By TIOL News Service

MUMBAI, SEPT 21, 2016: THE Petitioner challenges the order dated 29 April 2016 passed by adjudicating authority holding that they are not entitled to any interest on the refund granted under the provisions of Section 27A of the Customs Act, 1962.

The facts are that the Petitioner had imported certain spares and consumables etc. for carrying out drilling operations on behalf of ONGC on board the mobile offshore drilling unit (Jack Up Rig) and claimed the benefit of Notification No.21/2002-Cus. Condition No.29 of the said Notification required the Petitioner, as a sub-contractor of ONGC, to produce an "Essentiality Certificate" from the Directorate of Hydrocarbons (DGH), which would be issued only on the recommendation of ONGC.

However, they could not avail the exemption for want of the Essentiality Certificate from the DGH as ONGC did not issue any recommendation letters for issuance of the same. Accordingly, they paid the applicable duty of Rs.1,89,15,549/- on 14th October, 2002 and took clearance of the said goods.

The petitioner had approached the Delhi High Court praying for directions (i) against ONGC to issue the recommendatory letters and (ii) against the DGH to issue the Essentiality Certificate.

Pending disposal of this Writ Petition, on the recommendation of ONGC, the DGH issued the Essentiality Certificate dated 13th March 2003. The said Certificate was issued to the Deputy Commissioner of Customs. The Writ Petition was, therefore, disposed of by the Delhi High Court.

Thereafter, the Petitioner filed a refund application on 4th April 2003 . Notwithstanding the fact that the Essentiality Certificate was issued by the DGH, the Asst. Commissioner of Customs, vide his letter dated 6th May, 2003returned the refund application/claim as premature for want of the Essentiality Certificate.

Thereafter, many years later, by their letter 20th June 2011 , the Petitioner brought to the notice of the revenue the order of the Delhi High Court passed in Writ Petition 7019 of 2002 as well as the refund application filed by them on 4th April 2003.

The Petitioner also enclosed a copy of the Bill of Entry, Essentiality Certificate and submitted that instead of granting the refund in compliance of the Delhi High Court order, the Asst. Commissioner of Customs had wrongly returned the refund application as being premature for want of the Essentiality Certificate. The Petitioner stated that the Essentiality Certificate was enclosed with the said refund application but for the sake of easy reference, was again enclosing the same and requested the authorities to sanction the refund due to them.

In reply thereto, the department wrote a letter dated 21st July 2011, requesting the Petitioner to submit certain documents and which were forwarded on 2nd August 2011.

Thereafter the Refunding Authority passed an order dated 13th December 2011 rejecting the refund claim of the Petitioner.

The operative part of this order reads:

"14(d): On receipt of the aforesaid Essentiality Certificate dated 13.03.2003, I now proceed to process the refund claim dated 4.4.2003 in respect of the goods cleared on payment of duty for which the Importer has filed the present refund claim application under Part-A including various documents such as Original Bill of Entry, Import Invoices, Original Essentiality Certificate stating that the goods cleared on payment of customs duty are covered by a Essentiality Certificate issued by DGH by virtue of which the goods cleared on payment of duty were liable to be refunded. I find that the Importer has fulfilled the conditions of Notification 21/2002 dated 1.3.2002, Sr. No. 214 of Table, List 12, Condition 29, by submitting the Essentiality Certificate. I, however, find the Essentiality Certificate was issued subject to the condition that the left over items are subject it Re-export by 30.4.2004. Examining the records, I find that some of the goods were exported vide Shipping Bill No.1000003625 dated 07.12.2004 i.e. beyond the stipulated date of 30.04.2004. Importer in response to specific query on this count have replied vide their letter dated 28.11.11 clarifying that left over items were exported on 07.12.2004 and have not given any further evidence as to:

(i) re-export before 30.04.2004.

(ii) relaxation of the conditions of re-export by 30.04.2004.

(iii) List of left over items by 30.04.2004 and permission from Customs to relax the conditions for export by stipulated time.

The above position clearly bring out the fact that the importer has not complied with the conditions of Essentiality Certificate. In view of the same, the Essentiality Certificate cannot be taken to be the basis of refund.

Accordingly, I pass the following order:

ORDER

I reject the refund application dated 4.4.2003 for an amount of Rs.1,89,15,549/- filed …."

