2015 (11) TMI 35 - SC - Customs

Denial of refund claim - Unjust enrichment - recovery of duty by encashment of the Bank Guarantee - earlier stay order was vacated due to failure comply with stay order - Held that - It is only ₹ 17.50 lakhs which was deposited by the appellant pursuant to the interim orders of the Court. The Court had directed the appellant to deposit ₹ 70 lakhs. As far as the balance amount is concerned that could not be deposited. It resulted in vacation of the stay order. Thus, once the stay order was vacated, it was open to the Department to recover the amount of duty which was payable as per the orders passed at that time. The amount was, thus, recovered on encashment of the Bank Guarantee by the Department and it was on the basis of the order passed by the Court. The Court had, after vacating the stay order, only permitted the Department to encash the Bank Guarantee. - as far as refund of this amount is concerned, it had to be decided in the light of the doctrine of unjust enrichment which was clearly applicable - Decided against assessee.

Summary

Issues:
Dispute over classification of imported machinery, payment of duty, deposit of amount by appellant, encashment of bank guarantee, application for refund, rejection of refund based on unjust enrichment doctrine, challenge to High Court's judgment on refund.

Analysis:
The case involved a dispute regarding the classification of imported machinery, leading to a disagreement over the duty amount to be paid by the appellant. Initially, the appellant was directed by the High Court to deposit a sum of Rs. 70 lakhs in four monthly installments, but the appellant defaulted after the first installment. Consequently, the High Court vacated the order and allowed the Customs Authorities to encash the bank guarantee of Rs. 1,45,27,079. The appellant's subsequent special leave petition against this order was dismissed by the Supreme Court, upholding the encashment due to default in payment.

Later, the Tribunal settled the classification issue, resulting in a refundable amount of Rs. 41,48,176 to the appellant. However, the refund application was rejected by the officer citing unjust enrichment, as the burden was deemed to have been passed on to consumers. The High Court partially allowed the refund of Rs. 17.50 lakhs deposited as per interim orders but denied the refund of the remaining Rs. 23,98,178, stating it was deposited due to default and subsequent encashment of the bank guarantee.

The appellant contended that the entire amount should be refunded as it was a pre-deposit. However, the Supreme Court disagreed, noting that only the Rs. 17.50 lakhs was deposited as per court orders, while the balance was not paid, leading to the encashment of the bank guarantee following the vacation of the stay order. The Court upheld the application of the doctrine of unjust enrichment in this case, affirming the High Court's decision to reject the refund of the balance amount. Consequently, the appeal challenging the High Court's judgment was dismissed.