By TIOL News Service

NEW DELHI: MAY 11, 2015: IN August, 1991, respondent nos. 1 and 2 imported 2 and 3 containers respectively of alcohol under the description "Undenatured Ethyl Alcohol' (Malt Spirit plus or minus 59.3% Vol.) from an intermediary, M/s. Ravco International Ltd., England (hereinafter referred to as 'RIL' for short). As per the Department, these imports were under invoiced at pound 1.40 per litre whereas the actual price of the said goods was pound 3.78 per litre.

The Collector of Customs vide Order-in-Original dated 28.02.1995 upheld the misdeclaration and undervaluation and further held respondent no. 1 to pay customs duty of Rs.1,63,74,648/- along with penalty of Rs.1,64,00,000 and goods to be confiscated. Respondent no.2 goods valued at Rs.83,04,501/- to be confiscated. However, the same were provisionally released on furnishing Bank Guarantee of Rs. 1 crore, differential duty to the tune of Rs. 77,34,994/-. A further penalty of Rs. 2.63 crores was imposed.

Insofar as the first issue of import price of the liquor in question is concerned, the order of the Collector reveals that the respondents-assessees have relied upon a letter indicating that the goods were imported at the rate of UK pound 1.40 per bulk litre. After discussing elaborately, the Collector rejected the authenticity or evidentiary value of the said letter. However, apart from this letter, the respondents had also produced invoices and in these invoices price of UK pound 1.40 per bulk litre is specifically mentioned. The Collector has not taken into account or considered the import of these invoices.

CESTAT held that when the invoices are produced showing the purchase price of the goods in question and authenticity of these invoices is not doubted by the Department, these will form as the primary evidence in support of the contention of the respondents that the imported goods were purchased at UK pound 1.40 per bulk litre.

The Supreme Court thus, did not find any flaw in the reasoning of the CESTAT while deciding this issue.

The Third Party: In the same proceedings, the goods which were imported by the respondents in the above case were bought and in the custody of United Spirits, the appellant in this case. The goods were seized by the Customs, but were released on deposit of Rs. 1,56,64,500/-as per the directions of the High Court. The High Court had directed that in the event it is ultimately held that the appellant is entitled to get back the amount deposited by it, the same shall be refunded to the appellant with interest at the rate of 13 per cent per annum which was the rate of interest payable by the Nationalised Bank on Fixed Deposits at the relevant time.

However as seen above the CESTAT had granted substantial relief to the original importers in the above appeal.

In this background, the appellant, which was not even the importer of the goods but had purchased the goods from M/s. Finacord Chemicals Private Limited, made an application for refund of the amount of Rs.1,56,64,500 which was deposited pursuant to the order passed by the High Court of Bombay. This application was, however, rejected invoking the doctrine of 'unjust enrichment'. On challenge, the High Court has confirmed the applicability of the doctrine of unjust enrichment insofar as the demand of duty is concerned.

The Supreme Court observed,

It is clear that insofar as the appellant is concerned, it had not imported the goods in question. The importers were M/s.S.R.Nagpal and company and M/s. Finacord Chemicals Private Limited. The dispute of under-invoicing was also qua the said two importers on the basis of which custom was claiming lesser payment of duty by the said importers. In the adjudication proceedings, while imposing the duty against the said importers, a categorical finding was also recorded at the same time that the appellant had no role to play therein and was a bona fide purchaser of the goods from the said importer which were imported by them. It is also manifest that the appellant came into picture only when the goods purchased by the appellant were seized by the custom department and he had to approach the High Court of Bombay for the release of those goods. What is significant is that as a condition for the release of the said goods, interim order directing the appellant to deposit the amount in the sum of Rs.1,56,64,500 was passed. It was not towards any custom duty. In this scenario, it is difficult to hold that the principle of unjust enrichment can at all be applied.

The Supreme Court referred to two Board Circulars:

1. Circular dated 02.01.2002, in which the CBEC communicated, "It was decided that since the practice in the Department had all along been to consider such deposits as other than duty, such deposits should be returned in the event the appellant succeeds in appeal or the matter is remanded for fresh adjudication."

2. Circular No.802/35/2004-CX., dated 08.12.2004, the Board emphasised that such amounts should be refunded immediately as non-returning of the deposits attracts interest that has been granted by the courts in number of cases.

Supreme Court stated at the cost of repetition that since the amount in question was deposited in compliance with the interim order passed by the High Court of Bombay, which was not towards duty, the question of unjust enrichment would not arise at all. The entire amount shall be refunded along with interest calculated at the rate of 13 per cent per annum, as order to this effect was specifically passed on 30.10.1991 in Writ Petition No. 3220 of 1991 by the High Court of Bombay.

(See 2015-TIOL-104-SC-CUS)