Customs Act | Interest U/S 28AA Is Automatic When There Is A Default Or Delay In Payment Of Duty: Bombay High Court

Interest u/s 28AA is automatic, when there is a default or delay in payment of duty, added the Court.

Section 28AA of the Customs Act provides that any judgment, decree, order or direction of any Court or Appellate Tribunal or in any other provision of the said Act or the rules made thereunder, the person, who is liable to pay duty in accordance with the provisions of section 28, shall, in addition to such duty, be liable to pay interest, if any, at the rate fixed under sub-section (2), whether such payment is made voluntarily or after determination of the duty u/s 28.

The Division Bench of Justice M.S Sonak and Justice Jitendra Jain observed that “since the payment was not made within the time specified in the said demand notice, an order of attachment was passed for failure to make the payment demanded on 18^th Oct 2012 and interest payable u/s 28AA for the period commencing after that date, i.e. after 18th Oct 2012 was demanded”. (Para 47)

Facts of the case:

The Petitioner/ Assessee, a partnership firm engaged in manufacturing and export of jewellery, and operating in an export processing unit in SEEPZ SCZ, was issued a show cause u/s 28 & 124 of the Customs Act alleging a shortage of stock of diamonds imported, after taking into account the exports effected, resulting evasion in customs duty to substantial extent. The respondents/ Customs Department thereafter seized diamonds and capital goods on the grounds that they were liable for confiscation. The matter reached the CESTAT where the demand for evaded customs duty & penalty, was confirmed.

The petitioner claimed that even after discharging the entire liability under the CESTAT's order dated Dec 21, 2006, the respondents are refusing to de-seal and release the petitioner's factory on the ground the petitioner is liable to pay an additional amount of approximately Rs. 31 Crores towards interest liability.

The petitioner referred to the Supreme Court's order dated March 18, 2013, whereby the Apex Court granted time up to Aug 22, 2013 to the petitioner to pay the demanded amounts under the CESTAT's order through instalment, which was duly complied by the petitioner. Hence, the petitioner had approached the High Court contending that the demand for interest and refusal to release the sealed and attached factory premises on the grounds of non-payment of such interest amounts to disobedience to the Supreme Court's order.

Observations of the High Court:

The Bench observed that the petitioner's principal contention of having cleared the entire liability under the CESTAT's order is incorrect.

As per the Apex Court's order, the petitioner was indulged with the facility of paying the demanded amount of Rs. 24.63 Crores in six instalments, and in case of default in payment of any one of the instalments, the respondent shall be free to recover the outstanding dues from the petitioner, including the auction of the factory premises, highlighted the Bench.

Thus, the Bench observed that since the petitioner had paid only Rs. 17.7 Crores out of 24.63 Crores up to Aug 22, 2013, he could not insist upon de-sealing & releasing of the factory premises.

The Bench then pointed to the Apex Court's directions regarding adjustments or sale of diamonds, which would apply in the context of recoveries that the respondents would have to effect if the petitioner failed to clear the entire liability under the order.

Hence, the High Court confirmed the demand cum interest raised by the Respondent and dismissed the petition.

Counsel for Petitioner/ Assessee: Senior Advocate Aspi Chinoy along with Advocates Chirag Shetty and Ayushi Agrawal

Counsel for Respondent/ Revenue: Advocates Ruju Thakker, Poushali and Priyanshu Doshi

Case Title: B.V. Jewels vs. Union of India (Writ Petition No. 2423 of 2024)

Citation: 2024 LiveLaw (Bom) 598

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