DAY 15 │ PENAL INTEREST, REDEMPTION FINE AND RECOVERY MECHANISMS IN THE CUSTOMS ACT,1962

Post Views: 40

1 Preface – Why “Monetary Consequences” Deserve a Separate Playbook

Customs compliance is never only about duty. Every delay, mis-declaration or procedural lapse attracts interest, redemption fine or penalty—often in combinations that can double the landed cost. Section-by-section clarity is therefore essential for forecasting cash-flow, drafting show-cause replies and negotiating settlements.

2 Statutory Grid – Interest, Fine and Penalty at a Glance

Theme	Provision	Trigger	Statutory text (key words)	Rate or cap
Interest on late payment of assessed duty	Section 47(2)	Duty not paid within two working days after assessment	“Shall pay interest at such rate as may be notified”	Ten percent per annum (Notif. No. 33/2016-Cus .-(N.T.))
Interest on warehoused goods kept beyond permissible period	Section 61(2)	Goods remain in warehouse after expiry of one year (or extended period)	“Interest at such rate, not below ten per cent and not exceeding thirty six per cent”	Fifteen percent per annum (Notif. 28/2002 Cus. (N.T.))
Interest on duty recovered by demand notice	Section 28AA	Amount specified in notice not paid within three months of service	Interest from the first day after the three-month period until payment	Fifteen percent per annum (Notif. 15/2016-Cus. (N.T.))
Interest on wrong or excess drawback or refund	Section 75A(2) and Section 28AB (omitted, merged into 28AA)	Export incentive recovered later	Same as Section 28AA
Redemption fine in lieu of confiscation	Section 125	Goods liable to confiscation under Sections 111, 113,, 118 etc.	“Owner may redeem the goods on payment of such fine as the adjudicating authority thinks fit”	Upper limit = market-price of goods; guided by profit margin (Supreme Court in Weston Components 2000)
Penalty for improper importation	Section 112	Any act rendering goods liable to confiscation	Up to the value of the goods or ₹ five thousand, whichever is greater
Penalty for export violations	Section 114	Mis-declaration or contravention in export	Up to the value of goods or ₹ five thousand, whichever is greater
Recovery of duty, drawback or any sum	Section 142	Any “sum demanded” under the Act not paid	Customs may detain and sell goods, issue garnishee to debtors, attach bank a/c and immovables
Recovery of ineligible duty credit scrip or remission	Section 28AAA	Exporter obtained duty credit, exemption or concession by fraud, collusion or wilful misstatement	Duty amount + interest + penalty recoverable from the person who availed the benefit

3 Key Judicial Pronouncements (full-sentence ratios)

No.	Case	Held
1	Assistant Collector of Customs v. Ram Narain Bishwanath (1976)	Redemption fine and personal penalty may coexist; fine is a civil liability linked to goods, penalty to the offender’s conduct.
2	Collector of Customs v. Weston Components (2000)	Redemption fine must be proportionate to the margin of profit and cannot exceed the market value of goods.
3	Finesse Creation v. Commissioner of Customs (2022)	Interest under Section 28AA becomes automatic once the three-month grace period lapses; adjudicating authority has no discretion to waive.
4	Hindustan Zinc Limited v. Commissioner of Customs (2018)	Interest under Section 61(2) is “compensatory” and cannot be demanded if warehousing period was validly extended before expiry.
5	CCE v. G.M. Knitting Industries (2015)	When warehoused goods are seized and later released, interest for warehousing delay still accrues until duty payment.
6	Union of India v. Ganesh Chandra Dholakia (2023)	Delay in issuing a demand notice beyond statutory limits invalidates subsequent interest claim because duty itself becomes non-recoverable.
7	Sunrise Exports v. Commissioner of Customs (2021)	Recovery under Section 28AAA requires mens rea at the stage of claiming the incentive; clerical error does not justify interest or penalty.

4 How Interest, Fine and Penalty Interact – Worked Example

Facts

Assessable value ₹ 1 crore; Basic Customs Duty 10 percent.
Importer fails to pay duty within two working days (Section 47), pays after forty-five days.
Goods were also mis-declared, attracting confiscation under Section 111.
Market price of goods ₹ 1.3 crore; landed profit estimated at twenty percent.

