Customs cannot charge interest on redemption liability for years before adjudication determined it, Delhi High Court rules

The Petitioner filed a Bill of Entry on 8 May 2015, declaring the imported goods as bitumen.

Following examination, the goods were found to be used oil, seized, and made the subject of confiscation proceedings.

A show-cause notice was issued on 15 September 2015; the Petitioner replied and repeatedly sought early adjudication.

The proceedings concluded only on 28 February 2023, when the adjudicating authority reclassified the goods, confirmed the duty already paid, and imposed a redemption fine and penalties.

The Bill of Entry was reassessed on 29 August 2023.

The Petitioner then challenged interest charges appearing in the Customs EDI System, contending that interest could not be charged for the period during which the confiscation proceedings remained pending.

1. Whether interest arising from the confiscation and redemption proceedings could be computed from the original assessment of the Bill of Entry in May 2015, although the liability under those proceedings was determined only on 28 February 2023.

2. Whether the Petitioner was entitled to a complete waiver of interest, or whether interest could be payable for a period after the liability was determined, subject to the applicable statutory provisions.

Section 125(2) of the Customs Act, 1962 makes the owner of confiscated goods who exercises the option to redeem them liable for duty and charges payable in respect of the goods.

As explained in M/s Navayuga Engineering Co. Ltd. v. Union of India & Anr., 2024 INSC 547, the redemption-related liability arises upon exercise and acceptance of the redemption option, while its assessment and determination proceed through Section 28; statutory interest on delayed payment follows in accordance with law once the liability is determined.

A liability determined only upon conclusion of confiscation proceedings cannot, merely for interest computation, automatically be treated as overdue from the date of the original assessment.

Section 46(3), concerning delayed presentation of a Bill of Entry, was not engaged because the Respondent did not rely on delayed presentation as the basis for the interest demand.

The Court distinguished the original assessment, which was based on the Petitioner’s declaration of bitumen, from the liability arising out of the later confiscation and redemption proceedings.

The goods had been seized, their description and classification were disputed, and the consequences of confiscation remained undetermined until the Order-in-Original dated 28 February 2023.

Since the Respondent’s interest claim was founded on the redemption-related liability, it could not be calculated as though that liability had been determined and unpaid from May 2015.

The Petitioner had also participated in the proceedings and sought their early conclusion; however, the Court clarified that departmental delay alone does not extinguish statutory interest liability.

The Court therefore rejected a complete waiver but held that any interest otherwise payable must be recalculated under the applicable statutory provisions, taking account of the subsequent reassessment and payments.

The Respondent was directed to recompute interest, excluding the period from the original assessment in May 2015 through 28 February 2023, and to determine any interest payable thereafter in accordance with the applicable statutory provisions and the liability determined in the Order-in-Original.

The fresh computation must account for the reassessment dated 29 August 2023 and all payments or appropriations, and be issued within four weeks.

The Order-in-Original’s findings on classification, confiscation, redemption fine, and penalties were left undisturbed.