Supreme Court of India
/S PATANJALI FOODS LIMITED (FORMERLY KNOWN AS M/S RUCHI SOYA INDUSTRIES LTD.)versusUNION OF INDIA & ORS.
- Citation
- 2025 INSC 733
- Decided
- 19 May 2025
- Disposal
- Case Allowed
- Bench
- ABHAY S OKA
Holding
Encashment of bank guarantees furnished under interim court orders does not constitute payment of duty and therefore Section 27 of the Customs Act and the doctrine of unjust enrichment are inapplicable; the amounts must be refunded with interest.
Summary
M/s Patanjali Foods Ltd. (formerly Ruchi Soya Industries Ltd.) challenged the customs department’s encashment of bank guarantees that were furnished as security under interim High Court orders. The company argued that such encashment could not be treated as "payment of duty" for purposes of a refund under Section 27 of the Customs Act, nor could the doctrine of unjust enrichment apply. The Supreme Court held that a bank guarantee is merely a security measure and its coercive encashment does not constitute payment of duty, making Section 27 and the unjust enrichment principle inapplicable. The Court also found that the revenue department acted improperly by encashing the guarantees while the appeals were pending, contrary to earlier precedents. Consequently, the Court set aside the High Court’s order and directed the department to refund the amounts with 6% interest from the date of encashment. The appeals were allowed and no costs were awarded.
Issues considered
- Whether encashment of bank guarantees furnished under court orders amounts to "payment of duty" within the meaning of Section 27 of the Customs Act, 1962.
- Whether the doctrine of unjust enrichment applies to amounts realized through such encashment.
- Whether the customs department was justified in encashing the guarantees while the civil appeals were pending before the Supreme Court.
Legislation cited
- Central Excise Act, 1944s. 11B
- Constitution of Indias. Article 265
- Customs Act, 1962s. 14(1), s. 14(2), s. 142, s. 27
Headnote
Issue for Consideration 1. Whether encashment of bank guarantees furnished under court orders can be treated as “payment of duty” for the purpose of refund under Section 27 of the Customs Act? 2. Whether the doctrine of unjust enrichment apply through such encashment? 3. Whether the Department was right in encashing the guarantees when the civil appeals were pending before this Court? Headnotes† Customs Act, 1962 – Encashment of bank guarantees furnished under interim orders of High Court – Whether such encashment
Subjects
Customs Act 1962Section 27Doctrine of unjust enrichmentBank guarantee encashmentRefund of dutyArticle 265Central Excise Act 1944Payment of dutyCivil Appeal
Judgment
[2025] 5 S.C.R. 2141 : 2025 INSC 733
M/s Patanjali Foods Limited
(Formerly known as M/s Ruchi Soya Industries Ltd.)
v.
Union of India & Ors.
(Civil Appeal No(s). 3833-3835 of 2025)
19 May 2025
[Abhay S. Oka and Ujjal Bhuyan,* JJ.]
Issue for Consideration
1. Whether encashment of bank guarantees furnished under
court orders can be treated as “payment of duty” for the
purpose of refund under Section 27 of the Customs Act?
2. Whether the doctrine of unjust enrichment apply to amounts
realized through such encashment?
3. Whether the Department was right in encashing the guarantees
when the civil appeals were pending before this Court?
Headnotes†
Customs Act, 1962 – Encashment of bank guarantees furnished
under interim orders of High Court – Whether such encashment
amounts to “payment of duty” under Section 27 of the Act:
Held: Furnishing of a bank guarantee is a measure of securing
revenue interest during litigation and cannot be equated with
actual payment of duty – Encashment of such guarantees following
dismissal of writ petitions does not amount to statutory duty ‘paid’
by the assessee within the meaning of Section 27 – The scheme
of the Customs Act contemplates refund only where duty has
been voluntarily or mandatorily deposited under assessment
orders – In the present case, realization was only by coercive
encashment of guarantees, and thus falls outside the ambit
of Section 27 – Consequently, insistence on compliance with
Section 27 requirements, including filing in prescribed form and
proof of non-passing of incidence, was misplaced. [Paras 23, 30-31]
Doctrine of Unjust Enrichment – Applicability to amounts
realized by encashment of bank guarantees:
* Author
2142 [2025] 5 S.C.R.
Supreme Court Reports
Held: Doctrine inapplicable where no duty was ‘paid’ –
Encashment of bank guarantee is realization of security and does
not constitute a levy or collection of duty – Precedents in Oswal
Agro Mills Ltd. v. Asstt. Collector of Central Excise (1994) 2 SCC
546 and Somaiya Organics (India) Ltd. v. State of U.P. (2001)
5 SCC 519 conclusively establish that such encashment cannot
be treated as duty paid, and thus unjust enrichment principle
has no application – High Court erred in relying on DCW Ltd. v.
Union of India (2016) 15 SCC 789, which involved encashment
expressly authorized after default of assessee. The facts in that
decision are distinguishable and not comparable – Accordingly,
doctrine of unjust enrichment not attracted in the present case.