Computation

Component	Statutory basis	Amount
Basic Customs Duty	10 percent of ₹ 1 crore	₹ 10 lakh
Interest – Section 47(2)	Ten percent p.a. × 43 days (45 – 2)	₹ 1,18,000
Redemption fine	Market price (₹ 1.3 cr) × 20 percent profit cap (per Weston Components)	₹ 26 lakh
Penalty – Section 112(a)	Up to “value of goods”; adjudicating authority imposes 5 percent	₹ 5 lakh

5 Procedural Pointers

Interest runs automatically – never wait for a demand order; pay assessed duty within two working days to avoid Section 47 interest.
Apply for extension of warehousing period before expiry; otherwise Section 61 interest becomes unavoidable.
During adjudication always plead profit margin, market-price limit and mitigating factors to reduce redemption fine.
If you receive a Section 28 notice pay within three months to avoid statutory interest and to secure a reduced penalty (25 percent within thirty days under Section 28(6)).
For export incentives cross-verify every declaration; wrongful claim invites Section 28AAA demand with interest and penalty.
Record every extension, payment and correspondence—interest disputes often turn on documentary dates.

6 Frequently Asked Questions

Question	Answer
Can interest be waived if goods were seized by Customs?	Only if seizure rendered importer incapable of payment and there is a judicial or departmental order suspending time; otherwise interest continues (G.M. Knitting 2015).
Does remission of duty under Section 23 cancel interest?	Yes, because duty itself is remitted; but warehousing interest prior to destruction may still apply if period had expired before remission.
Is redemption fine payable when the importer elects to reexport goods?	No, once goods are exported under Section 69, fine and duty stand remitted; personal penalty may still apply if mis-declaration is proved.

7 Take-Away Checklist

Two-day rule – clear duty payment swiftly to avoid Section 47 interest.
Extension diary – track warehouse time-limits; apply before expiry.
Profit evidence – keep landed-cost worksheets to argue proportional fine.
Three-month demand grace – monitor Section 28 timeline; plan payment.
Verify incentives twice – Section 28AAA bites harder than standard demand because it couples recovery with penalty.

Recovery Flow under the Customs Act, 1962 – End-to-End Map

Assessment / Demand Raised
│
├──► A. Self-Assessment (s.17) → duty payable on BoE
│
└──► B. Show-Cause & O-I-O (s.28) → demand for
short-levy, ineligible drawback, scrip misuse, etc.
↓
Payment window: 30 days (1)
├──► Voluntary payment → close file
└──► No payment
↓
Statutory interest starts (s.28AA) (2)
↓
Adjudicating Authority issues
Recovery Reminder / Demand Letter (3)
↓
┌───────────────────────────────────────┐
│ Coercive Recovery (s.142 read with │
│ Customs (Attachment of Property) │
│ Rules 2013) │
└───────────────────────────────────────┘

┌───────────────────────────────────────────────────────────┐
│ (a) Detain & sell imported / export goods │
│ in Customs control (s.142(1)(a)) │
│ │
│ (b) Attach & sell goods, bank accounts, │
│ or real property of defaulter (Attachment Rules) │
│ │
│ (c) Serve garnishee order on debtor / customer │
│ owing money to importer (s.142(1)(c)(i)) │
│ │
│ (d) Forward certificate to District Collector │
│ for recovery as arrears of land revenue │
│ (s.142(1)(c)(ii)) │
└───────────────────────────────────────────────────────────┘
↓
Proceeds adjusted → [Duty] [Interest] [Penalty]
↓
Balance, if any, refunded to owner

