The Delhi High Court has held that interest on delayed payment of duty drawback under Section 75A of the Customs Act, 1962 becomes payable upon expiry of one month from the date on which the exporter’s shipping bill is deemed to constitute a drawback claim, and not from the date on which adjudication proceedings concerning the drawback ultimately attain finality.
The bench of Justice Anil Khetarpal and Justice Shail Jain has observed that the commencement of interest does not depend upon the date on which the adjudication proceedings conclude or the date on which the drawback is formally sanctioned.
The principal question before the High Court was whether an exporter becomes entitled to interest under Section 75A of the Customs Act only after the drawback claim is finally adjudicated and sanctioned, or whether the statutory interest period begins from the date on which the shipping bill is deemed to be a drawback claim under Rule 13 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995.
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A related jurisdictional issue also arose: whether CESTAT could entertain an appeal concerning interest on delayed drawback in view of the first proviso to Section 129A(1), which excludes certain matters relating to payment of drawback from the Tribunal’s jurisdiction.
The dispute originated from seven shipping bills dated February 24, 2003, covering exports of garments described as “Ladies Tops” and “Denim Shirts.” The exporter claimed duty drawback of ₹49,75,536 under Section 75 of the Customs Act.
The goods were permitted to be exported after the Customs authorities issued the ‘Let Export Order’ on March 13, 2003. Subsequently, however, the Department questioned the correctness of the declared value of the exported goods and issued a show cause notice on September 11, 2003, proposing redetermination of the export value and the consequential drawback entitlement.
The initial adjudication proceedings were dropped by an Order-in-Original dated January 31, 2005. The Department challenged that decision before CESTAT, which allowed the appeal in 2006.
The exporter thereafter approached the Supreme Court. By judgment dated April 1, 2011, the Supreme Court set aside both the original adjudication order and the CESTAT order and remanded the matter for fresh consideration.
Following the remand, the adjudicating authority again dropped the proceedings on May 31, 2012. The Department once again appealed, but CESTAT dismissed the appeal on October 7, 2021, thereby affirming the exporter’s entitlement to drawback.
After the Department’s appeal was dismissed, the drawback amount of ₹49,75,536 was finally sanctioned in favour of the exporter on April 2, 2022.
However, the Department rejected the exporter’s claim for interest under Section 75A. Its reasoning was that the drawback became admissible only after the CESTAT order dated October 7, 2021, and that the sanction was thereafter made within the prescribed period.
The Commissioner of Customs (Appeals) partly accepted the exporter’s claim but held that interest would commence only after expiry of one month from the Order-in-Original dated May 31, 2012.
The exporter challenged this determination before CESTAT. The Tribunal modified the appellate order and held that the drawback claim was deemed to have been filed on March 13, 2003—the date of the ‘Let Export Order’. Consequently, interest was payable after expiry of one month from that date until the actual payment of drawback.
Before the High Court, the Customs Department first argued that CESTAT lacked jurisdiction to entertain the exporter’s appeal.
The Department relied upon the first proviso to Section 129A(1) of the Customs Act, which provides that no appeal shall lie before CESTAT in relation to certain specified matters, including payment of drawback under Chapter X and the rules framed thereunder.
According to the Department, interest under Section 75A was merely incidental to the principal drawback claim. Therefore, a dispute over interest on delayed drawback continued to be a dispute relating to payment of drawback and fell within the statutory exclusion from CESTAT’s jurisdiction.
The Department also argued that the drawback entitlement itself had remained under dispute for several years. Since the admissibility and quantum of drawback had not crystallised until completion of the adjudicatory process, statutory interest could not, according to the Department, arise from the date of the original ‘Let Export Order’.
The High Court rejected the Department’s contention that CESTAT lacked jurisdiction.
The Bench noted that the dispute before CESTAT was no longer concerned with the exporter’s entitlement to drawback or the quantum of drawback. Those issues had already been concluded in the exporter’s favour.
The surviving controversy was confined to the Department’s statutory liability to pay interest because of delayed disbursement of an already sanctioned drawback amount.
