The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that an importer is entitled to interest on the delayed refund of Extra Duty Deposit (EDD), observing that customs authorities cannot indefinitely withhold refund claims merely because the underlying valuation issue remains under departmental challenge. 

The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that Customs authorities cannot keep refund applications pending indefinitely merely because the underlying order has been challenged by the Department. The refund provisions require authorities either to sanction or reject the claim in accordance with law; there is no statutory provision authorising indefinite suspension of refund processing. 

The dispute originated from imports of equipment made by the company between October 1997 and April 1998 from its related-party supplier, Marubeni Corporation, Japan. Since the imports involved related-party transactions, Customs authorities subjected the consignments to provisional assessment pending examination by the Special Valuation Branch (SVB). The importer was required to furnish Extra Duty Deposits ranging from 1% to 5% of the declared assessable value in addition to bonds and guarantees. 

Following detailed scrutiny, the SVB, through its order dated October 26, 1998, concluded that the relationship between the importer and supplier had not influenced pricing. Consequently, the declared transaction value was accepted, all pending provisional assessments were directed to be finalized accordingly, and the EDDs were ordered to be refunded. 

Acting on the SVB order, the company filed refund applications in January 1999 seeking return of EDDs totaling approximately ₹1.70 crore. However, the Revenue challenged the SVB order and initiated prolonged appellate proceedings. Despite the valuation issue eventually being decided in favour of the importer, the refund remained unpaid for years, forcing the company to repeatedly approach appellate forums and even the Bombay High Court. 

The refund claims were finally sanctioned only in November 2015. Even then, Customs authorities refused to pay any interest on the delayed refunds, leading to the present round of litigation. 

The principal question before the Tribunal was whether interest under Section 27A of the Customs Act, 1962 is payable when the refund pertains not to customs duty strictly so called, but to Extra Duty Deposits collected during provisional assessments in SVB cases. 

The Department argued that EDD was merely a deposit and not customs duty, relying upon CBEC Circular No. 59/95-Cus., which stated that interest is not payable on deposits such as project import deposits. 

The Tribunal undertook an extensive examination of the Customs Act, the Customs (Provisional Duty Assessment) Regulations, 1963, and CBEC circulars governing SVB investigations. It acknowledged that EDD is technically different from customs duty and is collected as a safeguard to ensure timely submission of information during valuation investigations. 

However, the Bench observed that EDD is intrinsically connected with provisional assessments under Sections 17 and 18 of the Customs Act and serves as an additional amount collected by Customs pending final determination of duty liability. Once the valuation issue is settled in favour of the importer and no additional duty becomes payable, the EDD necessarily becomes refundable. 

The Tribunal noted that the refund applications were filed in January 1999, yet the refund amounts were actually released only in November 2015 after a series of appellate proceedings concerning unjust enrichment and related issues. Such an extraordinary delay, according to the Bench, clearly attracted the principle underlying Section 27A of the Customs Act governing delayed refunds. 

Rejecting the Department’s stand, the Tribunal held that although EDD is not strictly “duty,” the provisions relating to interest on delayed refunds should be applied to EDD on a mutatis mutandis basis because the deposit is collected as part of the customs assessment mechanism and remains under the control of Customs authorities. 

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