2025 (6) TMI 1195 - HC - Customs

Requirement to file refund claim of the Extra Duty Deposit made on pending finalization of the provisional assessment without filing an application for refund under Section 27 read with Section 18 of the Customs Act 1962 - refund claim filed by the importer cannot be treated as barred by limitation as provided under Section 27 of the Customs Act 1962 for claims filed after 2006 - HELD THAT - The amount of 1% EDD deposited by the Respondent-Assessee was in a nature of security deposit and not the duty either provisional or final under the provisions of the Act. Section 2 (15) of the Act duty means duty of customs leviable under this Act. 1% EDD to be deposited by the Assessee as per the aforesaid Circular is not a duty payable under the provisions of the Act. The Hon ble Madras High Court in the earlier decision in the case of Sayonara Exports Pvt. Ltd. 2015 (3) TMI 861 - MADRAS HIGH COURT after considering the decision of this Court in the case of Commissioner Vs. Hindalco Industries Ltd. 2008 (9) TMI 71 - GUJARAT HIGH COURT as well as the decision of the Delhi High Court in the case of Commissioner of Customs Vs. Indian Oil Corporation 2012 (1) TMI 31 - DELHI HIGH COURT came to the conclusion that the entire case of claim for refund arose as per the first situation envisaged in para-104 of the judgment of the Supreme Court in the case of Mafatlal Industries Ltd. Vs. Union of India 1996 (12) TMI 50 - SUPREME COURT as it would be an unjust enrichment on the part of the Appellant-Revenue if the amount of EDD is not refunded which was deposited by the Respondent-Assessee as per the Circular No. 11/2001-Cus. as a safeguard to the Revenue by way of security deposit till the process of valuation undertaken by The Special Valuation Branch of the Appellant-Revenue is completed. The Appellant is directed to refund the entire amount which is deposited by the Respondent pursuant to the aforesaid directions containing in the order dated 4th March 2024 within a period of Twelve (12) weeks from the date of receipt of copy of this order with statutory interest from the date of re-deposit by the applicant till the date of payment - Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

(a) Whether the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) was justified in holding that the importer was not required to file a refund claim for the Extra Duty Deposit (EDD) made pending finalization of the provisional assessment, without filing an application for refund under Section 27 read with Section 18 of the Customs Act, 1962?

(b) Whether the Tribunal was justified in holding that the refund claim filed by the importer could not be treated as barred by limitation under Section 27 of the Customs Act, 1962, for claims filed after 2006?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Requirement of Filing Refund Claim for Extra Duty Deposit (EDD)

Relevant legal framework and precedents: The Customs Act, 1962 governs the levy and refund of customs duties. Section 27 deals with refund of duty erroneously paid or paid in excess, while Section 18 relates to provisional assessment. Circular No. 11/2001-Cus dated 23.02.2001 prescribes the procedure for valuation cases handled by the Special Valuation Branch (SVB), including the requirement of depositing 1% EDD as a safeguard during investigation. The Supreme Court decision in Mafatlal Industries Ltd. v. Union of India (1997) and the Madras High Court ruling in Commissioner of Customs (Export), Chennai v. Sayonara Exports Pvt. Ltd. (2015) are pivotal precedents.

Court's interpretation and reasoning: The Court recognized that the 1% EDD deposited during provisional assessment was a security deposit rather than a duty payable under the Act. Section 2(15) defines "duty" as customs duty leviable under the Act, and the EDD does not fall within this definition. The Madras High Court in Sayonara Exports held that the refund of EDD can be made automatically without the importer having to file a refund application under Section 27. The Court found this approach consistent with the Supreme Court's ruling in Mafatlal Industries, which prohibits unjust enrichment of the revenue.

Key evidence and findings: The Circular No. 11/2001-Cus mandates a 1% EDD to secure revenue during SVB investigations. The Respondent-Assessee deposited the EDD and later, after acceptance of declared value by the Assistant Commissioner of Customs, was entitled to refund. The Tribunal relied on the Madras High Court decision to hold that no refund application was necessary and that refund orders could be passed suo moto.

