Good News for Patanjali: Supreme Court allows refund in 23-year customs dispute

In a significant relief to Patanjali-owned Ruchi Soya Industries Ltd, the Supreme Court on Monday allowed its appeal challenging a Gujarat High Court judgment that had denied the company a refund of customs duty recovered by the authorities through encashment of a bank guarantee.

A bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan held that the customs department’s claim was barred by the doctrine of unjust enrichment and criticised the coercive recovery of funds.

Relevant Text

30. It is thus evident that respondents had recovered the differential duty amount by adopting coercive method i.e. encashment of the bank guarantees which were offered as security for the differential amount of duty on orders of the High Court. Under the scheme of the Customs Act, duty is assessed provisionally or finally whereafter an assessment order or order- in-original is passed. Post assessment order or order-in-original, the concerned importer is required to pay the assessed duty. If the importer does not pay the duty, revenue can enforce recovery under Section 142 of the Customs Act as recovery of sums due to the Government. The key word in Section 27 of the Customs Act is ‘paid’. Refund thereunder is permissible only if any duty is ‘paid’ by the claimant which subsequently becomes refundable either fully or in part. In the facts of the present case encashment of bank guarantees offered as security cannot be treated as payment of customs duty. Respondents could have either awaited the decision of this Court or could have directed the appellant to renew the bank guarantees. This they did not do. Instead they resorted to arbitrary encashment of the bank guarantees. Such encashment of bank guarantees cannot be treated as payment of duty or duty paid by a claimant. In such circumstances, the doctrine of unjust enrichment or Section 27 of the Customs Act would not be applicable. It is evidently clear that respondents are holding on to money of the appellant which they are not authorized to do so as per judgment of this Court in Param Industries Limited (supra). They have no authority in law to hold on to such money and, therefore, the same has become totally untenable.

31. In the circumstances, we set aside the impugned judgment and order of the High Court dated 28.04.2016 and direct the respondents to immediately refund the amounts covered by the bank guarantees to the appellant. Since retention of such amounts is unjust and unlawful, the same would carry interest at the rate of 6 percent from the dates of encashment till repayment. Let the repayments with applicable interest be released to the appellant within a period of four months from today.