Interest Payable on Delayed Refund of Extra Duty Deposit Post Final Assessment: CESTAT Mumbai
Background and Overview
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, delivered a significant ruling in the matter of Vardhman Acrylics Limited Vs Commissioner of Customs (Imports), addressing a long-standing dispute concerning the entitlement to interest on delayed refund of Extra Duty Deposit (EDD) collected during provisional assessment of imports from a related overseas party. The judgment clarifies the legal nature of EDD, its distinction from customs duty, and the applicability of Section 27A of the Customs Act, 1962 in computing interest on such delayed refunds.
The genesis of the dispute traces back to imports made between October 1997 and April 1998, with the final resolution on the interest question coming nearly two and a half decades later — a timeline that itself underscores the significance of the Tribunal's findings.
Factual Matrix
Nature of Business and Import Transactions
Vardhman Acrylics Limited, Mumbai, is engaged in manufacturing acrylic fibre and acrylic tow. For setting up its production infrastructure, the assessee imported various equipment from its related overseas supplier, M/s Marubeni Corporation, Japan, under an Equipment Supply Contract. A total of nine Bills of Entry were filed — seven before the Customs Appraising Group VA and two before the EPCG Appraising Group at New Custom House, Mumbai — during the period 17.10.1997 to 24.04.1998.
Provisional Assessment and EDD Collection
Since the imports involved a related-party transaction, the Customs authorities could not immediately finalize the assessable value. Accordingly, the Bills of Entry were assessed provisionally under Section 18 of the Customs Act, 1962, read with the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (CVR of 1988) and Section 14 of the Customs Act, 1962. The assessee was required to:
- Execute provisional duty bonds
- Furnish security/bank guarantees
- Deposit EDD ranging from 1% to 5% of the declared assessable value, in accordance with Circular No. 1/1998 dated 01.01.1998 issued by the Central Board of Excise & Customs (CBEC)
The valuation aspects of these related-party imports were referred to the Special Valuation Branch (SVB), GATT Valuation Cell, Mumbai, for detailed examination.
SVB Order and Acceptance of Declared Value
After examining all relevant contracts, joint venture agreements, and documentation submitted by the assessee, the Assistant Commissioner of Customs, GATT Valuation Cell, Mumbai, vide Order-in-Original No. S/9-50 GATT/97GVC dated 26.10.1998 (read with corrigendum dated 17.11.1998), held that:
- The relationship between the assessee and M/s Marubeni Corporation, Japan had no influence on the pricing of the imported goods
- The declared invoice value was accepted under Rule 4(3)(a) of CVR, 1988
- All pending provisionally assessed Bills of Entry were directed to be finalized accordingly
- The EDD deposited was directed to be refunded wherever applicable
This order was to remain operative for three years or until the invoicing methodology changed.
Prolonged Litigation Timeline
Refund Applications Filed — 1999
Based on the SVB order dated 26.10.1998, the assessee filed two separate refund applications on 22.01.1999 for amounts of ₹96,42,224/- and ₹74,23,079/- before the respective Appraising Groups at New Custom House, Mumbai.
Departmental Challenge and Appellate Proceedings
The Revenue department challenged the SVB order accepting the transaction value before the Commissioner (Appeals), who rejected the departmental appeal vide Order-in-Appeal No. 01/2001-MCH dated 02.01.2001. In the further departmental appeal before the Tribunal, the appeal was dismissed on the ground that the review order had been passed beyond the one-year prescribed period under Section 129D of the Customs Act, 1962, and was hence treated as non-est.
The assessee approached the Hon'ble High Court of Bombay in Writ Petition No. 1149/2003. By judgment dated 07.09.2004, the petition was permitted to be withdrawn, and the matter was restored to the Tribunal for fresh hearing. The Tribunal, vide Order No. A/465/WZB/06-C.III(CSTB) dated 08.06.2006, upheld the Commissioner (Appeals)' order and rejected the Revenue's appeal.