Legal principle

Where excess customs duty is paid on a quantity of goods that never existed and no sale of such goods was possible, the question of passing on the duty incidence does not arise, so the refund cannot be denied to the claimant or credited to the Consumer Welfare Fund under the unjust enrichment test of Section 27(2)(a) read with Section 28B.

Court decision

The Gujarat High Court answered all three substantial questions of law in favour of the assessee and against the Revenue, upheld the CESTAT order allowing the refund, and dismissed the Revenue's Tax Appeal.

Facts

Chaudhary Ship Breakers filed a Bill of Entry on 25.09.1997 for clearance of the vessel MV YUTA BONDROSKAYA and paid customs duty of Rs.46,37,160 on 06.11.1997, later claiming a refund of Rs.62,770 collected on fuel and oil, which was amended to claim excess duty of Rs.11,30,333 on the ground that lubricating oil was wrongly shown as 140 KL (1,40,000 litres) instead of 140 litres. The Adjudicating Authority rejected the refund (Order-in-Original dated 15.07.1999) because the inventory filed by the Master of the Vessel with the IGM showed 140 KL, and the Commissioner (Appeals) upheld the rejection. CESTAT, Ahmedabad remanded the matter on 05.05.2003 for re-verification of the quantity, and on remand the Adjudicating Authority found (Order-in-Original dated 06.08.2004) that only 140 litres in one barrel were on board, leading to a fresh refund claim of Rs.11,09,221 filed on 03.11.2004. After a show cause notice dated 30.11.2004 under Section 27(2), the Adjudicating Authority by order dated 18.07.2005 sanctioned refund of Rs.5,41,764 but credited it to the Consumer Welfare Fund under the doctrine of unjust enrichment for want of proof under Section 27(2)(a) that the duty incidence was not passed on; the Commissioner (Appeals) upheld this, but CESTAT, Mumbai by order dated 29.06.2007 allowed the assessee's appeal with consequential reliefs.

Key provisions

• Section 27, Customs Act, 1962 — Claim of refund duty
• Section 28B, Customs Act, 1962 — Duties collected from the buyer to be deposited with the Central Government