Department Cannot Levy Interest Before Liability Determination: Delhi HC

The Delhi High Court has barred the Customs Department from recovering interest for periods preceding the actual determination of liability, ruling that a seven-year delay in adjudication cannot result in a retrospective interest burden on importers. This decision establishes a crucial shield for businesses against departmental lethargy, ensuring that statutory interest is triggered only by a definitive assessment of dues rather than the mere filing of initial entry documents.

Justice Anil Kshetarpal and Justice Shail Jain presided over this matter, addressing a challenge where the Petitioner was saddled with mounting interest charges despite the consignment remaining seized and the adjudication pending for nearly eight years. The Bench scrutinized the interplay between seizure, confiscation, and the statutory timeline for interest accrual under the Customs Act, 1962.

Court Observations on Interest Accrual

The Bench emphasized that interest cannot be calculated for a period during which the liability sought to be subjected to interest had itself not been determined. The Court noted that the initial assessment in 2015 was based on the declaration of goods as "Bitumen," but the subsequent seizure and change in classification to "Used Oil" meant the actual liability was only crystallized in the Order-in-Original passed in 2023.

The Court, in its reasoning, observed: "...interest cannot be calculated for a period during which the liability sought to be subjected to interest had itself not been determined. If an amount has been determined and has thereafter remained unpaid, the statutory consequences of delayed payment may follow in accordance with law. However, where the amount itself is determined only upon culmination of the confiscation proceedings, the period anterior to such determination cannot automatically be treated as a period of delayed payment of that subsequently determined liability."

The Court has following directions:

"i. The Respondent shall recompute the interest liability in respect of Bill of Entry No. 9174780 dated 08.05.2015 in accordance with the observations made in Paragraph 43 herein, the Customs Act, 1962 and the applicable statutory provisions;

ii. while undertaking the aforesaid computation, the Respondent shall exclude the period from the date of the original assessment in May, 2015 up to 28.02.2023, being the date on which the liability arising from the adjudication proceedings was determined by the Order-in-Original;

iii. the Respondent shall, thereafter, determine the interest, if any, payable for the period subsequent to 28.02.2023 strictly in accordance with the applicable statutory provisions and the liability determined under the Order-in-Original;

iv. the Respondent shall take into account the subsequent re-assessment of the Bill of Entry on 29.08.2023 and shall give due credit for all amounts paid or appropriated towards customs duty, redemption fine and penalties;

v. the Respondent shall issue a fresh computation to the Petitioner within four (04) weeks from the date of receipt of a copy of this judgment; and

vi. upon receipt of the fresh computation, the Petitioner shall be liable to discharge the amount, if any, found payable in accordance with law."

Background

In May 2015, the Petitioner imported a consignment declared as "Bitumen." However, upon physical examination, the Customs authorities classified the goods as "Used Oil," a restricted item. Consequently, the goods were seized under Section 110 of the Customs Act, 1962. Although a Show Cause Notice was issued in September 2015 and the Petitioner filed a reply immediately, the adjudication remained pending for over seven years.

The Petitioner repeatedly requested early adjudication, yet the Order-in-Original was only passed on February 28, 2023. This order allowed redemption of the goods on payment of a fine and penalties but confirmed the original duty amount. When the Petitioner sought clearance, the Customs EDI System reflected an interest charge exceeding Rs. 15 lakhs, calculated from 2015. The Petitioner challenged this levy, citing departmental delay.

The Respondent argued that the Petitioner, by choosing to redeem the goods, accepted all statutory consequences including interest, relying on the precedent set in M/s Navayuga Engineering Co. Ltd. v. Union of India & Anr. ( "2024 INSC 547": 2024 CaseBase(SC) 384). The Court, however, distinguished the application of that precedent, holding that while interest is statutory, it cannot pre-date the determination of the very liability it is based upon. The Court partly allowed the petition, setting aside the interest calculated for the pre-adjudication period.

Case Details:
Case No.: W.P.(C) 7004/2026 and CM APPL. 34395/2026
CNR No.: DLHC010229892026
Case Title: Vishal Oil And Lubricants Co. V. The Commissioner Of Customs (Import)
Appearances:
For the Petitioner(s): Mr. Rohit Kapur, Adv.
For the Respondent(s): Mr. Piyush Beriwal, Ms. Ruchita Srivastava, Mr. Sparsh Jain, Advs.

Source: 2026 CaseBase(DEL) 6639