Interest is payable on customs refunds where the Department causes inordinate delay in adjudicating re-assessment applications.

The Petitioners, importers of mobile handsets and components, paid Countervailing Duty (CVD) at rates of 6% or 12.5% between 2014 and 2015

They claimed entitlement to a concessional rate of 1% under Notification No. 12/2012-CE, but the Customs Electronic Data Interchange (EDI) system did not provide an option to avail this exemption

Following the Supreme Court’s decision in SRF Ltd. v. Commissioner of Customs [para. 81], which affirmed the right to such concessions, the Petitioners sought re-assessment of their Bills of Entry (BoEs) and subsequent refunds of excess duty

In the "Lava" cases (W.P.(C) 10977/2017 & 11319/2017), refunds were granted in 2017 shortly after court-ordered re-assessments, but interest was denied

In the "Jaina/Intex/UT" cases (W.P.(C) 1225/2024 et al.), the Petitioners applied for re-assessment as early as 2015, but the Department delayed passing re-assessment orders until 2022

While refunds were eventually sanctioned, the Adjudicating Authority denied interest on the grounds that refunds were processed within three months of the formal refund application following re-assessment

The court primarily applied Section 27 and Section 27A of the Customs Act, 1962, which stipulates that interest is payable if a refund is not granted within three months from the date of receipt of an application

It relied on the Supreme Court’s ruling in ITC Limited v. Commissioner of Central Excise, Kolkata, which established that a refund claim cannot be entertained unless the self-assessment/assessment is first modified or re-assessed

The court also considered the principle from SRF Ltd. v. Commissioner of Customs, which clarified the eligibility for concessional CVD

The principle of restitution as compensation for the loss of use of money, as noted in ONGC v. Commissioner of Customs

The Court distinguished between the two sets of petitions based on the Department's conduct.

Regarding the "Lava" cases, the Court found that the refunds were processed within the three-month statutory window prescribed by Section 27A after the re-assessment applications were filed pursuant to Court orders

Since there was no "undue delay" by the Department in those specific instances, statutory interest was not triggered

In the "Jaina/Intex/UT" cases, the Court observed a substantial delay of over seven years by the Department in passing re-assessment orders after the Petitioners had first applied in 2015

The Court reasoned that while ITC Ltd. requires re-assessment before a refund, the Department cannot exploit its own delay in the re-assessment process to deny the taxpayer interest

It held that because the duty was never legally payable per SRF Ltd., the Petitioners should not suffer the loss of the "time value" of their money due to administrative inertia

In W.P.(C) 10977/2017 and 11319/2017, the prayer for interest was denied as the refunds were processed within the three-month statutory period following the relevant applications

In W.P.(C) 1225/2024, 1291/2024, 1297/2024, and 1325/2024, the Court held that the Petitioners are entitled to interest

The Court ordered that interest be computed at the statutory rate from the date the first re-assessment applications were filed until the date of actual refund

The Deputy Commissioner (Refund) was directed to compute and pay this interest within three months