Interest on Delayed Refunds Starts from Original Application Date, Not Remand: Bombay High Court

Bombay High Court, in M/s Ajay Industrial Corporation Ltd. vs. Deputy Commissioner of Customs, ruled in favor of the petitioner, awarding interest at 6% per annum on the delayed refund of Special Additional Duty (SAD) under Section 27A of the Customs Act, 1962. The Court held that the respondent had wrongfully delayed the refund, which was due since 2014, and directed the respondent to pay the accumulated interest of Rs. 4,21,940 to the petitioner.

The petitioner, M/s Ajay Industrial Corporation Ltd., filed a refund claim for Rs. 7,40,458 on August 4, 2014, under Notification No. 102/2007-Cus. However, the Deputy Commissioner of Customs rejected the claim in 2017, prompting the petitioner to file multiple appeals. The Commissioner (Appeals) set aside the rejection and remanded the case twice for reconsideration. Despite favorable orders, the refund was delayed until April 1, 2024, almost 10 years after the original application. Although the refund was granted, the respondent denied interest on the delayed amount, which led to the present writ petition seeking interest under Section 27A of the Customs Act.

The petitioner argued that the delay of nearly 10 years entitled them to interest at 6% per annum under Section 27A of the Customs Act.

The respondent contended that the interest should be calculated only from November 8, 2022, after the petitioner reapplied for the refund post the Commissioner (Appeals) order in June 2022, and not from the original application date of August 4, 2014.

The Court ruled that Section 27A of the Customs Act clearly provides for interest on delayed refunds, starting three months from the date of the refund application. The Court rejected the respondent's argument that the interest should only accrue from 2022, holding that the petitioner’s original application in 2014 was complete and had no deficiencies. The follow-up application in 2022 was merely a reminder and did not constitute a fresh refund claim.

The Court observed that the respondent had wrongfully retained the petitioner’s funds for almost 10 years, amounting to unjust enrichment. The Court noted that even though the refund order was delayed due to multiple remands, the interest liability dated back to the original application.

The Court cited the Supreme Court’s decisions in Union of India vs. Hamdard (Waqf) Laboratories and Ranbaxy Laboratories Ltd. vs. Union of India, which emphasized that the liability to pay interest begins three months after the refund application is filed.

The Court directed the respondent to pay Rs. 4,21,940 as interest at 6% per annum on the delayed refund from September 4, 2014 (three months after the original application date) until the refund was granted on April 1, 2024.

If the respondent fails to pay the interest amount within two months, an additional interest of 8% per annum will apply, with potential action under the Contempt of Court Act against the responsible officers for further delays.

The Court also imposed costs of Rs. 15,000 on the respondent for the prolonged litigation and unreasonable delay in processing the refund.

The Bombay High Court ruled that M/s Ajay Industrial Corporation Ltd. was entitled to interest on the delayed refund of SAD, emphasizing the importance of timely refunds under the Customs Act. The respondent was directed to pay the accumulated interest and costs, while the Court warned of further penalties for non-compliance.

Date of decision: 15/10/2024

M/s Ajay Industrial Corporation Ltd. vs. Deputy Commissioner of Customs,