Provisional Release Payments Not Pre-Deposits: CESTAT Caps Refund Interest at 6% Under Customs Act
Introduction
The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that differential duty paid for provisional release of seized goods cannot be treated as a “pre-deposit.” Consequently, refund interest is payable at 6% under Section 27A of the Customs Act, 1962, rather than 12% under Section 35FF of the Central Excise Act, 1944. The decision, delivered by Dr. Rachna Gupta (Judicial Member), clarifies the distinction between deposits made under protest and payments made for provisional release, emphasizing the legislative framework governing refund interest.
Factual Background
The assessee, M/s Vortex Rubber Industries Pvt. Ltd., was engaged in the import of Chinese tyres under the brands “Infinity” and “Wanli.” During a search operation, the Revenue authorities discovered that goods in the assessee’s premises did not bear MRP stickers — a mandatory requirement for availing exemption from Special Additional Duty (SAD) under Notification No. 21/2012 dated 17.03.2012. Consequently, the goods were seized.
The assessee had also filed Bill of Entry No. 6224101 dated 24.07.2014 for importing truck tyres and flaps, which were similarly seized under Section 110 of the Customs Act for alleged improper valuation and lack of MRP labels. Upon request, the goods were provisionally released against bonds, bank guarantees, and full payment of the differential duty assessed — Rs. 3,83,645/- and Rs. 3,94,331/- respectively.
Procedural Background
The adjudicating authority rejected the declared value, confirmed the duty demand, and appropriated the differential duty paid at the time of provisional release.
On appeal, the Commissioner (Appeals) upheld the order, applying Section 27A of the Customs Act, which provides for interest at 6% on delayed refunds.
Aggrieved, the assessee approached CESTAT, contending that the deposit was in the nature of a pre-deposit and that interest should be computed under Section 35FF of the Central Excise Act at 12%.
Issues
- Whether the amount paid by the assessee for provisional release of goods can be considered a “pre-deposit.”
- Whether interest on refund of such amount is payable under Section 27A of the Customs Act (6%) or Section 35FF of the Central Excise Act (12%).
Contentions of the Parties
Appellant/Assessee’s Contentions: The differential duty paid was akin to a pre-deposit, made under protest to secure release of goods pending adjudication. Therefore, interest at 12% under Section 35FF of the Central Excise Act should apply, effective from the date of deposit until refund.
Respondent/Department’s Contentions: The payment was made voluntarily as a condition for provisional release and not as a statutory pre-deposit. Section 27A of the Customs Act governs delayed refund interest, and Notification No. 67/2003 limits such interest to 6%.
Reasoning and Analysis
The Tribunal noted that the goods were released provisionally upon the assessee’s own request, and the payment of differential duty was a precondition for such release under the Customs Act, not a deposit under protest. It emphasized that Section 35FF applies only to pre-deposits made under statutory compulsion during adjudication or appeal proceedings, not to payments made for provisional release.
CESTAT further observed that the refund claim was filed on 31.12.2020, and the refund order was issued on 30.06.2021. As per Section 27A, interest accrues after three months from the date of application until the date of refund. The Tribunal referred to Notification No. 67/2003, which fixes the interest rate at 6% for such cases. Accordingly, it upheld the Commissioner (Appeals)’s decision granting interest at 6%, dismissing the claim for 12% under Section 35FF.
Implications
The decision reinforces the distinction between statutory pre-deposits and provisional release payments, ensuring that taxpayers cannot seek higher interest under Section 35FF for amounts paid voluntarily to secure goods. It clarifies that interest on refund of such payments remains governed by Section 27A of the Customs Act, preserving uniformity in refund interest computation.
In this case the appellant was represented by Shri Anup Kumar Srivastava, Advocate. Meanwhile the respondent was represented by Shri V.J. Saharan, Advocate.