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Synopsis

The Supreme Court has declared that interest would be due on duty drawback as per sub-section (1) of Section 75A of the Customs Act, if the amount is not paid back within a period of three months of filing the claim.

The apex court rejected a plea by the Union government against the Karnataka High Court's order directing for payment on interest on duty drawback claimed by a construction company on supply of goods as deemed export under the Exim Policy during construction of Koyna Hydro Power Project, Maharashtra.

A bench of Justices Abhay S Oka and Ujjal Bhuyan said, "We have no hesitation in holding that the respondent was entitled to refund of duty drawback. Appellants had belatedly accepted the said claim and made the refund. Since there was belated refund of the duty drawback to the respondent, it was entitled to interest at the rate which was fixed by the central government at the relevant point of time being fifteen percent".

Having examined sub-section (1) of Section 75A of the Customs Act, the bench said, where duty drawback is not paid within a period of three months from the date of filing of claim, the claimant would be entitled to interest in addition to the amount of drawback. 

"This section provides that the interest would be at the rate fixed under Section 27A from the date after expiry of the said period of three months till the payment of such drawback. If we look at Section 27A, the interest rate prescribed thereunder at the relevant point of time was not below ten percent and not exceeding thirty percent per annum," the bench said.

The court said it was not correct on the part of the appellants to contend that there was no provision for payment of interest on delayed refund of duty drawback. That apart, it is wholly untenable for the appellants to contend that refund of duty drawback was granted to the respondent as a concession, not to be treated as a precedent, it added.

The bench held in the case, respondent is entitled to refund of duty drawback as a deemed export under the Duty Drawback Scheme. The applications for refund were made in 1996. Decision to grant refund of duty drawback was taken belatedly on October 07, 2002 whereafter the payments were made by way of cheques on March 31, 2003 and May 20, 2003. Admittedly, there was considerable delay in refund of duty drawback, it noted.

"On a conjoint and careful reading of the relevant provisions of the Exim Policy, 1992-1997 in conjunction with the Central Excise Act and the Customs Act, it is evident that supply of goods to the project in question by the respondent was a case of ‘deemed export’ and thus entitled to the benefit under the Duty Drawback Scheme. The language employed in the policy made this very clear and there was no ambiguity in respect of such entitlement," the bench said.

The appellants contended before the High Court's division bench that it was only under the Foreign Trade Policy, 2004-2009 that for the first time payment of simple interest at the rate of six percent per annum in the event of delay in refund of duty drawback was provided. There was no provision for payment of interest on delayed refund of duty drawback on deemed export prior thereto. 

Therefore, the Union government said the respondent was not entitled to interest even from December 05, 2000 as directed by the Single Judge. The appellants canvassed before the division bench that only due to magnanimity on the part of the central government refund of duty drawback under deemed export was paid to the respondent and as such, refund would not carry any interest.

The division bench, however, repelled such contentions and held that in view of the circular of December 05, 2000, it was clarified that even civil construction works were entitled to the benefit of deemed export under the Exim Policy. It had also noted that as a matter of fact, an amount of Rs 2,05,79,740.00 was paid to the respondent as duty drawback.

After analysing circulars, Exim Policy 1992-1997 and Sections 27A and 75A of the Customs Act, it has held that the respondent would be entitled to interest from the date of expiry of three months after submission of applications for refund back in the year 1996 till the time the payment was made at the rate of fifteen percent as awarded by the Single Judge.