The Court emphasised that the right to claim interest under Section 75A flows from a distinct statutory provision. While the interest claim arises because drawback is payable, the liability to pay interest is triggered by delay in disbursement.
Therefore, the Court held that a dispute concerning interest on delayed drawback cannot automatically be treated as a dispute concerning the grant or admissibility of drawback itself.
The Court observed that Section 129A(1) contains a statutory right of appeal, while the proviso creates specific exceptions to that right.
Since the legislature had expressly confined the exclusion to matters concerning payment of drawback, the Court declined to expand the exclusion to every ancillary or consequential claim arising from drawback.
The Bench held that a jurisdictional bar cannot be enlarged by implication and that restrictions on statutory appellate remedies must be strictly construed.
Accordingly, the Court answered the first issue against the Customs Department and held that the exporter’s appeal before CESTAT was maintainable.
On the substantive question, the High Court examined Section 75A of the Customs Act alongside Rule 13 of the Drawback Rules.
Section 75A provides that where drawback payable under Section 74 or Section 75 is not paid within one month from the date of filing the claim, interest becomes payable after expiry of that one-month period until the date of payment.
Rule 13, meanwhile, provides that the triplicate copy of the shipping bill for goods exported under a drawback claim is deemed to be a drawback claim on the date when the proper Customs officer makes the order permitting clearance and loading of the goods for export.
The Court therefore found that the statutory scheme itself determines when the drawback claim comes into existence.
The Bench held that Rule 13 creates a statutory deeming fiction. Under the rule, the shipping bill itself becomes the drawback claim by operation of law when the proper officer permits clearance and loading of the goods for export.
Thus, the drawback claim did not depend upon the filing of a subsequent, separate application.
In the present case, the ‘Let Export Order’ was issued on March 13, 2003. Accordingly, the shipping bills were deemed to constitute the drawback claims on that very date.
The Court stressed that Section 75A links the commencement of interest to the date of filing of the drawback claim, rather than to the date on which the claim is ultimately sanctioned.
A significant aspect of the ruling is the Court’s rejection of the argument that pending adjudication proceedings postpone the commencement of statutory interest.
The Customs Department had contended that because the exporter’s entitlement to drawback was challenged through adjudication and appellate proceedings, interest could arise only after those proceedings finally concluded.
The High Court found no such qualification in either Section 75A or Rule 13.
The Court observed that the statutory provisions do not state that interest begins only after adjudication is completed. Had Parliament intended to postpone interest in disputed cases until final adjudication, it could have expressly incorporated such a condition into the statutory framework.
The Court further held that the subsequent show cause notice issued by the Department did not obliterate or postpone the statutory consequence flowing from Rule 13.
The March 13, 2003 ‘Let Export Order’ had already resulted in the shipping bills being treated as drawback claims. The later proceedings merely resulted in the payment being withheld while the Department examined its allegations.
Importantly, those allegations concerning overvaluation were ultimately not sustained, and the drawback was found admissible.
The eventual sanction of the drawback, therefore, did not create a new entitlement. Instead, it gave effect to an entitlement that was ultimately adjudicated in the exporter’s favour.
The High Court also highlighted the practical consequences of accepting the Department’s interpretation.
According to the Court, such an interpretation could allow the Department to postpone its liability to pay interest merely by initiating adjudication proceedings and pursuing successive appellate remedies.
Where proceedings ultimately conclude in favour of an exporter, such an approach could indefinitely defer statutory interest even though the exporter had been deprived of the use of the drawback amount.
The Court held that this would substantially dilute the purpose of Section 75A, which is to compensate an exporter for delayed disbursement of drawback.
Applying the statutory scheme, the Court upheld CESTAT’s conclusion that the drawback claim was deemed to have been filed on March 13, 2003.
Consequently, once one month expired from that date, the statutory liability to pay interest under Section 75A commenced and continued until the drawback was actually paid.
In the final outcome, the Delhi High Court found no merit in the Customs Department’s appeal.
The Court held that no substantial question of law arose for consideration under Section 130 of the Customs Act and dismissed the appeal along with the pending applications.
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