The Madras High Court has dismissed a long-pending appeal filed by the Customs Department and upheld the refund of Extra Duty Deposit (EDD) collected holding that amounts collected without legal sanction are liable to be returned under the Customs Act, 1962. 

The Bench of Justice G. Jayachandran and Justice N. Mala examined the dispute and observed that the EDD collected from the importer had been found to be without legal sanction and was therefore liable to be returned both under common law principles and statutory provisions. The Court noted that the department’s principal objection was that the amount could not be refunded because it was duty and not a deposit.

The case arose from imports of engines and engine parts by Appellant/assessee from Caterpillar Far East Ltd. Customs authorities had subjected the imports to an Extra Duty Deposit (EDD) while investigating whether the declared transaction value was depressed on account of the relationship between the supplier and the importer. However, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) had, through its earlier orders dated 25 August 2000, accepted the declared value and held that no value depression existed. The department’s challenge against that finding was subsequently dismissed by the Supreme Court.

Despite the Tribunal’s finding and the dismissal of the departmental appeal, EDD continued to be collected for imports made between 25 August 2000 and July 2001. Following the Supreme Court’s decision, assessee sought refund of the amounts collected during this period. The department declined the refund, contending that no proper refund application had been filed in the prescribed manner.

The Commissioner (Appeals), however, ruled in favour of the importer and held that once the Tribunal had conclusively determined that the declared import value was acceptable, the EDD collected thereafter lacked legal authority and had to be refunded along with applicable interest. The appellate authority further held that such collection was without legal sanction.

The Customs Department challenged this finding before the CESTAT, arguing that refunds could be granted only through a claim filed under Section 27 of the Customs Act and that the importer had not fulfilled the statutory requirements. The department also disputed the grant of interest. The Tribunal rejected these arguments and held that the importer was entitled to refund of the excess amounts collected. It further observed that the Customs Act itself provides for interest on delayed refunds under Section 27A where refunds are not sanctioned within the prescribed period. Accordingly, the Tribunal dismissed the department’s appeal.

The matter eventually reached the Madras High Court, where three substantial questions of law were framed, including whether amounts paid pursuant to an assessment order could be refunded by treating them as deposits, whether the EDD constituted duty or a deposit, and whether the importer was required to satisfy the doctrine of unjust enrichment while seeking refund.

Rejecting the department’s stand, the High Court held that the Tribunal’s direction to refund the EDD squarely fell within the framework of Section 27 of the Customs Act, 1962. The Court found no error in the Tribunal’s reasoning and concluded that the appeal lacked merit. Accordingly, all the substantial questions of law were answered against the Revenue and the appeal was dismissed.

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: ITC Freeze Upheld After GST Dept Find Suppliers Were Allegedly Fake Bill-Trading Entities: Madras HC