Encashment Of Bank Guarantees Offered As Security Can’t Be Treated As Payment Of Customs Duty: Supreme Court Allows Patanjali’s Plea
The Supreme Court allowed Appeals of the Patanjali Foods Limited against the Judgment of the Gujarat High Court in the Special Civil Applications.
Justice Abhay S. Oka, Justice Ujjal Bhuyan, Supreme Court
The Supreme Court allowed Civil Appeals filed by Patanjali Foods Limited, saying that the encashment of bank guarantees offered as security cannot be treated as payment of customs duty.
The Appeals before the Court challenged the Judgment of the Gujarat High Court’s Division Bench in the Special Civil Applications.
The two-Judge Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan held, “Post assessment order or order-in-original, the concerned importer is required to pay the assessed duty. If the importer does not pay the duty, revenue can enforce recovery under Section 142 of the Customs Act as recovery of sums due to the Government. The key word in Section 27 of the Customs Act is ‘paid’. Refund thereunder is permissible only if any duty is ‘paid’ by the claimant which subsequently becomes refundable either fully or in part. In the facts of the present case encashment of bank guarantees offered as security cannot be treated as payment of customs duty.”
The Bench observed that arbitrary encashment of the bank guarantees cannot be treated as payment of duty or duty paid by a claimant.
Senior Advocate Balbir Singh appeared on behalf of the Appellant while Senior Advocate Nisha Bagchi appeared on behalf of the Respondents.
Brief Facts
M.P. Glychem Industries Limited imported certain quantity of crude degummed soyabean oil of edible grade in bulk at Jamnagar and filed bill of entry, seeking clearance of the imported goods for home consumption. Customs department did not clear the goods on the ground that the Appellant (Patanjali) was required to pay higher customs duty on the basis of tariff value fixed for the imported goods in terms of Section 14(2) of the Customs Act, 1962. The Appellant’s contention was that at the time of the import of the goods, the concerned notification issued by Government of India fixing tariff value under Section 14(2) of the Customs Act had not come into effect and therefore, Appellant was liable to pay duty only in terms of the provisions contained in Section 14(1). Since there was an impasse with the imported goods being held up, Appellant filed Special Civil Application before the High Court challenging the validity of the notification fixing the tariff value of the imported goods i.e., crude degummed soyabean oil as also the date of coming into effect of the said notification.
One of the grounds of challenge was that the notification was not available for sale and was, therefore, not in the public domain. The High Court granted interim relief to the effect that for clearance of the goods, Appellant should furnish a bank guarantee for the difference of duty of customs under Sections 14(1) and 14(2), clarifying that this arrangement would be subject to order of final assessment. Thereafter, the Appellant had furnished bank guarantee for the differential amount and the goods were allowed to be cleared by paying customs duty. In the meanwhile, Glychem stood merged with Ruchi Soya and Special Civil Application along with Writ Petitions were decided by the High Court in 2012. All these Petitions were dismissed and consequently, the interim relief stood vacated. Hence, the Appellant approached the Apex Court.
Reasoning
The Supreme Court in view of the above facts, noted, “… we find that the High Court had placed reliance on a two-Judge Bench decision of this Court in DCW Limited Vs. Union of India6 and held that the doctrine of unjust enrichment would be clearly applicable. Therefore, burden would be on the appellant to establish that it had not passed on the duty to third parties.”
The Court remarked that the Respondents had recovered the differential duty amount by adopting coercive method i.e., encashment of the bank guarantees which were offered as security for the differential amount of duty on Orders of the High Court.
“Respondents could have either awaited the decision of this Court or could have directed the appellant to renew the bank guarantees. This they did not do. Instead they resorted to arbitrary encashment of the bank guarantees. … In such circumstances, the doctrine of unjust enrichment or Section 27 of the Customs Act would not be applicable”, it further said.
The Court also observed that the Respondents are holding on to money of the Appellant which they are not authorized to do so and that they have no authority in law to hold on to such money and, therefore, the same has become totally untenable.
“In the circumstances, we set aside the impugned judgment and order of the High Court dated 28.04.2016 and direct the respondents to immediately refund the amounts covered by the bank guarantees to the appellant. Since retention of such amounts is unjust and unlawful, the same would carry interest at the rate of 6 percent from the dates of encashment till repayment”, it directed.
The Court concluded that let the repayments with applicable interest be released to the Appellant within a period of four months.
Accordingly, the Apex Court allowed the Appeals and set aside the Judgment of the High Court.
Cause Title- M/s Patanjali Foods Limited v. Union of India & Ors. (Neutral Citation: 2025 INSC 733)
Appearance:
Appellant: Senior Advocate Balbir Singh, AOR Ashwani Kumar, Advocates Rajesh Rawal, and Karan Sachdev.
Respondents: Senior Advocate Nisha Bagchi, AOR B. Krishna Prasad, Advocates Nalin Kohli, Sarthak Karol, Abhishek Singh, and Pratyush Srivastava.
