Legal principle

Encashment of a bank guarantee furnished merely as security pursuant to a court's interim order cannot be treated as duty 'paid' under Section 27 of the Customs Act, so the doctrine of unjust enrichment does not apply and the amount must be refunded with interest.

Court decision

The Supreme Court allowed the appeals, set aside the Gujarat High Court judgment dated 28.04.2016, and directed the respondents to immediately refund the amounts covered by the bank guarantees with 6% interest from the dates of encashment till repayment, to be released within four months; Section 27 and the doctrine of unjust enrichment were held inapplicable.

Facts

M/s M.P. Glychem Industries (later merged into Ruchi Soya, renamed Patanjali Foods) imported crude degummed soyabean oil in bulk at Jamnagar, filing a bill of entry on 02.09.2002 for home consumption. The customs department refused clearance unless higher duty was paid based on a tariff value notification under Section 14(2) of the Customs Act, while the importer contended only Section 14(1) applied as the notification was not yet in force. On interim orders of the High Court, the importer furnished bank guarantees covering the differential duty (Rs. 9,19,801; Rs. 45,99,006; Rs. 22,25,052) and the goods were cleared on Section 14(1) duty. The department encashed the bank guarantees on 22.01.2013 and 28.01.2013 while appeals were pending, and after the Supreme Court allowed the importer's appeals in Union of India v. Param Industries Limited (05.05.2015), rejected/obstructed refund claims by insisting the importer prove absence of unjust enrichment under Section 27.

Key provisions

• Section 27, Customs Act, 1962 — Claim of refund duty
• Section 14(1), Customs Act, 1962 — Valuation of goods
• Section 28C, Customs Act, 1962 — Price of goods to indicate the amount of duty paid thereon
• Section 28D, Customs Act, 1962 — Presumption that incidence of duty has been passed on to the buyer
• Section 142, Customs Act, 1962 — Recovery of sums due to Government