Customs Dept. Can’t Avoid To Pay Interest To Importer By Repeatedly Issuing Deficiency Memos: CESTAT

The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has directed the Customs Department to pay interest on a delayed refund from September 2004 till November 2018, holding that the statutory liability to pay interest under Section 27A of the Customs Act cannot be avoided by repeatedly issuing deficiency memos and keeping refund applications pending for years. The bench of Dr. Suvendu Kumar Pati (Judicial Member) has observed that Section 27A clearly mandates payment of interest if refund is not granted within three months from receipt of the application. The department kept the claims pending “under one pretext or the other” for nearly 14 years despite repeated submissions by the importer. The appellant/assessee, PNP Polytex Pvt Ltd, which had sought refund of Goods of Special Importance (GSI) duty wrongly paid during import of PVC quoted cloth in 2003. The dispute arose after the importer had cleared goods on payment of basic customs duty, countervailing duty, GSI duty at 5%, and other levies. Subsequently, the importer discovered that GSI duty was not leviable in view of Notification No. 7/2003-CE dated 01.03.2003 and challenged the assessments before the Commissioner (Appeals). The appellate authority ruled in favour of the importer on 31 March 2004 and granted consequential relief. Following the favourable appellate order, the company filed 17 refund applications in June 2004 amounting to approximately Rs. 48.28 lakh within the prescribed limitation period. The applications were acknowledged by the Customs Department. However, despite repeated follow-ups, the refund claims remained pending for years. The Tribunal noted that the importer was repeatedly asked to furnish documents and clarifications through multiple deficiency memos issued in 2009, 2012, 2016 and 2017. The importer consistently complied with the departmental requirements, including submission of Chartered Accountant certificates and duplicate refund applications whenever demanded. Eventually, after re-assessment of the Bills of Entry in October 2018, the department sanctioned refund of Rs. 38.94 lakh on 1 November 2018. However, interest was granted only for the period from March 2018 to November 2018 on the ground that the refund application became “complete” only after submission of clarifications during personal hearing in December 2017. Challenging this approach, the importer argued before the Tribunal that interest under Section 27A of the Customs Act becomes payable after expiry of three months from the original date of filing of refund applications and not from the date of subsequent clarifications sought by the department. The appellant relied upon several judicial precedents, including the Supreme Court ruling in Ranbaxy Laboratories and the judgment in Union of India vs. Hamdard (Waqf) Laboratories. The Tribunal accepted the importer’s contention and strongly criticised the manner in which the refund claims were handled by the department. It observed that the refund applications filed in 2004 were duly acknowledged and no deficiency memo was issued within the prescribed period under the relevant customs notification. Rejecting the departmental stand that the refund application became complete only after later clarifications, the Tribunal ruled that terms such as “completed application” or “deficient application” cannot override the statutory mandate contained in Section 27A of the Customs Act. The Tribunal modified the Commissioner (Appeals)’ order and directed the Customs Department to pay interest at the applicable rate from three months after 2 June 2004, being the date of filing of refund applications, till the actual refund date of 1 November 2018. The department was directed to make payment within two months from receipt of the order. Case Details Case Title: PNP Polytex Pvt Ltd Versus Commissioner Of Customs, Nhava Sheva-III Citation: JURISHOUR-1213-CES-2026(MUM) Case No.: Customs Appeal No. 85981 Of 2021 Date: 08.05.2026 Counsel For Appellant: Neha Anchlia, Advocate Counsel For Respondent: L.B.D’Coasta, Dy. Commissioner Click Here To Read Order Read More: CESTAT Upholds Higher Customs Duty on Imported Mandarin Juice Concentrate

Customs Dept. Can’t Avoid To Pay Interest To Importer By Repeatedly Issuing Deficiency Memos: CESTAT

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