Bombay HC holds interest and penalty not leviable on delayed payment of IGST on import of goods in absence of substantive provisions under Customs Tariff Act

This Tax Alert summarizes the recent ruling of the Bombay High Court (HC)^[1] on applicability of interest, penalty and redemption fine on delayed payment of integrated tax (IGST) as a part of Customs duty on import of goods during the period 13 October 2017 to 9 January 2019.

The petitioner imported raw materials under Advance Authorization for manufacture of goods, however, did not comply with the “pre-import condition” applicable during the relevant period. Accordingly, Revenue authority demanded payment of IGST along with interest, penalty and redemption fine in lieu of confiscation of goods. Petitioner filed a writ petition before the HC challenging the demand of interest, penalty and redemption fine.

The key observations of the HC are:

• The unamended Section 3(12) of the Customs Tariff Act, 1975 (CTA) did not make provisions of the Customs Act relating to interest, penalty and offences applicable to IGST chargeable under Section 3(7).
• The amendment made in Section 3(12) giving reference to interest, penalty and offences in respect of duties levied under Section 3 of CTA, is prospective in nature and would apply only w.e.f. 16 August 2024.
• The decision of this Court in case of Mahindra & Mahindra ^[2] is squarely applicable to facts of the present case since Sections 3(7) and 3(12) is pari materia to Sections 3(6) and 3A(4) of CTA as referred to in the said decision.
• Once the petitioner pays IGST, it would amount to the petitioner not having availed the benefit of the exemption and the issue would be regularized. Thus, the provisions of Section 111(o) of the Customs Act will not be attracted and consequently, no fine or penalty would be recoverable from the petitioner.

Basis above, HC quashed and set aside the impugned order to the extent it sought to recover interest, penalty and redemption fine.

Comments:

• This judgment re-emphasizes the principle that any demand under a taxing law must be supported by substantive provisions and clear statutory authority.
• Businesses that initially paid interest and penalties on delayed payment of IGST and cess on import of goods may consider applying for a refund basis this ruling.
• Recently, Delhi HC held that the levy of IGST on import of goods is derived from the IGST Act and not from Customs law [2025-VIL-210-DEL-CU]. One should evaluate applicability of this ruling in light of the Delhi HC’s decision, as there are clear provisions for imposition of interest and penalties under GST law for delay in tax payment.

^[1] 2025-VIL-328-BOM-CU
^[2] 2022 (10) TMI 2012