[Paras 19.2, 25-29]
Levy and Collection of Duty – Distinction emphasized in
assessing validity of Revenue’s action:
Held: Levy refers to imposition of duty; collection refers to actual
realization – Furnishing of a bank guarantee is neither levy nor
collection – Encashment without legal authority amounts to coercive
realization, not a statutory collection – Constitution Bench in
Somaiya Organics (India) Ltd. v. State of U.P. (2001) 5 SCC 519
underscored that what cannot be collected directly under law cannot
be realized indirectly through guarantee encashment – Retention of
such amounts is contrary to Article 265 of the Constitution, which
prohibits tax collection without authority of law. [Paras 27-29]
Refund Claims Under Section 27, Customs Act – Scope and
inapplicability in cases of coercive encashment:
Held: Section 27 states that any person claiming refund of any duty
may make an application for refund of the same with interest to
the Assistant Commissioner of Customs or Deputy Commissioner
of Customs if he had paid the duty in pursuance of an order of
assessment or borne by him and evidence either documentary
or other to establish that the amount of duty and interest which
is claimed as refund and that the incidence of such duty and
interest had not been passed on by him to any other person has
to be produced – Encashment of bank guarantees does not fall in
this category and consequently, procedural rigour of Section 27,
including filing of supporting financial documents, does not apply – A
nine-Judge Bench of this Court in Mafatlal Industries Ltd. v. Union
of India (1997) 5 SCC 536 considered various questions concerning
[2025] 5 S.C.R. 2143
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
refund of excise and customs duty collected contrary to law including
unjust enrichment – The amount of the disputed tax or duty that
is secured by a bank guarantee cannot, therefore, be held to be
paid to the revenue as held by in Oswal Agro Mills Ltd. v. Assistant
Commissioner of Central Excise, Division Ludhiana (1994) 2 SCC
546 – Appellant entitled to refund directly on basis of this Court’s
ruling in Union of India v. Param Industries Ltd. (2016) 16 SCC
692 – Directions issued for refund with interest at 6% per annum
from date of encashment until repayment. [Paras 23-24, 30-31]
Conduct of Revenue Authorities – Encashment of guarantees
during pendency of appeal before the Supreme Court and
claim of differential amount of duty – Whether justified:
Held: Revenue acted in undue haste in encashing guarantees in
January 2013, despite the pendency of appeals against the High
Court judgment before the Supreme Court – In Oswal Agro Mills
Ltd. v. Asstt. Collector of Central Excise, Division Ludhiana, (1995)
Supp. 3 SCC 65 the Supreme Court had held in similar set of
facts that no bank guarantee could be encashed by the Revenue
Department till the decision of the Court has become final – There
was no direction by either High Court or Supreme Court permitting
such encashment – Department could have insisted on extension
of guarantees or awaited outcome – Retention of money even
after this Court’s decision in Union of India v. Param Industries
Ltd. (2016) 16 SCC 692 declaring demand unlawful was wholly
arbitrary and unsustainable – Such conduct condemned; refund
with interest directed. [Paras 19.3, 25, 29, 31]
Case Law Cited
Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise [1994] 1
SCR 650 : (1994) 2 SCC 546; Somaiya Organics (India) Ltd. v.
State of U.P. [2001] 3 SCR 33 : (2001) 5 SCC 519; Oswal Agro
Mills Ltd. v. Asstt. Commissioner of Central Excise (1995) Supp. 3
SCC 65 – relied on.
Union of India v. Param Industries Ltd. (2016) 16 SCC 692; Mafatlal
Industries Ltd. v. Union of India [1996] Supp. 10 SCR 585 : (1997)
5 SCC 536; DCW Ltd. v. Union of India (2016) 15 SCC 789;
Synthetics & Chemicals Ltd. v. State of U.P. [1989] Supp. 1 SCR
623 : (1990) 1 SCC 109; State of U.P. v. Synthetics and Chemicals
Ltd. [1991] 3 SCR 64 : (1991) 4 SCC 139 – referred to.
2144 [2025] 5 S.C.R.
Supreme Court Reports
List of Acts
Customs Act, 1962; Central Excise Act, 1944; Constitution of India.
List of Keywords
Custom Act 1962; Section 27; Doctrine of unjust enrichment;
Central Excise Act, 1944; Encashment of guarantees; Payment
of duty Act, 265.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s).
3833-3835 of 2025
From the Judgment and Order dated 28.04.2016 of the High Court
of Gujarat at Ahmedabad in SCA Nos. 14540, 14541 and 14542
of 2015
Appearances for Parties
Advs. for the Appellant:
Balbir Singh, Sr.Adv., Rajesh Rawal, Karan Sachdev, Ashwani
Kumar.
Advs. for the Respondents:
Ms. Nisha Bagchi, Sr.Adv., Nalin Kohli, Sarthak Karol, Abhishek
Singh, Pratyush Srivastava, B. Krishna Prasad.
Judgment / Order of the Supreme Court
Judgment
Ujjal Bhuyan, J.
