CESTAT: Customs Dept Cannot Delay Refunds Through Repeated Deficiency Memos To Avoid Statutory Interest

May 8, 2026 : The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that customs authorities cannot indefinitely keep refund applications pending and later deny statutory interest by treating the applications as “incomplete” on account of repeated deficiency memos or subsequent clarifications sought from the importer.

A Bench comprising Justice Dr. Suvendu Kumar Pati (Judicial Member) observed that once refund applications are filed and acknowledged by the department, interest under Section 27A of the Customs Act, 1962 becomes payable upon expiry of three months from the date of receipt of such applications, unless the applications are promptly returned as deficient within the prescribed period.

The Tribunal was hearing an appeal filed by PNP Polytex Pvt. Ltd. challenging an order that granted interest on customs refund only from March 2018 instead of from 2004, when the original refund applications had been filed.

The dispute arose from imports of PVC coated cloth made by the appellant in 2003. At the time of clearance, the importer paid Goods of Special Importance (GSI) duty at 5% along with other applicable customs duties. Subsequently, the importer realised that, in view of Notification No. 7/2003-CE dated 01.03.2003, such GSI duty was not leviable on the imported goods.

The importer challenged the assessment orders before the Commissioner (Appeals), who allowed the appeals on 31.03.2004 and granted consequential relief. Thereafter, the appellant filed seventeen refund applications in June 2004 claiming refund of approximately Rs. 48.28 lakh.

According to the appellant, despite repeated follow-ups, the department failed to process the refund claims for several years and kept issuing deficiency memos at long intervals. The record showed that deficiency memos were issued in 2009, 2012, 2016 and again in 2017, even though the importer had repeatedly furnished the required documents, including Chartered Accountant certificates and duplicate copies of refund applications.

Ultimately, the refund order was passed on 01.11.2018 sanctioning refund of Rs. 38.94 lakh after reassessment of Bills of Entry. However, while granting interest, the department treated the refund applications as complete only after clarifications furnished during personal hearing in December 2017 and consequently granted interest only from March 2018.

Before the Tribunal, the importer argued that the refund applications filed in 2004 were complete in all respects and duly acknowledged by the department. It was contended that the department could not indefinitely postpone statutory liability to pay interest by repeatedly issuing procedural deficiency memos over several years.

Accepting the contention, the Tribunal noted that the factual record clearly established filing and acknowledgment of refund applications on 02.06.2004. It further observed that the department had neither returned the applications within the prescribed period nor disposed of the claims within three months as mandated under Section 27A of the Customs Act.

The Bench criticised the department’s handling of the refund claims, observing that the repeated issuance of deficiency memos after gaps of several years reflected negligent processing. The Tribunal also noted that the Chartered Accountant certificates relied upon by the department had already been furnished much earlier by the appellant.

The Tribunal observed:

“Respondent Commissioner was duty bound to pay the interest three months after 02.06.2004, on which date applications were filed before them for refund…”

Referring to Section 27A of the Customs Act and the Supreme Court’s ruling in Ranbaxy Laboratories Ltd. v. Union of India, the Tribunal held that statutory interest becomes payable immediately upon expiry of three months from receipt of the refund application and cannot be postponed on account of subsequent clarifications or internal departmental delays.

The Tribunal also relied upon the Supreme Court’s decision in Union of India v. Hamdard (Waqf) Laboratories and observed that if the department considered an application to be deficient, it was required to return the same promptly within the prescribed period. The authorities could not retain the applications for years together and thereafter contend that the claims were incomplete.

Holding that the impugned order suffered from legal infirmity, the Tribunal modified the order of the Commissioner (Appeals) and directed the department to grant interest at the applicable rate from three months after 02.06.2004 till the actual date of refund on 01.11.2018. The department was directed to make payment within two months from receipt of the order. Accordingly, the appeal was allowed.

Appearance:
For Appellant: Ms. Neha Anchlia, Advocate
For Respondent: Shri L.B. D’Coasta, Deputy Commissioner, Authorised Representative

Case Title: PNP Polytex Pvt. Ltd. v. Commissioner of Customs, Nhava Sheva-III

Case No.: Customs Appeal No. 85981 of 2021

Coram: Dr. Suvendu Kumar Pati (Judicial Member)