Application of law to facts: Since the EDD is a security deposit and not a customs duty, the procedural requirement of filing a refund claim under Section 27 is not applicable. The Court concluded that the revenue department was obligated to refund the EDD once the provisional assessment was finalized in favor of the importer, without requiring a formal refund application.

Treatment of competing arguments: The Revenue contended that the refund claim was barred by limitation and that the importer was required to file an application under Section 27. The Court distinguished the facts from other cases cited by the Revenue, notably the Bombay High Court decision in Bussa Overseas, which involved different factual matrices. The Court rejected the Revenue's contention, relying on the binding precedents and the nature of EDD as a security deposit.

Conclusions: The Tribunal was justified in holding that the importer was not required to file a refund claim for EDD under Section 27, and refund could be granted suo moto by the department.

Issue (b): Limitation Bar on Refund Claim for EDD

Relevant legal framework and precedents: Section 27(1)(b)(c) of the Customs Act prescribes limitation periods for refund claims. The Madras High Court in Sayonara Exports and the Karnataka High Court in Commissioner of Customs, Bangalore v. Hitachi Koki India Pvt. Ltd. (2012) held that the limitation provisions under Section 27 are not attracted in cases involving refund of EDD, since it is not a duty but a security deposit. The Supreme Court ruling in Mafatlal Industries also supports refund in such circumstances to prevent unjust enrichment.

Court's interpretation and reasoning: The Court observed that since the refund of EDD is automatic and not contingent upon a refund claim application, the limitation period under Section 27 cannot be invoked to reject the claim. The refund arises from the acceptance of declared value and finalization of assessment, not from a claim filed by the importer. The Court noted that treating the refund claim as barred by limitation would amount to unjust enrichment of the revenue.

Key evidence and findings: The Respondent-Assessee filed the refund claim on 24.01.2018, after the finalization of assessment on 04.02.2016. The Revenue rejected the claim on limitation grounds. However, the Tribunal and the Court found that limitation provisions were not applicable to EDD refunds.

Application of law to facts: The Court applied the principles from the Madras and Karnataka High Courts and the Supreme Court to the facts, concluding that the refund claim could not be barred by limitation since no formal refund application was required and the refund was automatic upon finalization.

Treatment of competing arguments: The Revenue argued that the refund claim was time-barred under Section 27. The Court rejected this, relying on authoritative precedents and the nature of EDD as a security deposit distinct from customs duty.

Conclusions: The Tribunal was justified in holding that the refund claim was not barred by limitation under Section 27 of the Customs Act.

3. SIGNIFICANT HOLDINGS

"In terms of the decision of the Hon'ble High Court of Madras, the Appellants would be entitled to automatic refund of EDD without filing of application for refund under Section 27 of the Customs Act, 1962. The Hon'ble High Court held that there is no need to file any refund application and the order for refund can be made suo moto. Hon'ble High Court also held that this issue is in conformity with the decision of Hon'ble Apex Court in the case of Mafatlal Industries."

"The amount of 1% EDD deposited by the Respondent-Assessee was in a nature of security deposit and not the duty either provisional or final under the provisions of the Act."

"In view of the above, the Appellant was not even required to file refund claim and EDD should have been refunded without filing of refund claim. In these circumstances, if and when the refund claim was filed by the Appellant cannot be treated as barred by limitation."

"The refund is not sought for the excise duty paid in excess of what was payable under law. The refund was sought in respect of the additional value insisted upon by the department being the value of technical know-how and royalty... When the assessing authority held that the customs duty paid by the assessee was proper and no additional duty need be paid, they were under an obligation to refund this additional amount which was collected, which had no basis. In such circumstances, Section 27 is not attracted."

The Court conclusively held that the refund of EDD is automatic upon finalization of provisional assessment in favor of the importer, without the necessity of filing a refund claim under Section 27, and that limitation provisions under Section 27 do not apply to such refunds. The appeal filed by the Revenue was dismissed, affirming the Tribunal's order in favor of the importer.