The present civil appeals by special leave are directed against
the judgment and order dated 28.04.2016 passed by the Division
Bench of the High Court of Gujarat at Ahmedabad (briefly ‘the High
Court’ hereinafter) in Special Civil Application Nos. 14540, 14541
and 14542 of 2015 (Ruchi Soya Industries Limited Vs. Union of
India & Ors.).
2. Subject-matter of all the three appeals is identical and parties to the
proceedings are common. Therefore, all the appeals were heard
together and are being disposed of by this common judgment and
[2025] 5 S.C.R. 2145
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
order. In fact, facts in all the appeals are similar except the quantity
of refund involved.
3. For a proper perspective, relevant facts may be noted.
4. M/s M.P. Glychem Industries Limited (‘M.P. Glychem’ for short)
imported certain quantity of crude degummed soyabean oil of edible
grade in bulk at Jamnagar and filed bill of entry on 02.09.2002 seeking
clearance of the imported goods for home consumption. Customs
department (department) did not clear the goods on the ground that
appellant 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 (referred to hereinafter as ‘the Customs Act’).
Contention of the appellant 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. Therefore, appellant was liable to pay duty only in terms
of the provisions contained in Section 14(1) of the Customs Act.
5. Since there was an impasse with the imported goods being held up,
appellant filed Special Civil Application No. 9308 of 2002 before the
High Court challenging the validity of the notification issued by the
Government of India fixing the tariff value of the imported goods i.e.
crude degummed soyabean oil (also referred to hereinafter as the
‘subject goods’) 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.
High Court passed an order dated 07.10.2002 admitting the writ
petition and granted interim relief to the effect that for clearance of
the goods in question, appellant should furnish a bank guarantee for
the difference of duty of customs under Sections 14(1) and 14(2) of
the Customs Act, clarifying that this arrangement would be subject
to order of final assessment.
6. On 09.10.2002, appellant had furnished bank guarantee for the
differential amount of Rs. 9,19,801.00 through its banker in favour of
the department. In two other writ petitions, on the same issue, bank
guarantees to the extent of Rs. 45,99,006.00 and Rs. 22,25,052.00
being the differential amounts of duty were furnished. Upon furnishing
the bank guarantees as above by the appellant, the subject goods
were allowed to be cleared by paying customs duty payable under
Section 14(1) of the Customs Act.
2146 [2025] 5 S.C.R.
Supreme Court Reports
7. In the meanwhile, M/s M.P. Glychem Industries Limited stood merged
with M/s Ruchi Soya Industries Limited in terms of the order of the
Bombay High Court dated 30.06.2006 and thereafter came to be
known as M/s. Ruchi Soya Industries Limited.
8. Special Civil Application No. 9308 of 2002 alongwith the other two writ
petitions were finally decided by the High Court vide the judgment and
order dated 13.09.2012. All the three writ petitions were dismissed.
Consequently, the interim relief granted earlier stood vacated.
9. Against the aforesaid judgment and order dated 13.09.2012, appellant
approached this Court in Civil Appeal Nos. 1808-1813 of 2013.
10. While the civil appeals were pending before this Court, the department
on 28.01.2013 encashed the bank guarantees and appropriated the
sums covered by the bank guarantees.
11. Civil Appeal Nos. 1808-1813 of 2013 were heard alongwith other similar
civil appeals by this Court and were disposed of by the common order
dated 05.05.2015. This order has since been reported in (2016) 16
SCC 692 (Union of India Vs. Param Industries Limited). This Court
held that though the notification might have been published on the date
when the goods were cleared, it was not offered for sale by the Central
Board of Excise and Customs (briefly ‘the Board’ hereinafter), which
event took place much thereafter. Therefore, it was not justified and
lawful on the part of the department to claim the differential amount of
duty on the basis of the said notification. The appeals were accordingly
allowed only on this point without going into the other issues.
12. On 04.06.2016, appellant filed three similar refund applications
before the department seeking refund of the differential duty amounts
which were secured by means of the bank guarantees. Quantum of
differential duty amounts collected by the department by encashing
the bank guarantees are as under:
(i) first writ petition: Rs. 9,19,801.00;
(ii) second writ petition: Rs.45,99,006.00; and
(iii) third writ petition: Rs. 22,25,052.00.
13. Department issued letter dated 17.06.2015 to the appellant raising
two issues: first was regarding non-filing of refund application in
proper format and the second was with regard to non-submission
of documents like balance sheet, profit and loss account etc. for
[2025] 5 S.C.R. 2147
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
the relevant period to show that the claim of refund is not hit by the
principle of unjust enrichment.
14. According to the appellant, in the facts of the present case, question
of unjust enrichment did not rise and the said principle is certainly not
applicable. Contention of the appellant is that the details sought for
were in consequence of the requirements of Section 27 of the Customs
Act but Section 27 which encapsulates the unjust enrichment principle
has no applicability in the present case. No additional or differential
duty was paid by it; the bank guarantees were furnished as security
to secure the amounts of differential duty on orders of the High Court.
