CESTAT Ahmedabad ruled that Section 3(12) of the Customs Tariff Act does not authorize imposition of penalty or interest

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Ahmedabad (Court No. 3) has quashed the imposition of interest, penalty, and redemption fine levied for alleged violation of the “pre-import condition” under the Advance Authorization Scheme for imports made during 13.10.2017 to 09.01.2019.

Case Background:

Chiripal Poly Films imported raw materials such as plastic granules and additives under the Advance Authorization Scheme, availing IGST exemption under Notification No. 18/2015-Cus as amended by Notification 79/2017-Cus.
The exemption was subject to the controversial pre-import condition, later withdrawn via Notification No. 01/2019-Cus dated 10.01.2019.
Following the Supreme Court’s verdict in UOI vs Cosmo Films Ltd (2023), the importer voluntarily deposited IGST along with interest and claimed ITC as per CBIC Circular No. 16/2023-Cus dated 07.06.2023.

Department’s Action:

Despite full payment of IGST with interest and compliance with the Circular, the department invoked Section 28(4) and imposed:
- Interest under Section 28AA
- Penalty under Section 114A
- Confiscation and redemption fine under Section 111(o) & 125
The Commissioner (Customs) confirmed total liabilities of:
- ₹13.90 crore (IGST)
- ₹12.92 crore (interest)
- ₹13.90 crore (penalty)
- ₹2.31 crore (redemption fine)

Appellant’s Grounds of Appeal:

The IGST was paid voluntarily post-Supreme Court ruling and Circular.
The situation was revenue neutral, with ITC fully availed.
No statutory provision under Customs Tariff Act, 1975 authorizes levy of interest, penalty or redemption fine on IGST under Section 3(7).
Cited decisions:
- Mahindra & Mahindra Ltd. (SC & Bombay HC)
- GNFC Ltd. (Gujarat HC)
- Pioneer Silk Mills (Del HC & SC)
- Hyderabad Industries Ltd. (SC)
Argued that Article 265 of the Constitution mandates that no tax or penalty can be imposed without clear legislative authority.

Tribunal’s Analysis:

Affirmed that IGST under Section 3(7) of Customs Tariff Act is a separate levy, and Customs Act provisions (Sections 28AA, 114A, 125) do not apply unless expressly incorporated.
Noted that Section 3(12) of the Customs Tariff Act does not authorize imposition of penalty or interest.
Emphasized that confiscation cannot be ordered when goods are no longer physically available, and the imports were used for duty-free exports.
Distinguished from Section 8B and 9A of CTA, which explicitly allow for interest, penalty, and offense provisions.
Found the extended period under Section 28(4) unsustainable, given full disclosure and lack of intent to evade.

Final Decision:

IGST demand upheld (as paid voluntarily and ITC allowed).
Interest demand set aside.
Penalty and redemption fine quashed.
Confiscation ruled impermissible in absence of goods.
Appeals allowed to the extent of relief on interest, penalty, and fine.

Significance:

This order clarifies that IGST levies under Section 3(7) are constitutionally distinct from customs duty and cannot attract interest or penalty without express statutory provisions.
Provides substantial relief to importers impacted by the pre-import dispute, enabling seamless ITC claims post-Supreme Court ruling.
Reinforces limits on department’s discretion in imposing fiscal penalties beyond statutory bounds.

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Source: CESTAT Ahmedabad

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