of demand and shall also pay interest from the date after the expiry of the said two months till the date of recovery - Admittedly, such a deposit has been made by the petitioner even prior to the demand of drawback under the show cause notice. Section 75A(2) contemplates payment of interest from the date of demand of the erroneously paid drawback. Since the petitioner had repaid the drawback even prior to the demand, the respondents will not be empowered to claim any interest. On this ground, the claim for interest is liable to be quashed. No SCN issued - HELD THAT - The Supreme Court of India in the case of UNION OF INDIA AND OTHERS VERSUS MADHUMILAN SYNTEX PVT. LTD. 1988 (5) TMI 38 - SUPREME COURT had held that a demand raised without notice or hearing, would be invalid - As such, the interest levied by the first respondent without the prior show cause notice for proposed interest is invalid. Petition allowed.

Summary

Issues:
Claim of duty drawback, deposit of excess amount, show cause notice, immunity from penalty and confiscation, levy of interest, provisions of Customs Act, 1962, prior notice on proposed levy of interest, principles of natural justice.

Analysis:
1. The petitioner, engaged in the manufacture and export of cotton knitted garments, claimed drawback of duty paid on export goods. Due to an inadvertent error, an excess claim of duty drawback was made, which was rectified by depositing the excess amount before the show cause notice was issued.

2. The show cause notice proposed penalty, confiscation, and interest on the excess amount. The petitioner sought immunity from penalty and confiscation, arguing that interest should also be waived as per Section 75A(2) of the Customs Act, 1962. The respondents contended that interest is a mandatory requirement under the statute.

3. The Court analyzed Section 75A(2) which mandates repayment of erroneous drawback within two months of demand, along with interest. As the petitioner had repaid the excess amount before any demand was made, the Court held that no interest could be claimed by the respondents.

4. Additionally, the Court considered the requirement of a prior notice on the proposed levy of interest, citing precedents where demands raised without notice or hearing were deemed invalid. The Court referred to judgments emphasizing the principles of natural justice and the necessity of issuing a show cause notice before claiming interest.

5. Relying on the Supreme Court and High Court judgments, the Court concluded that the interest levied without a prior show cause notice was invalid. Therefore, the impugned order imposing interest at the rate of 10% per annum was quashed, and the writ petition was allowed in favor of the petitioner.

6. The Court highlighted the importance of following due process and principles of natural justice, emphasizing that the petitioner should have been given an opportunity to respond before any interest could be levied. The judgment serves as a reminder of the significance of procedural fairness in legal proceedings.