Be that as it may, appellant submitted reply letter dated 30.06.2015
pointing out that though it had complied with the requirements of the
letter dated 17.06.2015, the amounts covered by the bank guarantees
encashed by the department had become refundable in terms of the
judgment of this Court dated 05.05.2015 in Param Industries Limited
(supra). Section 27 is not applicable in the facts of the case. It was,
therefore, contended that the department should not insist on filing of
the documents sought for to prove that the incidence of the differential
duty had not been passed on to the customers and, therefore, there
was no unjust enrichment by the appellant.
15. However, department ignored the above contention of the appellant
and instead issued another letter dated 30.07.2015 again insisting
upon submission of the same set of documents. According to the
appellant, despite several personal meetings and oral requests,
department remained adamant that appellant should discharge the
burden that it had not unjustly enriched itself and, therefore, would
be entitled to the refund.
16. At that stage, appellant filed Special Civil Application No. 14540 of
2015 before the High Court. Two other writ petitions were also filed
being Special Civil Application Nos. 14541 and 14542 of 2015. Prayer
made was for quashing of letters dated 17.06.2015 and 30.07.2015
and for a direction to the department to refund the amounts covered
by the bank guarantees forcibly encashed by the department without
insisting on compliance with Section 27 of the Customs Act.
17. By the common judgment and order dated 28.04.2016, High Court
dismissed all the three writ petitions. However, it was observed that
despite dismissal of the writ petitions, it would be open to the appellant
to produce necessary documents before the department as demanded
2148 [2025] 5 S.C.R.
Supreme Court Reports
in the context of the question of unjust enrichment. High Court directed
that if such documents were produced by 31.07.2016, department
should process the refund applications in accordance with law.
18. Aggrieved thereby, the related special leave petitions were filed. By
order dated 22.08.2016, this Court had issued notice and directed that
no coercive steps be taken in the meantime. Finally, while hearing
the special leave petitions on 04.03.2025, leave was granted. In the
hearing held on 04.03.2015, I.A. No. 41371 of 2024 was allowed,
by which the name of the appellant was changed from M/s. Ruchi
Soya Industries Limited to M/s. Patanjali Foods Limited.
19. Mr. Balbir Singh, learned senior counsel for the appellant, assailing
the impugned judgment submits that High Court misdirected itself
by holding that the doctrine of unjust enrichment is applicable to the
facts of this case and thereby dismissing the writ petitions. Learned
senior counsel submits that the real substantive issue is whether
forcible encashment of bank guarantees by the department which
were offered as security by the appellant in terms of the interim
order of the High Court, following dismissal of the writ petitions
can be said to be the duty or the differential duty ‘paid’ by the
appellant.
19.1. Learned senior counsel submits that provisions contained
in Section 27 of the Customs Act is pari materia to Section
11B of the Central Excise Act, 1944 (‘Central Excise Act’
hereinafter). Encashment of bank guarantee cannot be equated
with payment of duty as per language employed in Section
27 of the Customs Act or for that matter Section 11B of the
Central Excise Act.
19.2. This issue has already been set at rest by this Court in Oswal
Agro Mills Ltd. Vs. Asstt. Collector of Central Excise, Division
Ludhiana1which decision has been endorsed by a Constitution
Bench of this Court in Somaiya Organics (India) Ltd. Vs.
State of U.P.2. This Court has held that the doctrine of unjust
enrichment will not come into play when bank guarantee is
offered as security and the same is encashed by the revenue
1 (1994) 2 SCC 546
2 (2001) 5 SCC 519
[2025] 5 S.C.R. 2149
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
after the case is lost by the assessee. It has been held that it
cannot be said that assessee had paid the amount as duty;
therefore, such encashment would be out of the scope of
unjust enrichment.
19.3. Learned senior counsel submits that after this Court had
allowed the appeals of the appellant in Param Industries
Limited (supra) by holding that it was not justified and lawful
on the part of the department to claim the differential amount
of duty on the basis of the notification which was not offered
for sale by the Board at the time when the goods were
cleared, action of the respondents in retaining the money
after forcibly encashing the bank guarantees offered by the
appellant as security for the differential amount of duty has
become completely untenable. In fact, respondents had
acted in extreme haste while encashing the bank guarantees
knowing fully well that the judgment of the High Court was
under active consideration of this Court. Respondents could
have, rather ought to have, awaited the decision of this
Court. Now that this Court has upheld the contention of the
appellant, on one pretext or the other, respondents are trying
to frustrate the refund by raising the untenable plea of unjust
enrichment. Stricto sensu, he submits, it is not a case of refund
because no duty was ‘paid’ by the appellant. Section 27 of
the Customs Act therefore would not be attracted. Appellant is
thus not required to follow the procedure in terms of Section
27 of the Customs Act.
19.4. He submits that withholding of the amounts after unilaterally and
arbitrarily encashing the bank guarantees though this Court has
upheld the contention of the appellant that no differential duty
was required to be paid for the imported goods, has become
totally unsustainable in law. In the circumstances, respondents
should be directed to forthwith release the amounts illegally
retained to the appellant. Therefore, impugned judgment and
order is liable to be set aside.
