CESTAT Mumbai Ruled on IGST Penalties: Interest, Redemption Fine, and Penalty Not Sustainable Prior to 2024 Amendment

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 07.05.2026

CESTAT Mumbai Ruled on IGST Penalties: Interest, Redemption Fine, and Penalty Not Sustainable Prior to 2024 Amendment

Avery Dennison India Pvt. Ltd. recently secured a significant legal victory before the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai. The case revolved around whether interest, penalties, and confiscation-related fines could be levied on Integrated Goods and Service Tax (IGST) payments under the Customs Act, especially for periods before a key legislative amendment in August 2024.

Background of the Case

The dispute originated from an order by the Commissioner of Customs, Nhava Sheva-II, demanding interest, imposing penalties, and offering redemption of goods on payment of a fine, all linked to IGST payments made by Avery Dennison. The company challenged these demands, arguing that the Customs Act provisions for interest and penalties did not apply to IGST before the amendment to Section 3(12) of the Customs Tariff Act on 16 August 2024.

Legal Arguments and Precedents

Avery Dennison’s legal team cited several precedents:

1. A.R. Sulphonates Private Limited vs. Union of India (Bombay High Court)
   • The court held that, prior to the 2024 amendment, the Customs Act’s provisions for interest and penalties did not apply to IGST. This was based on the absence of explicit reference to such charges in Section 3(12) of the Customs Tariff Act.
   • The Supreme Court affirmed this view, emphasizing that imposing interest and penalties without clear legal authority was not permissible.
2. Mahindra & Mahindra Ltd. (Automotive Sector) vs. Union of India
   • The Bombay High Court found that the relevant sections of the Tariff Act did not authorize interest or penalties on IGST, reinforcing the argument that such levies were unlawful before the amendment.
3. GTN Engineering (India) Limited vs. Pr. Commissioner of Customs (Adjudication), Mumbai (CESTAT)
   • The Tribunal clarified that the amendment enabling interest and penalties on IGST was prospective, not retrospective. Thus, it did not apply to transactions before 16 August 2024.

Tribunal’s Findings and Order

The Tribunal, led by Justice Dilip Gupta and Member (Technical) P. Anjani Kumar, concluded:

• Interest, Penalties, and Redemption Fine:
  • These cannot be levied on IGST payments for periods before the 2024 amendment. The Tribunal set aside the Commissioner’s order to the extent it demanded these charges.
• IGST Demand and Recovery:
  • The Tribunal upheld the demand and recovery of IGST itself, confirming that the tax was due, but without additional charges.
• Modification of Order:
  • The impugned order was modified, removing the interest, penalty, and redemption fine, but maintaining the IGST demand.

Implications for Importers and Customs Administration

This decision has broad implications:

1. Legal Certainty:
   • Importers are protected from retrospective imposition of interest and penalties on IGST for periods before the amendment.
2. Customs Practice:
   • Customs authorities must align their demands with the legal framework, respecting the prospective nature of legislative changes.
3. Precedent Value:
   • The ruling reinforces the importance of explicit statutory authority for levying financial penalties and interest.

Conclusion

The Avery Dennison case underscores the critical role of judicial interpretation in tax and customs law. By clarifying the limits of the Customs Act’s reach over IGST before the 2024 amendment, the Tribunal has provided much-needed clarity and relief to importers facing similar demands.

Source: CESTAT Mumbai

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