The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has directed the Customs Department to refund ₹3 lakh deposited by an importer during a Directorate of Revenue Intelligence (DRI) investigation, holding that the department cannot reject a legitimate refund claim merely because it failed to trace its own challan records. 

The bench of M.M. Parthiban (Technical Member) observed that once the department itself accepted the deposit and maintained records evidencing receipt of the amount, denial of refund on technical grounds was legally unsustainable. 

The dispute arose from a refund claim filed by the appellant for ₹3 lakh deposited in July 2008 during a DRI investigation concerning alleged undervaluation of imported electronic goods such as car audio systems, speakers, CD players and amplifiers imported through various Import Export Codes (IECs). The amount formed part of a voluntary deposit of ₹6 lakh made through two demand drafts on behalf of two firms under investigation. 

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Subsequently, the DRI issued a show cause notice in February 2012, which culminated in an Order-in-Original passed by the Commissioner of Customs, Kolkata in November 2013. Although penalties were imposed, the show cause notice as well as the adjudication order did not appropriate the ₹3 lakh deposit against any confirmed customs duty. The appellant later sought refund of the amount on the ground that it had remained unappropriated throughout the proceedings. 

The Assistant Commissioner of Customs rejected the refund application, holding that the appellant had failed to produce the original treasury challan evidencing payment and that the cause for refund could not be established. The Commissioner (Appeals) upheld the rejection, reasoning that the absence of the challan prevented verification of whether the amount had actually reached the Government treasury and observing that refund under Section 27 of the Customs Act required a valid cause of action supported by documentary proof. 

The appellate authority further held that the refund authority was under no obligation to obtain the challan from the DRI or the Customs cash section and that the appellant had not produced sufficient evidence establishing payment in his own name. 

The Tribunal found that the rejection of the refund claim rested on an incorrect appreciation of the facts. It noted that the appellant had produced copies of the demand drafts, a contemporaneous letter addressed to the DRI forwarding the drafts, and records showing that the DRI had deposited the amount through Challan No. 11 of 2008. The Tribunal further observed that entries in the Central Board of Revenue (CBR) Sheet maintained by the New Custom House Treasury corroborated that the deposit had indeed been credited to the Government account. 

According to the Tribunal, once the department accepted the demand drafts and credited the amount into the Government treasury, the subsequent inability of departmental officers to produce or verify the original challan could not prejudice the taxpayer’s entitlement to refund. 

The Tribunal criticised the manner in which the refund claim had been processed. It remarked that it was unacceptable for different wings of the Customs Department to refuse verification of records available within the same department while simultaneously denying the taxpayer’s claim on the ground that those records were unavailable.

The Tribunal observed that such an approach reflected poor inter-departmental coordination and was inconsistent with the Government’s emphasis on administrative efficiency and the “Viksit Bharat 2047” vision. It noted that authorities could not simply decline to verify departmental records while expecting taxpayers to produce documents that remained in the department’s own custody. 

The Tribunal also relied upon a subsequent decision of the Kolkata Bench of CESTAT delivered in July 2023. In that order, the Tribunal held that customs duty could not be demanded from the appellant because he was not the actual importer, although the penalties imposed upon him were sustained. As a result, the customs duty demand against which the deposit had been made no longer survived. 

The Mumbai Bench observed that since the ₹3 lakh deposit had never been appropriated in the show cause notice or adjudication order, and the underlying duty demand itself had ultimately been set aside, the amount had become fully refundable. 

The Tribunal referred to CBIC Circular No. 984/08/2014-CX dated September 16, 2014, which prescribes the procedure for refund of amounts deposited during investigation. The circular requires Commissionerates to maintain proper records of such deposits to facilitate seamless verification and refund once the appellate proceedings conclude in favour of the taxpayer. The Tribunal held that the department could not disregard its own circular while processing refund claims. 

The Tribunal set aside the orders of the lower authorities and directed the Customs Department to refund ₹3 lakh to the appellant without undue delay. It held that the refund was legally payable because the amount had been voluntarily deposited during investigation and credited to the Government account; the deposit had never been appropriated in the show cause notice or adjudication order; the underlying customs duty demand had subsequently been set aside by CESTAT; and rejection of the refund solely on the basis of a missing departmental challan was contrary to law and the factual record. 

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