20. Per contra, Ms. Nisha Bagchi, learned senior counsel appearing for the
respondents submits that appellant had furnished bank guarantees,
in all total three bank guarantees, covering the differential amounts
of duty, the details of which are as under:
2150 [2025] 5 S.C.R.
Supreme Court Reports
Date Amount
09.10.2002 Rs.9,19,801.00
10.10.2002 Rs.45,99,006.00
24.10.2001 Rs.22,25,052.00
20.1. After the writ petitions were dismissed by the High Court
on 13.09.2012, respondents encashed the bank guarantee
for Rs.9,19,801.00 on 22.01.2013 and the other two bank
guarantees on 28.01.2013. Respondents were under no legal
injunction not to encash the bank guarantees after dismissal
of the writ petitions.
20.2. She submits that though the appellant had filed three refund
applications on 04.06.2015, it did not attach any relevant
document in support of the refund claims as required under
Section 27 of the Customs Act. Therefore, respondent No. 3
had informed the appellant vide letter dated 17.06.2015
that the claims of refund were not filed in proper format and
necessary documents were not attached. Though the claims
were subsequently filed in proper format but still necessary
documents were not annexed. Therefore, respondent No. 3
again wrote to the appellant on 30.07.2015 to submit the
requisite documents. Instead of complying with such lawful
request of respondent No. 3, appellant approached the High
Court by filing writ petitions. High Court rightly dismissed the
writ petitions but still gave liberty to the appellant to claim
refund by submitting the requisite documents.
20.3. She further submits that in compliance to the impugned
order appellant had submitted documents pertaining to the
financial year 2015-16 only vide letter dated 25.07.2016
instead of submitting relevant documents in entirety certified
by a chartered accountant which could duly establish how the
differential amounts of duty have been accounted for in the
books of account for the corresponding financial years 2001-02
and 2002-03. Despite non-cooperation of the appellant,
respondent No. 3 sanctioned the refund in terms of Section
27 of the Customs Act but ordered for crediting the refund
amounts to the Consumer Welfare Fund in terms of
Section 28C read with Section 28D of the Customs Act for
[2025] 5 S.C.R. 2151
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
non-compliance with the obligations under the doctrine of
unjust enrichment.
20.4. Learned senior counsel submits that in the facts and
circumstances of the case contention raised by the appellant
is wholly misconceived. It is a case where appellant would be
entitled to refund provided it satisfies the requirements under
Section 27 of the Customs Act which it has failed to do. There
is no merit in the appeals. Accordingly, the appeals are liable
to be dismissed.
21. Submissions made by learned counsel for the parties have received
the due consideration of the Court.
22. Since the respondent as well as the High Court has held that the
doctrine of unjust enrichment would be applicable to the facts of
the present case, and therefore, the appellant would be required to
comply with the procedure and requirements under the said principle,
let us briefly deal with this doctrine. Section 27 of the Customs Act
and Section 11B of the Central Excise Act deal with the question of
refund. Refund can be denied either in part or wholly by applying
the doctrine of unjust enrichment. Before we examine the above
concept, it would be apposite to refer to Section 27 of the Customs
Act. Section 27(1) of the Customs Act as it stood at the relevant
time reads thus:
(1) Any person claiming refund of any duty-
(i) paid by him in pursuance of an order of assessment; or
(ii) borne by him,
may make an application for refund of such duty and
interest, if any, paid on such duty to the Assistant
Commissioner of Customs or Deputy Commissioner of
Customs-
(a) in the case of any import made by any individual for
his personal use or by Government or by any educational,
research or charitable institution or hospital, before the
expiry of one year;
(b) in any other case, before the expiry of six months,
from the date of payment of duty and interest, if any,
paid on such duty in such form and manner as may be
2152 [2025] 5 S.C.R.
Supreme Court Reports
specified in the regulations made in this behalf and the
application shall be accompanied by such documentary
or other evidence (including the documents referred to in
section 28C) as the applicant may furnish to establish that
the amount of duty and interest, if any, paid on such duty
in relation to which such refund is claimed was collected
from, or paid by, him and the incidence of such duty and
interest, if any, paid on such duty had not been passed
on by him to any other person:
Provided that where an application for refund has been
made before the commencement of the Central Excises
and Customs Laws (Amendment) Act, 1991, such
application shall be deemed to have been made under this
sub-section and the same shall be dealt with in accordance
with the provisions of sub-section (2):
Provided further that the limitation of one year or six
months, as the case may be, shall not apply where any
duty and interest, if any, paid on such duty has been paid
under protest:
Provided also that in the case of goods which are exempt
from payment of duty by a special order issued under sub-
section (2) of section 25, the limitation of one year or six
months, as the case may be, shall be computed from the
date of issue of such order:
Provided also that where the duty becomes refundable
as a consequence of judgment, decree, order or direction
of the appellate authority, appellate tribunal or any court,
the limitation of one year or six months, as the case may
be, shall be computed from the date of such judgment,
decree, order or direction.
Explanation I. —For the purposes of this sub-section,
“the date of payment of duty and interest, if any, paid on
such duty, in relation to a person, other than the importer,
shall be construed as “the date of purchase of goods” by
such person.
