Levy of Interest & Penalty on IGST on Import of Goods

 In an important update, the Finance Bill 2024 passed by Lok Sabha has proposed to substitute Section 3(12) of the Customs Tariff Act, 1975 (‘CTA 1975’) to provide for interest and penalty on Integrated Tax (‘IGST’) levied on import of Goods.

 

Brief Background

 

·            The existing Section 3(12) provides as under:

 

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.

 

·            The Hon’ble Bombay High Court in the case of Mahindra & Mahindra vs. UOI - 2022-VIL-690-BOM-CU, held that interest cannot be levied on CVD since there is no substantive provision for charging interest under Section 3(12) of the CTA 1975. The Hon’ble Supreme Court had dismissed Government SLP against the decision of Bombay High Court reported in SLP (C) Diary No. 18824/ 2023. The Supreme Court also rejected the Government’s review petition against the dismissal of SLP reported in RP (C) Diary No. 41195/ 2023.

 

·            Thereafter, Hon’ble CESTAT in the case of Texmaco Rail and Engineering Limited v. CC, Customs Appeal No. 64/2024, distinguished Bombay High Court decision and held that interest is leviable on CVD. This decision of CESTAT is being challenged before Calcutta High Court.

 

·            On July 23, 2024, i.e. the Final Budget day, Hon’ble CESTAT Ahmedabad in the case of Chiripal Poly Films Limited v. CC, Customs Appeal No. 10228 of 2024, held that interest on IGST, redemption fine and penalty is not payable in the absence of specific provisions in CTA 1975.

 

Finance Bill 2024 - Amendment

 

·            The Government was very quick in taking cognisance of CESTAT-Ahmedabad decision and introduced Finance Bill in Lok Sabha on August 7, 2024, with a new Section 3(12) as under:

 

The provisions of the Customs Act, 1962 and all rules and regulations made thereunder, including but not limited to those relating to the date for determination of rate of duty, assessment, non-levy, short-levy, refunds, exemptions, interest, recovery, appeals, offences and penalties shall, as 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 duties leviable under that Act or all rules or regulations made thereunder, as the case maybe.

 

·            Thus, the new Section 3(12) of CTA 1975, now specifically provides for levy of interest and penalty.

 

 | Remarks

 

·            In our view, the amendment is prospective since neither expressly nor by implication, the amendment is made retrospectively. Thus, for the past cases, an importer can claim relief from interest and penalty on IGST.

 

·            In case, the interest and penalty has already been paid to the Government for previous demands of IGST, importer should file protest and claim refund of the same.

 

·            Past cases relating to EPCG and Advance Licenses defaults shall also be eligible for claiming refund of interest on IGST.