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Dated: 01.08.23

Supreme Court Dismisses Government’s SLP: No Interest Levied on CVD/SAD

Important Supreme Court Decision: Union of India v. Mahindra and Mahindra (SLP (C) Diary No. 18824/2023)- Most important decision in a decade

Background:

The Petitioner challenged the imposition of interest on delayed or non-payment of CVD/SAD (Countervailing Duty/Special Additional Duty) before the Bombay High Court (HC) on the grounds that there is no provision under the Customs Tariff Act, 1975 (CTA) to levy interest on CVD/SAD.

The Bombay HC ruled that interest is a substantive levy and since there is no provision under CTA for such levy, interest is not payable on delayed or non-payment of CVD/SAD.

Disagreeing with the Bombay HC’s decision, the Government appealed to the Supreme Court (SC).

Supreme Court Decision:

The SC considered the arguments put forth by Shri N. Venkataraman, learned Additional Solicitor General, and after careful consideration, found no merit in the Special Leave Petition (SLP). Consequently, the SC dismissed the SLP.

View of SJ EXIM Services:

1. The Hon’ble Supreme Court granted and subsequently dismissed the SLP on its merits after extensive deliberation, establishing the decision as a law of the land under Article 141 of the Indian Constitution. This ruling confirms that interest is not payable on delayed or non-payment of CVD/SAD.

Benefits of this decision to taxpayers:

(a) The ruling should apply to delayed or non-payment of Integrated Tax (IGST) on the import of goods as well.

(b) The ruling should apply to CVD/SAD/IGST paid on Advance Authorisation and EPCG (Export Promotion Capital Goods) defaults.

(c) This decision implies that since 1985, there was no provision to levy interest on CVD/SAD, making all the interest collected by the Government over the past 48 years illegal. As a result, taxpayers may consider filing for a refund of interest paid in the past, relying on the 9-judges’ decision of the SC in the case of Mafatlal Industries.

(d) Importers can now analyze whether to opt for the DGFT (Directorate General of Foreign Trade) Amnesty scheme or not, as the portion of CVD/SAD is typically higher in the total duty for the EPCG scheme.

Any individual/firm/govt. official who violates the provisions of this court order will be subject to contempt of court under sections 11 & 12 of the Contempt of Courts Act, 1971. The contempt of court charges has an overriding power over any other act, rules, or guidelines.

Short Note on CVD/SAD under Indian Customs Act, 1962:

The Indian Customs Act, of 1962, includes provisions for the levy of various customs duties on goods imported into India. Among these, Countervailing Duty (CVD) and Special Additional Duty (SAD) are significant components aimed at ensuring fair trade practices and promoting domestic industries.

1. “Customs Duty” means the customs duty levied under the Customs Act, 1962
2. “CVD” means the additional duty of customs leviable under section 3 of the Customs Tariff Act, 1975
3. “SAD” means Special additional duty of customs leviable under section 3A of the Customs Tariff Act, 1975.

Countervailing Duty (CVD): CVD is levied on imported goods to counteract any subsidies or other benefits provided by the exporting country to its manufacturers or exporters. The purpose of CVD is to neutralize the impact of such subsidies and ensure a level playing field for domestic manufacturers. CVD is imposed in addition to the Basic Customs Duty (BCD) and is generally equivalent to the amount of subsidy or benefit provided by the exporting country.

Special Additional Duty (SAD): SAD, also known as the Special CVD (SCVD), is a duty levied on certain imported goods as an additional measure to protect domestic industries. Unlike CVD, SAD is not related to any specific subsidies or benefits; instead, it is generally levied at a flat rate on the assessable value of the imported goods. The purpose of SAD is to boost domestic production and reduce imports.

Both CVD and SAD are collected by the Indian customs authorities at the time of import clearance. These duties are subject to change based on the government’s fiscal policies and international trade agreements.

It is essential for importers and businesses involved in international trade to understand the provisions related to CVD/SAD under the Indian Customs Act, as compliance with these duties is crucial to avoid any penalties or legal implications. Additionally, staying updated with changes in customs regulations can help businesses plan their import strategies effectively and make informed financial decisions.

Supreme Court/High Court Order Download:

1. Supreme Court Order Copy

2. WP 1848-2009 Bombay High Court

3. Mafatlal Industries vs Union of India- December 1996

Source: The Supreme Court of India/The Bombay High Court

 

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Disclaimer:

The views expressed in the update are strictly personal, based on our understanding of the underlying law. We shall not be responsible for any injury, loss, or cost arising to any person who refers to this update and acts or refrains from any act accordingly. We would suggest that detailed legal advice must be sought before acting on this update.

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