Explanation II.—Where any duty is paid provisionally
under section 18, the limitation of one year or six months,
[2025] 5 S.C.R. 2153
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
as the case may be, shall be computed from the date of
adjustment of duty after the final assessment thereof.
23. Basic thrust of the aforesaid provision is that any person claiming
refund of any duty may make an application for refund of such duty
and interest, if any, paid on such duty to the Assistant Commissioner
of Customs or Deputy Commissioner of Customs if he had paid the
duty in pursuance of an order of assessment or borne by him. Such
application besides being required to be filed within the stipulated
period should also be accompanied by such documentary and other
evidence to establish that the amount of duty and interest which is
claimed by way of refund was collected from or paid by him and that
the incidence of such duty and interest had not been passed on by
him to any other person.
24. This doctrine was examined by a nine-Judge Bench of this Court in
Mafatlal Industries Ltd. Vs. Union of India3. This Court considered
various questions concerning refund of excise and customs duty
collected contrary to law, in all its shades, and also examined the
concept of unjust enrichment. Thereafter, the following propositions
were culled out with the disclaimer that those are not exhaustive:
i. Where a refund of tax/duty is claimed on the ground that it has
been collected from the petitioner/plaintiff by misinterpreting
or misapplying the provisions of the Central Excise Act or
the Customs Act or by misinterpreting or misapplying any of
the rules, regulations or notifications issued under the said
enactments, such a claim has necessarily to be preferred
under and in accordance with the provisions of the respective
enactments before the authorities specified thereunder and
within the period of limitation prescribed therein. While no suit
is maintainable in that behalf, writ jurisdiction under Article 32
or under Article 226 would be available.
ii. All refund claims will have to be filed and adjudicated under
the provisions of the Central Excise Act or the Customs Act,
as the case may be.
iii. Where, however, a refund is claimed on the ground that the
provisions of the concerned Act under which it was levied has
3 (1997) 5 SCC 536
2154 [2025] 5 S.C.R.
Supreme Court Reports
been held to be unconstitutional, such a claim being a claim
outside the purview of the enactment, can be made either by way
of a suit or by way of a writ petition. This principle is, however,
subject to an exception. Where a person approaches the High
Court or the Supreme Court challenging the constitutional validity
of a provision but is unsuccessful, he cannot take advantage of
the declaration of unconstitutionality obtained by another person
on another ground. This is because insofar he is concerned,
the decision has become final and cannot be reopened on the
basis of a decision on another person’s case. A refund claim
in such a situation cannot be governed by the provisions of the
Central Excise Act or the Customs Act.
iv. A claim for refund can succeed only if the petitioner/ plaintiff
establishes that he has not passed on the burden of duty to
another person/other persons. His refund claim shall be allowed/
decreed only when he establishes that he has not passed on
the burden of the duty or to the extent he has not so passed
on, as the case may be. This is because where the burden of
the duty has been passed on, the claimant cannot say that he
has suffered any real loss or prejudice. In such a case, the real
loss or prejudice is suffered by the person who has ultimately
borne the burden. If such a person does not come forward or
where it is not possible to refund the amount to him for one or
the other reason, it is just and appropriate that such amount
is retained by the State. The amount is retained by the State
on behalf of the people. There is no immorality or impropriety
involved in such a proposition.
v. The doctrine of unjust enrichment is a just and salutary doctrine.
It is based on the principle that no person can seek to collect duty
from both ends. Power of the court is not meant to be exercised
for unjustly enriching a person. This doctrine is, however,
inapplicable to the State as the State represents the people
and no one can speak of the people being unjustly enriched.
vi. It is not open to any person to make a refund claim on the
basis of a decision of the court or tribunal rendered in the case
of another person.
vii. In case of indirect taxes like central excise and customs duty, the
tax collected without the authority of law shall not be refunded
[2025] 5 S.C.R. 2155
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
to the claimant unless he alleges and establishes that he had
not passed on the burden of duty to a third party and that he
has himself borne the burden of the said duty.
viii. Both Section 11B of the Central Excise Act and Section 27 of
the Customs Act provide for the purchaser making the claim for
refund provided he is able to establish that he has not passed
on the burden to another person. Section 11B of the Central
Excise Act and Section 27 of the Customs Act therefore cannot
be said to be a device to retain illegally collected taxes by the
State.
25. In Oswal Agro Mills Ltd. Vs. Asstt. Collector of Central Excise, Division
Ludhiana4 (Oswal Agro Mills Ltd.1), this Court noted that there was
a dispute between Oswal Agro Mills and the excise department as
to whether the goods under dispute were liable to excise duty under
tariff item No. 15(1) or 15(2). This Court upheld the contention of
Oswal that the appellant was liable to pay excise duty under tariff
item No. 15(1). Appeal before this Court was filed against the decision
of the tribunal which had taken a contrary view. This Court had
passed an interim order that 50 percent of the dues be paid in cash
and for the remaining 50 percent of the dues, equivalent amount of
bank guarantee be furnished with further direction to keep alive the
bank guarantee till the decision in appeal. After Oswal succeeded
before this Court, it moved the authorities for refund of the excess
amount deposited in pursuance of the interim order of this Court.
