2016 (5) TMI 300 - HC - Customs

Refund - unjust enrichment - Department encashed the bank guarantee of the petitioner and recovered sum of ₹ 9,19,801/ - Since the Supreme Court allowed the appeal of the petitioner, amount already recovered by the department became refundable - Unjust enrichment - Held that - 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. Cases laws relief upon by the Appellant distinguished on the following grounds - When the Court observed that the amount of disputed tax or duty that is secured by a bank guarantee, cannot be held to be paid to the Revenue, we are in respectful agreement. However, these observations were made in the background of the facts where the High Court had directed the assessee to furnish bank guarantee for the differential duty. The writ petition was ultimately dismissed on the ground of alternative remedy. While doing so, the Court directed the assessee to keep the bank guarantee alive till the matter was decided by the Commissioner, (Appeals). After the Commissioner, (Appeals), dismissed the appeal, the department encashed the bank guarantee. In this background, the CEGAT held that the encashment of the bank guarantee would not amount to payment of duty. This judgment, the High Court upheld holding that no question of law arises. Therefore, the contention of the petitioner cannot be upheld. The petitioner failed to pass the test of unjust enrichment - refund not allowed - Decided against the assessee.

Summary

Issues Involved:
1. Validity and applicability of the notification fixing tariff value under Section 14(2) of the Customs Act, 1962.
2. Principle of unjust enrichment in the context of refund claims.

Issue-wise Detailed Analysis:

1. Validity and Applicability of the Notification Fixing Tariff Value:
The petitioner, a public limited company, imported crude, degummed soybean oil and filed a bill of entry on 02.09.2002. The department demanded higher customs duty based on tariff values fixed under Section 14(2) of the Customs Act, 1962. The petitioner contended that the notification fixing the tariff value was not in effect at the time of import and thus, they were liable to pay duty under Section 14(1) of the Act. The High Court initially granted interim relief, allowing clearance of goods upon furnishing a bank guarantee for the difference in duty. Ultimately, the High Court dismissed the petition, but the Supreme Court reversed this decision, stating that the notification was not available for sale when the goods were cleared, making the department's claim for differential duty unjustified.

2. Principle of Unjust Enrichment in the Context of Refund Claims:
After the Supreme Court's decision, the petitioner sought a refund of ?9,19,801, which was recovered by encashing the bank guarantee. The department raised issues regarding the proper format of the refund application and the principle of unjust enrichment. The petitioner argued that the principle of unjust enrichment did not apply as the bank guarantee was a security, not a duty payment. The department, however, maintained that once the High Court dismissed the petition, the duty became payable, and the encashment of the bank guarantee was a recovery of duty, thus invoking the principle of unjust enrichment.

Legal Reasoning and Judgments:
- Section 27 of the Customs Act: It pertains to claims for refund of duty and incorporates the principle of unjust enrichment, requiring proof that the duty incidence was not passed on to another person.
- Mafatlal Industries v. Union of India: The principle of unjust enrichment applies to all refund claims, irrespective of the reason for the refund.
- Oswal Agro Mills Ltd. v. Asstt. Collector of C.Ex.: The Supreme Court held that furnishing a bank guarantee is not equivalent to payment of duty, and thus, the principle of unjust enrichment does not apply to amounts secured by bank guarantees.
- Somaiya Organics v. State of Uttar Pradesh: Reaffirmed that furnishing a bank guarantee does not amount to payment of tax.
- DCW Ltd. v. Union of India: The Supreme Court applied the principle of unjust enrichment to a case where the department encashed a bank guarantee after the stay was vacated, distinguishing between amounts deposited as pre-deposit and those recovered as duty.

Conclusion:
The High Court dismissed the petitions, holding that the principle of unjust enrichment applied to the refund claims as the encashment of the bank guarantee was a recovery of duty payable, not merely a security measure. The petitioner was directed to submit necessary documents to prove that the refund claim was not hit by the principle of unjust enrichment.