Selected Client Case Studies – Work Handled by TaxTru
Business Advisors LLP

No.	Industry & Port / ICD	Core Issue & Statutory Hook	Original Duty / Fine / Interest Demanded	TaxTru Intervention	Result for Client
1	Automotive Components (Nhava Sheva)	Late duty payment under Section 47(2); redemption-fine under Section 125 on mis-declared spare parts kit.	Duty ₹18 lakh	Fine ₹45 lakh	Interest @ 10% for 43 days
2	Apparel Exporter (ICD Tughlakabad)	Recovery of RoSCTL scrip under Section 28AAA for alleged over-invoicing.	Demand ₹27 lakh + equal penalty + 15% interest	Matched export invoices to e-BRC values; showed exchange-rate clerical error; relied on Sunrise Exports (Bombay HC, 2021) that mens rea is essential.	Demand pruned to ₹4 lakh differential; penalty & interest dropped.
3	Chemicals (Bonded Warehouse, JNCH)	Warehousing interest Section 61(2) + penalty Section 112 after accidental tank spill.	Interest ₹12 lakh; Penalty ₹4 lakh	Filed Port Health Authority certificate; applied Section 23(1) remission; referenced Mangalore Chemicals (Karnataka HC, 1999).	Duty remitted → interest nullified; penalty withdrawn in adjudication.
4	Consumer Electronics (Chennai Air Cargo)	Misclassification; redemption fine equal to market value; penalty under Section 112(a).	Fine ₹1.20 crore; Penalty ₹25 lakh	Submitted WCO explanatory notes & teardown to justify new HS code; persuaded authority mis-declaration non-wilful.	Fine recomputed on 8 % profit → ₹18 lakh; penalty cut to ₹2 lakh.

Comparative Chart — Interest, Redemption Fine, and Penalty Provisions

Parameter	India – Customs Act 1962	United States – Customs & Border Protection / 19 U.S.C.	European Union – Union Customs Code (UCC, Reg 952/2013)	China – Customs Law (2021 revision) & Administrative Penalty Regs
Interest on late payment of assessed duty	– Section 47(2): interest if duty unpaid beyond 2 working day grace.	19 U.S.C. S.1505: interest from 30th day after billing.• Rate = Federal short term rate + 3 percentage points (variable quarterly).	– Art 114 UCC: interest from day after payment deadline. • Rate = Member-State treasury rate; minimum 4	Art 60 Customs Law: surcharge 0.05 percent per day (≈ 18.25 percent p.a.) once payment deadline passes.
Interest on demand notice / post audit short – levy	Section 28AA: interest starts 90 days after SCN service;	19 U.S.C. S.1505(b)(2): same rate as above; accrues from liquidation date.	Art 112 UCC: interest from 10 days after customs debt notified.	Same 0.05 percent per day surcharge; no grace period specified.
Redemption fine in lieu of confiscation	Section 125: discretionary; cannot exceed market value (Supreme Court Weston Components, 2000).	19 U.S.C. S.1618: Customs may mitigate confiscation; fine often set at 1–10 percent of appraised val e when no fraud.	Art 198 UCC: Member States set amounts; typically equivalent to duties + 10–40 percent margin.	Art 39 Customs Law: fine up to 30 percent of goods’ value for nonfraud offences; up to confiscation +30 percent for smuggling.
Civil penalty for misdeclaration (no fraud)	Section 112/114: up to value of goods or ₹5000, whichever higher; mitigated if bona fide error.	19 U.S.C. S.1592(c)(3): negligence – 20 percent of duty loss or 20 percent of goods value if no duty.	Art 173 UCC: “administrative penalty” decided by Member State; many use 10–50 percent of duty deficit.	Art 86 Customs Law: administrative fine 10–50 percent of duty shortfall.
Civil penalty for fraud / intent to evade	Section 114A: duty short-levy by fraud – penalty equal to duty; Section 135 criminal prosecution.	19 U.S.C. S.1592(c)(1): fraud – penalty up to value of goods; criminal under 18 U.S.C.	Art 203 UCC: intentional evasion can trigger criminal law of Member State plus seizure.	Smuggling crime under Art 44 Criminal Law: fine imprisonment; customs fine up to confiscation + 100 percent goods value.
Grace period to avoid penalty escalation	Section 28(6): pay duty + 15 percent interest within 30 days of O-I-O → penalty cut to 25 percent.	19 C.F.R. 171: “first offer” mitigates penalty if paid within 30 days.	Many Member States offer 30-day “voluntary payment” with reduced surcharge.	Administrative fine typically reduced by 50 percent if paid in 15 days (local rule).
Warehouse interest	Section 61(2): after authorized period	19 U.S.C. S.1557(c): 5 percent p.a. interest (compounded) on warehouse withdrawals beyond five years.	Art 219 UCC: interest from day after expiry; rate per Member State (≥ 4 percent).	Similar 0.05 percent per day surcharge on overdue warehoused goods.
Attachment / coercive recovery power	Section 142 + Custom s(Attachment of Property) Rules 2013: detain goods, garnish debtors, attach real property, collect via district revenue officer.	19 U.S.C. S.1619 & IRS levy powers: CBP files liens, seizes bank accounts, withholds future refunds.	National enforcement via Council Directive 65/2014; can issue European Payment Order.	Customs may seal premises, auction goods, block bank accounts; blacklist in credit system.

