IGST Interest on Delayed Import Payments Cannot Be Refunded: CESTAT Delhi Upholds Recovery in Mayur Uniquoters Limited Case

Overview of the Dispute

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, recently adjudicated two connected appeals raising a significant question of law: whether an importer who paid interest on delayed Integrated Goods and Services Tax (IGST) on imported goods is entitled to a refund of such interest. The Tribunal answered in the negative, dismissing both appeals and upholding the orders passed by the lower authorities.

The two appeals were:

  • Customs Appeal No. 51841 of 2021 — filed by Mayur Uniquoters Limited against the Order-in-Appeal dated 26.07.2021 passed by the Commissioner (Appeals), Jaipur, which had confirmed the Order-in-Original dated 15.02.2020 rejecting its refund claim.
  • Customs Appeal No. 51895 of 2021 — filed by JLC Electroment Pvt. Ltd. against the Order-in-Appeal dated 16.06.2021, which similarly confirmed the Order-in-Original dated 15.02.2020 rejecting its refund claim.

Background: Imports Under Advance Authorisation and the IGST Exemption Condition

Both assessees had imported goods under Advance Authorisations granted by the Directorate General of Foreign Trade (DGFT). They availed the benefit of Notification No. 18/2015-Cus dated 01.04.2015, as amended by Notification No. 79/2017-Cus dated 13.10.2017, and cleared their goods through self-assessment without any intervention or re-assessment by customs officers.

At a later stage, both assessees recognised that the IGST exemption under the applicable notification was conditional upon fulfilment of a pre-import condition, which had not been met at the time of clearance. Acknowledging this lapse, they voluntarily re-determined their IGST liability and discharged it along with applicable interest under Section 28(1)(b) of the Customs Act, 1962. Notably, when the challans for IGST payment were prepared, the Customs EDI system itself computed the interest amount, and the assessees paid accordingly.

Having discharged the liability, both assessees subsequently filed refund applications claiming that interest was not legally payable on delayed IGST on imported goods, and that the amounts so paid ought to be returned.

The Joint Commissioner rejected both refund claims, and the Commissioner (Appeals) sustained those rejections. Aggrieved, the assessees approached the Tribunal.

Arguments Raised by the Assessees

The learned counsel for the assessees advanced the following contentions:

  • The assessees had originally self-assessed their Bills of Entry and cleared the goods claiming exemption from both basic customs duty and IGST. On discovering the error, IGST was voluntarily deposited along with interest as calculated by the system.
  • IGST was paid under Section 83(3) of the Customs Tariff Act, 1975, which does not contain any provision for levy of interest.
  • No statutory power existed to impose interest on additional duty of customs in the form of IGST.
  • Reliance was placed on the Bombay High Court ruling in Mahindra & Mahindra Limited Vs Union of India, wherein it was held that no mechanism existed to charge interest or penalty on delayed payment of Cess or special additional duty. This decision was reportedly affirmed by the Supreme Court upon dismissal of the Revenue's Special Leave Petition.
  • Accordingly, the interest paid on delayed IGST was argued to be legally untenable and refundable.

Submissions Made by the Revenue

The Revenue's authorised representative put forth the following counter-arguments:

  • The assessees had voluntarily sought re-assessment, paid both IGST and interest, and subsequently availed input tax credit of the IGST paid. No appeal was filed against the re-assessment, nor was interest paid under protest.
  • CBIC Circular No. 16/2023 dated 07.06.2023 expressly directed recovery of applicable IGST together with interest in such situations.
  • IGST on the supply in the course of import is levied under Section 5 of the IGST Act, 2017 read with Section 3(7) of the Customs Tariff Act, 1975.
  • Section 20 of the IGST Act, 2017 extends the applicability of several CGST Act provisions to IGST, including Section 50 of the CGST Act, 2017, which mandates interest on delayed tax payment.
  • Alternatively, Section 3(12) of the Customs Tariff Act, 1975, which reads:

"The provisions of the Customs Act, 1962 (52 of 1962) and the rules and regulations made thereunder, including those relating to drawbacks, refunds and exemption from duties shall, so far as may be, apply to the duty or tax or cess, as the case may be, chargeable under this section as they apply in relation to the duties leviable under that Act"