The Bombay High Court has held that the levy of interest on the Integrated Goods and Service Tax (IGST) payment is beyond the Customs Tariff Act, 1975.
The bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla has observed that once the Petitioner pays the IGST, it would amount to the Petitioner not having availed the benefit of the exemption and the issue would be regularized. Therefore, the provisions of Section 111 (o) of the Customs Act will not be attracted. Consequently, no fine and penalty would be recoverable from the Petitioner.
The bench held that the Circular No. 16/ 2023-Customs dated 7th June, 2023 issued by Central Board of Indirect Tax and Customs (CBIC) which seeks to recover interest along with IGST is bad in law.
The petitioner/assessee has challenged the Order passed by the department to the extent it seeks to demand interest, penalty and redemption fine from the Petitioner in lieu of payment of IGST leviable under Section 3(7) of the Customs Tariff Act, 1975. The Petitioner challenged Circular No.16/ 2023- Customs dated 7th June, 2023 issued by the Central Board of Indirect Tax and Customs (CBIC) to the extent it purports to levy interest upon the IGST payment.
The Petitioner is engaged in the manufacture, export and supply of Linear Alkyl Benzene Sulphonic Acid (LABSA). In order to manufacture LABSA, the Petitioner procures input materials such as Linear Alkyl Benzene (LAB) domestically as well as from foreign vendors. Section 12 of the Customs Act 1962 is the charging Section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Tariff Act. Along with Basic Customs Duty (BCD), Additional Customs duties (“CVD” and “SAD”), Anti-dumping duty and Safeguard duty were also levied by the Customs Act, read with the Tariff Act.
With the introduction of GST with effect from 1st July, 2017, Additional Customs duties were subsumed into the newly introduced IGST and hence IGST was made payable instead of the Additional Customs duties.
Duty Exemption Schemes enable duty-free import of inputs required for export production subject to fulfillment of conditions prescribed therein. Advanced Authorization is a pre-export duty exemption scheme which is provided under Chapter 4 of the Foreign Trade Policy – 2015-2020 and is regulated as per Chapter 4 of the Handbook of Procedure 2015 – 2020. An Advance Authorization License is issued by the Directorate General of Foreign Trade (DGFT).
Notification No.18 of 2015 – Customs dated 1st April 2015 gives effect to the exemption of customs duty on import of inputs against Advance Authorization Licenses.
Prior to the GST regime, and in terms of the said Notification, import of input materials under a valid Advance Authorization Licenses were exempted from payment of BCD, CVD, SAD, Anti dumping duty and Safeguard Duty.
Post introduction of GST, Notification No. 18 of 2015- Customs dated 1st April, 2015 was amended by Notification No. 26 of 2017 dated 29th June, 2017, to, inter alia, granting exemption from payment of BCD. There was no exemption provided on payment of IGST against the said imports.
The court held that as far as redemption fine imposed by the impugned Order is concerned, the same is demanded in lieu of confiscation of goods under Section 111(o) of the Customs Act. As per Section 111(o) of the Customs Act, the goods shall be liable for confiscation in the event the condition subject to which the goods are exempted from duty is not observed.
The court noted that Section 3 (12) of the Tariff Act, after its amendment by Finance (No.2) Act, 2024, dated 16th August, 2024, makes applicable the provisions relating to interest, offences and penalties of the Customs Act to the Tariff Act. As already held by us, Section 3 (12) of the Tariff Act, as amended, is applicable only after 16th August,2024 and is not applicable to the present case. Accordingly, no confiscation could have been imposed.
The court stated that once the Petitioner pays the IGST, it would amount to the Petitioner not having availed the benefit of the exemption and the issue would be regularized. Therefore, the provisions of Section 111 (o) of the Customs Act will not be attracted. No fine and penalty would be recoverable from the Petitioner.
The court declared Circular No.16 of 2023-Customs dated 7th June, 2023, to the extent that it purports to levy interest upon the IGST payment, is beyond the provisions of the Customs Tariff Act, 1975 and is bad in law.
The court held that the Order dated 1st August, 2024, to the extent that it seeks to recover interest, confiscate goods, impose redemption fine and impose penalty, is quashed and set aside. It is declared that the amendment to the provisions of Section 3 (12) of the Customs Tariff Act, 1975 by Finance (No.2) Act, 2024 dated 16th (iv) (v) August, 2024 is prospective in nature and is applicable only from 16th August, 2024 onwards.
Case Details
Case Title: A. R. Sulphonates Private Limited Versus UOI
Case No.: Writ Petition No.19366 Of 2024
Date: April 09, 2025
Counsel For Petitioner: Adv. Jitendra Motwani with Ms. Rinkey Jassuja
Counsel For Respondent: Adv. Ram Ochani with Adv. Niyati Mankad,
