The Punjab and Haryana High Court has dismissed a department’s appeal challenging the grant of a customs duty refund to an importer, holding that an importer cannot be denied a refund merely because the Bill of Entry was not separately challenged where the additional duty had been paid inadvertently and there was no dispute or adversarial assessment between the importer and the Customs Department at the time of payment.
The Bench of Acting Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor has observed that there was apparently no dispute regarding the respondent’s entitlement to claim the refund. The additional customs duty had admittedly been paid inadvertently and the refund claim was therefore required to be considered.
The dispute arose from the import of hydrogenated vegetable oil by Vanick Oils & Fats Private Limited. The imported goods were covered by Notifications Nos. 2 & 3/2007-Customs, under which the importer was granted Nil Basic Customs Duty (BCD) and Nil Countervailing Duty (CVD).
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However, the importer inadvertently paid additional customs duty at 4% ad valorem, despite the duty being unconditionally exempt under the applicable exemption notification.
The company subsequently filed refund claims seeking return of the additional customs duty that had been paid inadvertently.
The adjudicating authority accepted that the company was entitled to the refund and sanctioned the amount. However, instead of paying the refund directly to the importer, the amount was transferred to the Consumer Welfare Fund on the ground that the company had not produced sufficient evidence to establish that the burden of the duty had not been passed on to consumers.
The Department subsequently challenged the refund.
One of the principal objections raised by the Revenue was that the original assessment of the Bills of Entry had not been challenged by the importer. According to the Department, the absence of an appeal against the assessment prevented the importer from subsequently seeking a refund of the duty paid.
The Commissioner (Appeals) accepted this contention and also held that the importer had failed to establish the absence of unjust enrichment. The refund claim was consequently rejected.
The dispute ultimately reached the CESTAT.
CESTAT took a different view and allowed the refund claim.
The Tribunal noted that the benefit of the relevant exemption notifications had itself been extended by the assessing officer and that the Bills of Entry were assessed at Nil BCD and CVD.
It further observed that once BCD and CVD were fully exempt or chargeable at Nil rate, the additional customs duty was also fully exempt under the applicable notification.
The Tribunal relied upon the principle laid down in Aman Medical Products, while considering the Supreme Court’s ruling in Priya Blue Industries. It held that an assessment order need not necessarily be challenged where the higher duty was paid inadvertently, without taking the benefit of an exemption notification, and there was no dispute or lis between the importer and the Revenue at the time of assessment.
According to the Tribunal, where there was no adversarial assessment, the failure to file an appeal against the assessed Bill of Entry would not deprive an importer of the right to seek refund of duty paid by mistake.
The second major issue before the Tribunal concerned unjust enrichment.
The importer produced a Chartered Accountant’s certificate confirming that the additional customs duty had actually been borne by the company and had not been passed on to its customers.
The company also produced its balance sheet, in which the disputed customs duty amount was reflected as receivable from the Customs Department.
CESTAT relied on earlier decisions including Siddhi Vinayak Steel v. CC, Mumbai, CC Mumbai v. Agro Impex and SAIL v. CC, Chennai. These decisions recognized that where the disputed amount is shown as recoverable from Customs and is supported by a Chartered Accountant’s certificate establishing that the burden has not been transferred to another person, the requirement of disproving unjust enrichment can be satisfied.
The Tribunal therefore concluded that the importer had discharged its burden of establishing that the duty incidence had not been passed on.
The High Court agreed with the Tribunal’s reasoning.
The only reason for which the claim had ultimately been rejected was the alleged failure to provide sufficient material demonstrating that the importer had not obtained an undue benefit by passing the duty burden on to consumers.
The High Court noted that, during the appeal before CESTAT, the importer had produced a Chartered Accountant’s certificate specifically confirming that the additional customs duty had been borne by the company and had not been passed on to consumers.
The Court also took note of the fact that the amount was reflected as a receivable in the company’s balance sheet.
The Bench found the Tribunal’s conclusion reasonable in these circumstances.
The Court emphasized that the disputed amount itself was shown as receivable from the Customs Department, while the Chartered Accountant’s certificate confirmed that the company had borne the duty burden.
Importantly, there was no material suggesting that the additional customs duty had been recovered from consumers through the price of the imported goods.
The High Court therefore held that the Tribunal had not committed any error in accepting the refund claim.
The ruling effectively recognizes that the requirement of challenging an assessment cannot be applied mechanically in circumstances where an importer has inadvertently paid a duty that was otherwise exempt and there was no actual dispute between the parties at the assessment stage.
The Court’s reasoning distinguishes such a situation from cases where an importer disputes an assessment or knowingly accepts an assessment and subsequently seeks to reopen it. Where the payment resulted from inadvertence and there was no adversarial assessment, the absence of an appeal against the Bill of Entry does not, by itself, extinguish the right to seek refund.
At the same time, the judgment reinforces the importance of establishing that the refund would not result in unjust enrichment. Documentary evidence such as a Chartered Accountant’s certificate and appropriate accounting treatment in the balance sheet can be relevant in demonstrating that the duty burden was actually borne by the importer.
Finding no valid ground to interfere with the CESTAT order, the Punjab and Haryana High Court dismissed the Revenue’s appeal.
The Court consequently upheld the direction to grant the refund to Vanick Oils & Fats Private Limited and rejected the Revenue’s challenge to the Tribunal’s findings.
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