2007 (7) TMI 73 - HC - Customs

Bank Guarantee - Wrong encashment - Refund claim is not hit by period of limitation - Bank Guarantee can not be treated as duty to deny refund claim beyond one year

Summary

Issues:
1. Interpretation of whether a Bank Guarantee can be considered as security in lieu of duty even after enforcement and appropriation by the Department.
2. Refund application rejection due to time limitation under Section 27(1)(b) of the Customs Act.
3. Applicability of judgments in similar cases to determine the eligibility for refund.

Issue 1 - Bank Guarantee as Security:
The appeal under Section 130 of the Customs Act 1962 questions whether a Bank Guarantee can be deemed as security in lieu of duty even after enforcement and appropriation by the Department. The appellant had invoked a Bank guarantee due to non-compliance with export obligations, leading to a refund request upon fulfilling the obligations. The rejection of the refund application was based on the claim being time-barred under Section 27(1)(b) of the Customs Act. The court analyzed the nature of the Bank Guarantee, emphasizing that it serves as security, not payment of duty. Citing the Supreme Court judgment in Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise, the court held that a Bank Guarantee secures revenue and does not constitute payment to the revenue. Therefore, the argument that the refund claim was time-barred due to non-payment of duty was deemed legally unsustainable.

Issue 2 - Refund Application Time Limitation:
The rejection of the refund application was primarily based on the time limitation specified in Section 27(1)(b) of the Customs Act. The appellant's claim was considered time-barred as the refund application was filed after six months from the date of payment of duty. However, the court found that the Bank Guarantee, enforced for non-compliance with export obligations, did not equate to the payment of duty. Therefore, the court rejected the argument that the refund claim was barred by limitation under the Customs Act, emphasizing that the Bank Guarantee was a security measure and not a duty payment.

Issue 3 - Applicability of Precedent Judgments:
The appellant relied on the judgment in Mafatlal Industries Ltd. v. Union of India to argue for a refund based on statutory provisions. However, the court differentiated the present case from the cited judgment, emphasizing that the Bank Guarantee in question was not equivalent to duty payment but served as security for revenue protection. The court concluded that the procedural aspects of refunding duty paid did not apply in this scenario where a Bank Guarantee was invoked. Consequently, the court dismissed the appeal, stating that the appellant failed to establish a case for admission, and no costs were awarded.

In conclusion, the Madras High Court dismissed the appeal, emphasizing that a Bank Guarantee cannot be considered as duty payment and, therefore, the refund claim was not time-barred under the Customs Act. The court's decision was based on the distinction between a Bank Guarantee as security and actual duty payment, as established by relevant legal precedents.