Since no decision was being taken, Oswal moved the High Court.
A direction was issued to the revenue by the High Court to decide
the application for refund on merit while directing Oswal to get
the bank guarantee extended till disposal of the claim for refund.
Notwithstanding the same, revenue encashed the bank guarantee
to meet the duty demand. This Court found the behaviour of the
excise department highly improper and held that bank guarantees
were furnished to secure the interest of the parties till determination
of matters pending before the Court. No bank guarantee could be
encashed till the decision of the Court. Revenue had no power by
using its executive fiat to get the bank guarantee encashed. Allowing
4 (1995) Supp. 3 SCC 65
2156 [2025] 5 S.C.R.
Supreme Court Reports
the appeal, this Court directed the revenue to refund the money so
collected by encashing the bank guarantee forthwith.
26. It appears that revenue filed review petition for review of the aforesaid
order in Oswal Agro Mills 1. In review it was contended by the revenue
that refund was not permissible having regard to the provisions
of Section 11B of the Central Excise Act. In Oswal Agro Mills Ltd.
Vs. Assistant Commissioner of Central Excise, Division Ludhiana5,
(Oswal Agro Mills Ltd. 2), this Court referred to Section 11B of the
Central Excise Act and held that the said provision applies when an
assessee claims refund of excise duty. A claim for refund is a claim
for repayment. It presupposes that the amount of excise duty has
been paid over to the excise authorities. It is then that the excise
authorities would be required to repay or refund the excise duty.
It is in this factual backdrop that this Court posed the question for
consideration as to whether it could be said that furnishing of a bank
guarantee for all or part of the disputed excise duty pursuant to an
order of the court is equivalent to payment of the amount of excise
duty. This Court answered the above question in the negative and
held as follows:
10. The question, therefore, is whether it can be said
that the furnishing of a bank guarantee for all or part
of the disputed excise duty pursuant to an order of
the court is equivalent to payment of the amount
of the excise duty. In our view, the answer is in the
negative. For the purposes of securing the revenue in
the event of the revenue succeeding in proceedings
before a court, the court, as a condition of staying
the demand for the disputed tax or duty, imposes
a condition that the assessee shall provide a bank
guarantee for the full amount of such tax or duty or
part thereof. The bank guarantee is required to be
given either in favour of the principal administrative
officer of the court or in favour of the revenue authority
concerned. In the event that the revenue fails in the
proceedings before the court the question of payment
of the tax or duty, the amount of which is covered by
5 (1994) 2 SCC 546
[2025] 5 S.C.R. 2157
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
the bank guarantee, does not arise and, ordinarily,
the court, at the conclusion of its order, directs that
the bank guarantee shall stand discharged. Where
the revenue succeeds the amount of the tax or duty
becomes payable by the assessee to the revenue
and it is open to the revenue to invoke the bank
guarantee and demand payment thereon. The bank
guarantee is security for the revenue, that in the event
the revenue succeeds its dues will be recoverable,
being backed by the guarantee of a bank. In the event,
however unlikely, of the bank refusing to honour its
guarantee it would be necessary for the revenue or,
where the bank guarantee is in favour of the principal
administrative officer of the court, that officer to file
a suit against the bank for the amount due upon the
bank guarantee. The amount of the disputed tax or
duty that is secured by a bank guarantee cannot,
therefore, be held to be paid to the revenue. There
is no question of its refund and Section 11-B is not
attracted.
26.1. Having held so this Court found no merit in the review petition
and reiterated the direction it had issued in Oswal Agro Mills 1
to repay the amount collected upon encashment of the bank
guarantee.
27. In Somaiya Organics (India) Ltd. (supra), a Constitution Bench of
this Court was adjudicating a batch of appeals filed as a sequel to
a judgment of this Court in Synthetics and Chemicals Ltd. Vs. State
of U.P. wherein it was held that in respect of industrial alcohol, the
States were not authorized to impose the impost they had purported
to do. By that decision, this Court had overruled its earlier decision in
State of U.P. Vs. Synthetics and Chemicals Ltd. wherein the validity
of such an impost was upheld. In the second Synthetics case, it was
declared that the impugned provisions were illegal prospectively. The
question which arose for consideration in the batch of appeals was
whether the vend fee which had been levied by the appropriate state
enactments but not collected either by reason of orders of the court
or otherwise could be collected then when the said provisions had
been held to be invalid prospectively. In the course of this decision,
Constitution Bench referred to Article 265 of the Constitution of India
2158 [2025] 5 S.C.R.
