By TIOL News Service

AHMEDABAD, JUNE 27, 2016 : THE petitioner had imported crude, degummed soyabean oil of edible grade in bulk at Jamnagar and filed bill of entry on 02.09.2002, seeking clearance of the imported goods. The department did not clear the goods on the ground that the petitioner must pay higher customs duty on the basis of tariff values fixed for the goods in question in terms of section 14(2) of the Customs Act, 1962. Case of the petitioner was that at the time of import of the goods by the petitioner, the notification issued by the Government of India, fixing tariff value under section 14(2) of the Act had not come into effect and that therefore, the petitioner was liable to pay duty only in terms of the provisions contained in provision 14(1) of the Act.

When the Petitioner approached High Court, directions were issued to clear the good by paying duty under Sec 14(1) and furnishing Bank Guarantee. However, the High Court finally dismissed the Petition. On appeal, the Supreme Court allowed the appeal and reversed the High Court order, resulting in filing a refund claim for the amount realized through encashment of bank guarantee.

However, the department issued a communication to prove that the refund claim is not hit by principle of unjust enrichment. Petitioner is now challenging the said communication seeking direction to refund the amount with raising the issue of unjust enrichment.

After hearing both sides, the High Court held:

++ The principle of unjust enrichment would be applicable to every case of claim of refund of duty irrespective of the reason for claiming such refund. In the present case, as noted, the petitioner's goods were allowed to be cleared under interim order of the High Court dated 07.10.2002. Under such interim formula, the petitioner had to furnish bank guarantee for the difference of duty of customs payable under section 14(1) and 14(2) of the Act. The petitioner provided such bank guarantee. The High Court ultimately dismissed the petitions by judgment dated 13.09.2012. By virtue of dismissal of the petitions by the High Court, higher duty in terms of section 14(2) of the Act became payable. When the department therefore, encashed the bank guarantees given by the petitioner, it was towards this duty liability which had arisen by virtue of the judgment of the High Court. In plain terms, therefore, it was recovery of the duty payable. The fact that it was unilaterally done by the department and unwillingly suffered by the petitioner is of no consequence. Contrary to what is canvassed before us by the counsel for the petitioner, the encashment of the bank guarantees was no longer in the form of a security. The bank guarantees were undoubtedly securities to safeguard the interest of the Revenue but, once the High Court dismissed the petitions and vacated the interim relief, the duty became payable as on that date. Encashment of the bank guarantees by the department was thus a step in furtherance of recovery of the duties. In the hands of the department, thus at that stage, it was in the nature of duty and not a security. When subsequently the Supreme Court reversed the judgment of the High Court, this duty became refundable. Any refund application would therefore, necessarily be governed by section 27 of the Act.

Thus, the High Court dismissed the petition with a liberty to the petitioner to produce necessary documents before the department as demanded in context of the question of unjust enrichment.

(See 2016-TIOL-1216-HC-AHM-CUS)