Interest on Delayed Drawback Must Date Back to Original Claim – Not the Convenience of Customs: Madras High Court

In a sweeping judgment that strongly reaffirms exporters’ statutory rights under the Customs Act, the Madras High Court held that interest on delayed payment of duty drawback must accrue from the date of the original claim, and not from the later date when authorities finally process it. Justice N. Anand Venkatesh declared that “Section 75A of the Customs Act is a statutory right, which cannot be watered down by the Authorities”, as he allowed the writ petition filed by Best Fabrics, represented by Mrs. Jaya Vaidhyanathan.

The Court struck down the order passed by the Chief Commissioner of Customs denying interest and directed the customs department to pay statutory interest from 12.12.1994 until the date of actual payment on delayed duty drawback for exports made under 69 shipping bills between 1992 and 1994.

“Delay Is Attributable to the Department, Not the Exporter – Interest Must Follow as a Matter of Right”

The case arose from a longstanding grievance by Best Fabrics, an exporter who sought duty drawback on the conversion of DEEC (Duty Entitlement Exemption Certificate) shipping bills into drawback shipping bills. The original application was filed on 12.12.1994, but due to administrative apathy and prolonged litigation, the customs department only processed the request more than 25 years later, first partially in 2020 and then fully in 2022, after direction from the CESTAT.

Despite ultimately acknowledging the exporter's entitlement to 100% of the drawback amount, the authorities paid no interest for the decades-long delay, prompting the present writ petition.

The Court found this refusal entirely unjustified and in direct contravention of the text and spirit of Section 75A of the Customs Act, 1962, which states:

“Where any drawback payable... is not paid within a period of one month from the date of filing a claim... interest shall be paid from the date after expiry of one month till the date of actual payment.”

The Court forcefully rejected the department’s contention that interest should run only from April 2021 when the complete documents were allegedly furnished. Holding that the original claim dated 12.12.1994 was complete and valid, the Court observed:

“Once an order has been passed in favour of the petitioner for payment of drawback... the payment of interest will start after 30 days from the date of filing of the claim. Such a beneficial piece of legislation must be given a wide interpretation and cannot be interpreted in a pedantic manner.”

“Statutory Right to Interest Cannot Be Eroded by Bureaucratic Delay”: Madras HC Relies on Supreme Court’s B.T. Patil Judgment

Relying on the Supreme Court’s authoritative ruling in Union of India v. B.T. Patil & Sons Belgaum (Construction) Pvt. Ltd., 2024 (3) SCC 645, the High Court reaffirmed that statutory interest is not discretionary and cannot be evaded on technical grounds. Quoting the apex court, Justice Venkatesh observed:

“Interest on delayed drawback runs from the date of claim till the date of payment, and delay in processing by authorities cannot be used as an excuse to deny such interest.”

The Madras High Court further noted that the initial delay till 2007 was attributable to customs authorities and the ten-year pendency of the first writ petition (filed in 2009) until its disposal in 2019 could not be held against the petitioner. Accordingly, the petitioner’s right to interest related back to the original claim date, not the later date of administrative convenience.

“Beneficial Legislation Must Not Be Defeated by Technical Interpretation”: Justice Venkatesh Slams Bureaucratic Approach

Calling out the department’s approach as unduly technical and contrary to legislative intent, the Court stressed that Section 75A must be interpreted liberally, especially when the exporter had complied with all statutory requirements long ago and suffered financial hardship for decades due to official inaction.

The department’s argument that interest was due only from 2021, because that was when the claim was “finally processed”, was firmly rejected. Justice Venkatesh observed:

“This interpretation runs contrary to the plain language used under Section 75A of the Act... Interest must relate back to the date of application made by the petitioner on 12.12.1994.”

Court Directs Customs Authorities to Pay Interest from 1994 Within Four Weeks

Setting aside the impugned order dated 13.06.2024 of the Chief Commissioner of Customs, the Court directed the concerned respondents to:

“Pay the statutory interest under Section 27A of the Act on the drawback amount from 12.12.1994 till the date of actual payment... within four weeks.”

The Court emphasized that the customs authorities had already found the exporter eligible for the full drawback and therefore could not now limit the claim for interest, which accrued as a matter of law.

This judgment is a landmark for exporters and trade stakeholders alike. It emphatically reasserts the principle that statutory interest on delayed drawback is a legal right, not a discretionary gesture by customs authorities. The ruling underscores that beneficial legislation like the Customs Act must serve its purpose — compensating honest exporters for delays beyond their control.

Justice Venkatesh’s ruling sends a strong message that bureaucratic delay cannot defeat substantive legal entitlements, and that statutory obligations of the state must be met in both letter and spirit.

Date of Decision: 5 November 2025