By TIOL News Service

CHENNAI, MAR 24, 2017: IN the appeal filed by the assessee against the Tribunal's order, the following is the substantial question of law –

"Whether the Tribunal is correct in holding that the appellants are not entitled to interest on the differential duty paid by them during investigation when as per the law laid down by the Hon'ble Supreme Court in the case of Sandvik Asia Ltd. vs. Commissioner of Income Tax-I, Pune, = 2006-TIOL-07-SC-IT , interest is payable in such cases?"

The assessee seeks payment of interest on the moneys deposited pursuant to investigation carried out at its premises by the 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.

A SCN was issued to the assessee which was adjudicated by the Commissioner, vide order dated 30.06.1997.

The Commissioner inter alia ordered that -

1. The goods should be considered as rolls for re-rolling mills, and not as heavy melting scrap.

2. The goods shall be classified under CTH8455.30 as rolls for re-rolling mills and charged to duty at the rate of 25% plus 15%.

3. The duty amount of Rs.4,57,892/- shall be adjusted against the amount of Rs.14,23,600/- which was voluntarily paid by the importers during the course of investigation.

4. The duty liability in respect of past clearances as admitted by the party is allowed to be adjusted against the amount voluntarily paid during the time of search in November, '95 namely, Rs.14,23,600/.

Consequent to the aforementioned order, on 29th August, 1997, a sum of Rs.4,52,735/- was adjusted out of the deposit made by the assessee on 17.01.1996.

In appeal, the Tribunal remanded the matter and in denovo proceedings, the Commissioner, vide order dated 09.09.2002, held that scrapped goods were classifiable under CTH 7204.49, as against 8455.30 and accordingly, the charges levelled against the assessee were dropped.

The assessee applied for refund on 28.10.2002 and obtained an amount of Rs.9,70,865/- [Rs.14,23,600/- minus Rs.4,52,735/-] on 01.04.2003. The claim for refund of balance amount was rejected on the ground that it is time barred.

The Commissioner(A) directed refund of the balance amount as well, i.e. a sum of Rs.4,52,735/- but rejected the prayer of the assessee for grant of interest.

Aggrieved, the assessee filed an appeal before the Tribunal who directed payment of interest on the sum of Rs.4,52,735/-, while denying grant of interest on the sum of Rs.9,70,865/-.

The assessee is before the Madras High Court.

The High Court inter alia observed thus –

+ A bare perusal of the Commissioner's order would show that while a sum of Rs.4,57,892/- was adjusted towards duty payable qua October and November, 1995 clearances, insofar as the balance amount was concerned, it was also adjusted towards "duty liability", albeit, in respect of past clearances. Therefore, to our mind, 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 assessee was able to convince the authorities that it was not required to pay any amount towards duty. Even the sum of Rs.4,52,735/- was directed to be refunded by the C(A) vide order dated 31.12.2003, albeit, without payment of interest. This error was corrected by the Tribunal vide the impugned judgment. The Tribunal, however, did not grant interest vis-a-vis the balance amount equivalent to Rs.9,70,865/-, though the said amount, as indicated above, was refunded to the assessee on 01.04.2003.

+ Insofar as argument based on Section 27 of the Act is concerned, it has no application because the said section is applicable when refund of duty or interest is sought. In the present case, the assessee is seeking interest on delayed payment of refund, and therefore, the circumstances obtaining in the present case can only be a subject matter of Section 27A of the Act. Since duty for past clearances was determined and adjusted, the assessee, to our minds, would be entitled to interest under Section 27A of the Act.

+ The argument that when DRI collected the amount, there was no assessment and that by itself would show that the amounts paid at that point in time by the assessee were voluntary in nature is an argument, which is, in a sense, self-destructive. To say that payments were made voluntarily when DRI officials descended on the premises of the assessee when wedding celebrations were on would amount to turning a blind eye to the harsh realities obtaining on ground. As a matter of fact, in our view, 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. Furthermore, if we were to accept this argument of the learned counsel, then it would tantamount to allowing the Revenue to take advantage of its own wrong.

+ Revenue has enjoyed the benefits of the money collected from the assessee on account of purported liability to pay duty, which was ultimately proved to have been wrongly foisted. Therefore, in our opinion, it would 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.

Concluding that interest should be paid to the assessee in terms of Section 27A of the Act on the sum of Rs.9,70,865/- for the period from 17.01.1996 to 01.04.2003, the appeal was allowed.

(See 2017-TIOL-549-HC-MAD-CUS)