2005 (2) TMI 411 - AT - Customs

Summary

Issues:
1. Liability of payment of interest on imported capital goods under EPCG Scheme.
2. Refund claim for interest paid to Chennai Customs House.
3. Adjustment of refund against outstanding sum due from claimant.
4. Commissioner of Customs (Appeals) refraining from considering appeal on interest.
5. Department's duty to pay interest on amounts collected illegally.
6. Provision for payment of interest on interest.

Analysis:
1. The appellants imported capital goods under the EPCG Scheme at a concessional rate of duty. Due to non-fulfillment of export obligation, they had to comply with the terms of the bond executed with the DGFT and paid an amount towards interest to Chennai Customs House. CEGAT, Bangalore held that the liability of payment of interest is not sustainable as per Notification No. 160/92-Cus. The appellants filed a refund claim for the interest paid.

2. The Deputy Commissioner (Refunds) sanctioned the amount collected as interest under Section 27 of the Customs Act, 1962, and ordered an adjustment against the outstanding sum due from the claimant. However, the Deputy Commissioner's order was silent on the interest demanded on the refund amount. The Commissioner of Customs (Appeals) set aside the adjustment of the refund towards dues from the claimant but refrained from considering the appeal on interest, stating that a decision not taken cannot be treated as an order under Section 128 of the Customs Act, 1962.

3. The learned Advocate argued that the department is duty-bound to pay interest on amounts collected illegally from the appellants, citing various case laws. On the other hand, the learned SDR contended that there is no provision for paying interest on interest. The Tribunal noted that the Constitution of India mandates that no tax shall be levied except by authority of law and referred to a Supreme Court decision allowing interest on interest in a similar case.

4. The Tribunal observed that the decision of the Apex Court to uphold payment of interest on interest is binding. Consequently, the department was held liable to pay interest from the date of payment of interest till the date of refund as applicable under the Customs Act, 1962. The appeal was allowed with consequential relief, emphasizing the department's obligation to pay interest on amounts collected illegally.