Key differences in one glance

Interest grace: India grants only two working days for assessed duty but ninety-day grace for
SCN demands; the United States uses a thirty-day billing window; the European Union generally
allows ten days.
Fine ceiling: India’s Supreme Court ties redemption fine to profit margin and market price; the
U.S. Customs Border Protection often mitigates to 1–10 percent; China statutorily caps at 30
percent but adds criminal risk.
Mandatory pre-deposit to appeal: India requires 7.5 percent–17.5 percent; the United States,
European Union and China do not insist on an upfront payment, relying instead on post-decision
collection and surety bonds.
Attachment reach: India’s Section 142 goes beyond detaining imported goods, extending to
garnishee orders and property attachment—a tool not always mirrored in OECD customs regimes.

Disclaimer
The information shared in this post (and throughout the 30-Day Customs Series) is provided solely for general, educational purposes. It is not intended to be—and should not be relied on as—legal advice or a substitute for professional guidance tailored to your specific facts and jurisdiction.

No attorney-client relationship is created by reading, commenting on, or sharing these materials.
Customs statutes, regulations, circulars and court rulings are subject to change, and their application can vary with minute factual differences.
While every effort is made to quote current law and landmark judgments accurately, no warranty express or implied—is given as to completeness, timeliness or fitness for a particular purpose.
You should consult a qualified customs or trade lawyer, or other licensed professional adviser, before acting (or refraining from acting) on any information herein.
The authors, contributors and publishers disclaim all liability for any loss, damage or penalty arising from reliance on this content, whether in contract, tort (including negligence) or otherwise.
By continuing to read or share this material, you acknowledge and accept the above terms.

About the Author & Office Locations

CA Navjot Singh is a seasoned indirect-tax specialist with deep expertise in Customs, Foreign Trade Policy and GST. He delivers strategic advisory and hands-on execution to conglomerates, Fortune 500 companies and high-growth enterprises.

Key architect of long-term retainership models that pre-empt audit objections and mitigate litigation risk.
Designs India-wide GST frameworks that optimise tax and cash-flow while dovetailing cross-border VAT regimes (EU VAT, GCC VAT).
Advises clients through assessment proceedings, prepares robust submissions and representations, and drafts precise replies to show-cause notices, audit objections and spot memos.
Represents taxpayers before adjudicating authorities, the Tribunal, the Sales-Tax Revisionary Board and the West Bengal Taxation Tribunal.
Conducts comprehensive GST-impact assessments, incentive-scheme evaluations and cash-flow modelling; recommends mitigation strategies as benefits phase out.
Prepares advance-ruling applications and engages with GST-Council committees to shape interpretative guidance.
Develops end-to-end dispute-resolution roadmaps, from pre-litigation negotiation to appellate and judicial forums.

TaxTru Business Advisors LLP
Primary Office (Delhi-NCR)
Unit No. 702, Plot No. 29, Sector 142, NOIDA, Uttar Pradesh 201305
Branch Offices
Gurugram: 313A, 3rd Floor, Iris Tech Park, Sector 48, Gurugram, Haryana 122018
Mumbai: C-20, G-Block Road, Bandra Kurla Complex, Bandra (East), Mumbai 400051
Associate offices across other key metros enable pan-India support

Article-Day15

Share this content: