CHENNAI, DEC 26, 2012: PETITIONER imported goods under EPCG licences with export obligation to be fulfilled within prescribed period. Petitioner failed to submit the Export Obligation Discharge Certificate and Joint Director General of Foreign Trade enforced bank guarantees of Rs.9,60,000/-, furnished by the Petitioner and sent the amount to the Customs Department. Petitioner completed the export obligation, obtained discharge certificate on 29.1.2004 and filed refund application on 28.9.2004 for refund of Rs.9,60,000/-, collected by the customs department, through encashment of the bank guarantees.

Refund claim of the petitioner was rejected vide Order dated 14.7.2005 on the ground of time bar by taking the date of encashment of bank guarantee. Aggrieved, Petitioner preferred an appeal and by Order dated 8.2.2006, the Commissioner Appeals allowed the petitioner's appeal by holing that time limit of six months for refund claim would not apply to bank guarantee encashment.

Department preferred an appeal before Tribunal and vide Order dated 18.8.2006, the Tribunal dismissed the department appeal, confirming that time limit would not apply to encashment of bank guarantee. Based on the order of the Tribunal the Petitioner pursued its refund claim and after a long delay the amounts were refunded to the petitioner on 26.8.2008.

Petitioner then requested the department to pay the interest from December 2004 till the date of refund and the same was rejected by the department on the ground that payment of interest would apply only in case of refund of customs duty made under Section 27 of the Customs Act, 1962 and claim for interest arising out of encashment of a bank guarantee was not covered under Section 27A.

Petitioner then filed Writ Petition in the High Court and the High Court held that the department is liable to pay the interest to the petitioner for the belated refund at the rate of 9% per annum on the amount collected by the customs department through encashment of the bank guarantees. The High Court held that though the claim of the petitioner for the payment of interest on the belated payment of the refund amount may not arise based on Section 27A of the Customs Act, 1962, the petitioner is entitled to the same, as per the decision of the Supreme Court, in Sandvik Asia Ltd. Vs. Commissioner of Income Tax and others - (2006-TIOL-07-SC-IT)

(See 2012-TIOL-1045-HC-MAD-CUS)