Under the provisions of Customs Act, the rate of interest is to be notified by the Government subject to a lower and upper caps of 5% and 36% respectively. Similar provisions for levy of interest on delayed payment of Central Excise duty and service tax exist in section Section 11AA of the Central Excise Act, 1944 and section 75 of the Finance Act, 1994 respectively.
Different Rates of Interest
The provisions with regard to the charging of interest on the customs duty payable are spread over in many Sections in the Customs Act and under various exemption notifications. Ironically, the rate of interest under various provisions are different and sometimes confusing which results in uncalled for correspondence and litigation.
Notification No.33/2016-CUS(NT)dated1.3.16 issued under Section 28AA has prescribed the rate of interest as 15% per annum. The said notification is effective from 1.4.2016. This is in supersession of earlier Notification no 17/2011-CUS (NT) dated 1.3.2011 issued under Section 28AA which has prescribed the rate of interest as 18% per annum.
In case of delayed refund of duty under Section 27A, rate of interest has been fixed at 6% by the vires of Notification No.75/2003-CUS(NT) dated12.09.2003. The payment of interest on delayed refund comes into play after the expiry of three months from the receipt of complete application, till the date of refund of such duty.
There is a separate notification no 28/2002-CUS(NT) dated13.05.2002 issued under Section 47 prescribing the rate of interest as 15% in case the duty is not paid within 2 days from the date of assessment(excluding holidays). Earlier, it was five days.
Likewise, notification no 18/2003- Cus (NT) dated 1.3.2003 issued under Section 61 prescribes the rate of interest as 15% in case of the warehoused goods remaining in warehouse after the period of ninety days till the clearance of goods and payments of duty. Section 59 on the other hand prescribes the higher rate of interest as 24% by notification No. 35/2000-Cus (NT) dated 12.5.2000. It is interesting to note that in the warehousing provisions itself there are two different interest rates are existing. In my view, nature of charging interest rates under section 61 and 59 is different and work in contrasting situation. Under section 61, lower rate of 15 % is justified as the goods are cleared for home consumption under 68. Here Section 68 and Section 47 are in pari materia and application of both take away the character of imported goods and goods entered into land mass and becomes the goods of domestic nature. However, interest rate of 24 % is applied when the demand of duty is raised by way of giving notice and in cases of contravention of the conditions of warehousing bond. Already by pressing the provisions of warehousing, duty of customs is deferred. Legislative intent behind this provisions is to give relief to those importers who immediately on importations are not comfortable in paying duty. Therefore, any contraventions in such circumstances will be viewed seriously and automatically interest will be higher , as advantages given are being violated.
Section 75A(1) of the Customs Act stipulate that in case of delayed payment of drawback under section 74 and 75 of the Act, interest at the rate of 6% prescribed under Section 27A will be applicable .(Here interest accrued after expiry of one months). Interestingly, when there is erroneous recovery of drawback under Rule 16 of Drawback Rules, 1995 or recovery under Rule 16 A is contemplated rate of interest of 15% is fixed under Section 28 AA is applicable.
Some notifications issued by the Central Government e.g. notifications relating to EPCG (Notification no 16 dated 01.04.2015) and Advance authorization( Notification no 18 dated 01.04.2015) prescribe the rate of interest as 15% in case of failure to fulfill the export obligation.
Reason for non-uniformity
The moot question is why at all there is a need to issue so many notifications prescribing the different rates of interest. One fails to understand as to why a uniform rate of interest cannot be specified for all situations where the duty of the customs is paid on a date different than it had become payable to the exchequer. It is always debated that simple Section can be inserted in the Customs Act itself prescribing the particular rate of interest in case the duty becomes payable to the department from the date that when such duty becomes payable. This will automatically take care of all situations. The answer is for different situations visualized under the Customs Act or under the notifications issued under Section 25 of the Customs Act, rates of interest cannot be uniform.
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