The Commissioner (Appeals)by his order dated 10th January 2013 set aside the order dated 13th December, 2011 and remanded back the case to the Refunding Authority. Subsequently, the Refunding Authority, after going through the documents submitted by the Petitioner, once again rejected the refund claim vide order dated 22nd January, 2014 .

Aggrieved by this order, the Appellant directly approached the High Court Court, who by its order dated 5th February, 2014, set aside the order dated 22nd January, 2014 and remanded the case back to the Refunding Authority to decide the matter afresh. In pursuance thereto, an order was passed by the Refunding Authority on 23rd June, 2014 , sanctioning the refund of Rs.1,89,15,549/-; cheque was issued dated 11 July 2014.

However, since interest was not granted, an appeal was filed by the petitioner before the Commissioner (Appeals).

The Commissioner (Appeals) after considering the provisions of Section 27A held that the Petitioner was eligible for interest on delayed refund. However, he opined that since the calculation of interest was not possible at his level, the matter is needed to be remanded.

It is pursuant to this direction that the Refunding Authority has passed the impugned order dated 29th April, 2016, under which it held that the refund application filed by the Petitioner was complete in all respects for sanction of refund, only after the Petitioner submitted all the essential documents during the personal hearing held on 12th May, 2014. The refund claim was processed and refund was granted to the Petitioner on 23rd June, 2014 which was well within three months as stipulated in Section 27A of the Customs Act, 1962. Hence, the Petitioner was not entitled to any interest.

The Petitioner is again before the High Court.

After considering the submissions made by both sides, the High Court observed -

++ On a harmonious reading of the provisions of section 27 and 27Aalongwith the observations of the Supreme Court [in Ranbaxy Laboratories Ltd= 2011-TIOL-105-SC-CX, what becomes abundantly clear is that once a refund is granted to the applicant and the said refund is not given to the applicant within three months from the date of receipt of the refund application, then the applicant would automatically be entitled to interest on the said refund, from the date immediately after expiry of three months from the date of receipt of such refund application, till the date of the refund of such duty.

Narrating the sequence of events that transpired from the day the Petitioner had made an application for refund on 4th April 2003, the High Court further observed -

"…If the interest was payable as held in the appeal, then the calculation thereof was the limited issue which the Refunding Authority was to examine. This Court also held that the statutory provisions are clear that where there is a delay in the grant of refund, then interest must follow. It is only the calculation thereof which would be determined by the Authority."

Negating the submissions made by the counsel for the Revenue, the High Court opined -

"We must mention here that the Refunding Authority is not powerless. If a refund application filed by a party is incomplete, the Refunding Authority can always return back the refund application saying that it is incomplete in all respects or reject the same on the ground that it is incomplete. As mentioned earlier, initially when the Refund Application was rejected by the Refunding Authority, (by its order dated 13th December, 2011), it was not the case of the Refunding Authority that all the essential documents were not supplied by the Petitioner along with the refund application. The said refund application was rejected on the ground that the Petitioner had not complied with the conditions set out in the Essentiality Certificate. Hence the refund application was rejected on merits.This being the position, we are unable to accept the arguments of MrJetly that the refund application filed by the Petitioner was complete in all respects only in May 2014. …we have no hesitation in setting aside the impugned order dated 29 April, 2016 and holding that the Petitioner would be entitled to interest on the sum of Rs.1,89,15,549/- from the date immediately after expiry of three months from 20th June, 2011 till 11th July, 2014 (being the date when the refund was actually paid to the Petitioner). For the limited purpose of calculating and paying this interest, the matter is remanded back to the Refunding Authority. It is clarified that the Refunding Authority shall not undertake any other or further exercise, other than to calculate interest on the refund amount and in terms of what is stated earlier…."

In passing : The High Court directed that a copy of this order be forwarded to the Secretary, Ministry of Finance (Department of Revenue), Government of India and the Chairman, Central Board of Excise and Customs, New Delhi for necessary action.

It is also observed - "It is only they who would possibly realise that the object and purpose is to take expeditious action on refund applications so that revenue loss is avoided in payment of statutory interest. The intent is to discourage the tendency of not taking prompt action on these applications, thereby defeating all policies aimed at creating a business friendly atmosphere. They must also realise that litigation in Court on this score results in precious time and money being wasted.”

(See 2016-TIOL-2187-HC-MUM-CUS)