Supreme Court Reports
and observed that the words used therein are ‘levy’ and ‘collect’. In
a taxing statute the words ‘levy’ and ‘collect’ are not synonymous
words; while levy would mean assessement or charging or imposing
tax, collect would be physical realisation of the tax which is levied or
imposed. Collection of tax is normally a stage subsequent to levy of
the same. Constitution Bench approved the decision in Oswal Agro
Mills 2 and held as follows:
35. Furthermore, in view of the enunciation of the law by
this Court in Oswal Agro Mills 2, a bank guarantee which
is furnished cannot be regarded as payment of excise levy
which the Government is entitled to retain. The furnishing
of a bank guarantee is ordered normally in order to ensure
collection of dues. Where, however, the State, as in the
present case, has been held not to be entitled to collect or
realise vend fee after 25-10-1989 it cannot be allowed to
invoke the bank guarantee and realise the amount of vend
fee. What cannot be done directly cannot be done indirectly
either. Furnishing of bank guarantee is only a promise
by the bank to pay to the beneficiary the amount under
certain circumstances contained in the bank guarantee.
Furnishing of bank guarantee cannot tantamount to
making of payment as it was to avoid making payment
of the vend fee that bank guarantees were issued. The
respondents, in other words, are not entitled to encash
the bank guarantees and realise vend fee in respect of
the period prior to 25-10-1989.
28. On the other hand, 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. We are
afraid High Court erred in placing reliance on the said decision. In
that case, the dispute was as regards classification of the imported
goods. As per the classification of revenue, applicant was required
to pay higher duty which the applicant disputed. This dispute was
ultimately settled by the tribunal as per which a certain sum of money
6 (2016) 15 SCC 789
[2025] 5 S.C.R. 2159
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
became refundable to the applicant, being the difference between
the duty payable and the duty actually paid. When the applicant
filed application for refund, the same was rejected by the proper
officer relying on the doctrine of unjust enrichment. It was held that
applicant could not satisfy the authorities that the burden was not
passed on to the ultimate consumers. Therefore, applicant was not
entitled to refund. When this was challenged before the High Court,
the prayer for refund was partially allowed. Regarding the partial
rejection High Court held that the amount covered by the partial
rejection were not paid by the applicant pursuant to order passed by
the High Court; In fact, High Court had issued positive direction to
the applicant for deposit of the said amount. In spite of order of the
High Court applicant defaulted in payment, whereafter the interim
protection was vacated. Following the same, revenue encashed the
bank guarantee. It was in that factual backdrop this Court held that
the authority had rightly applied the doctrine of unjust enrichment.
Applicant had defaulted in making the payment despite order of the
court as a result of which the stay order was vacated. Thereafter,
revenue recovered the amount of duty on encashment of the bank
guarantee. This Court noted that High Court had after vacating the
stay order permitted the revenue to encash the bank guarantee.
It was in this context this Court opined that as far as refund was
concerned it had to be decided in the light of the doctrine of unjust
enrichment which was clearly applicable to the facts of that case.
29. We fail to understand as to how this decision would be applicable
to the facts of the present case. In DCW Limited (supra), it was the
court which had permitted the revenue to encash the bank guarantee
after vacating the stay order because of persistent default on the
part of the applicant in paying the duty. Insofar the present case is
concerned, it is true that in the initial round of litigation, High Court
had dismissed the claim of the appellant that it was not required to
pay higher customs duty in terms of Section 14(2) of the Customs
Act but liable to pay duty only in terms of Section 14(1). After the
High Court had dismissed the writ petitions, appellant had filed
special leave petitions before this Court which upon leave being
granted were registered as Civil Appeal Nos. 1808-1813 of 2013.
It is also true that there was no interim order in those batch of civil
appeals. But there was no direction either or leave granted by the
High Court to the respondents to encash the bank guarantees
2160 [2025] 5 S.C.R.
Supreme Court Reports
furnished by the appellant on orders of the High Court covering the
differential amount of duty. Without waiting for this Court to take a
decision in Civil Appeal Nos. 1808-1813 of 2013, revenue displayed
extreme haste and encashed the bank guarantees on 22.01.2013 and
28.01.2013 respectively. Ultimately, those civil appeals were allowed
by this Court in Param Industries Limited (supra) holding that the
concerned notification was not offered for sale by the Board when
the imported goods were cleared; therefore, it was not justified and
lawful on the part of the department to claim the differential amount
of duty on the basis of the said notification.
30. It is thus evident that 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. Under the scheme of
the Customs Act, duty is assessed provisionally or finally whereafter
an assessment order or order-in-original is passed. 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. 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. Such encashment of bank
guarantees cannot be treated as payment of duty or duty paid by a
claimant. In such circumstances, the doctrine of unjust enrichment
or Section 27 of the Customs Act would not be applicable. It is
evidently clear that respondents are holding on to money of the
appellant which they are not authorized to do so as per judgment
of this Court in Param Industries Limited (supra). They have no
authority in law to hold on to such money and, therefore, the same
has become totally untenable.
31. 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
[2025] 5 S.C.R. 2161
M/s Patanjali Foods Limited (Formerly known as
M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors.
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. Let the repayments with applicable
interest be released to the appellant within a period of four months
from today.
32. Appeals are allowed. However, there shall be no order as to cost.
Result of the case: Appeals allowed.
†
Headnotes prepared by: Swathi H. Prasad, Hony. Associate Editor
(Verified by: Kanu Agrawal, Adv.)
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