The Supreme Court on Monday allowed an appeal filed by Patanjali-owned Ruchi Soya Industries Ltd. challenging a Gujarat High Court, which had denied the company a refund of customs duty recovered by the customs authorities through the encashment of a bank guarantee [M/S Patanjali Foods Limited (formerly Ruchi Soya) v. Union of India and ors].
A Bench of Justices Abhay Oka and Ujjal Bhuyan delivered the verdict, holding that the customs’ claim was barred by the doctrine of unjust enrichment.
“Respondents (customs) had recovered the duty amount by using coercive method. In the facts of the case, encashment of bank guarantee cannot be treated as (recovery of) customs (duty). They could have waited for the outcome by this Court (in a case that had a bearing on such custom duty demands). Respondents have no authority in law to hold the money. Retention of such amount will carry 6%. Let the amount be released in 4 months from today,” the Court ordered.
A copy of the judgment is awaited.
The case arises out of a two-decade-old customs dispute involving Ruchi Soya Industries Ltd., one of India’s leading edible oil companies, which was acquired by the Patanjali group in 2019 under the Insolvency and Bankruptcy Code.
In September 2002, Ruchi Soya imported crude, degummed soyabean oil of edible grade at the Jamnagar port and filed a bill of entry for the clearance of the consignment by customs authorities. The company was asked by customs authorities to pay duty-based on tariff values notified under Section 14(2) of the Customs Act, 1962, instead of under Section 14(1), which relies on the transaction value of the goods.
Ruchi Soya contested the demand, arguing that the relevant notification fixing tariff value had not yet come into the public domain on the date of the transaction and was therefore not legally enforceable. The Gujarat High Court admitted the company’s writ petition in 2002 and allowed the provisional clearance of goods upon furnishing a bank guarantee for the differential customs duty.
However, in 2012, the High Court dismissed Ruchi Soya’s petition and vacated the interim relief. The customs department promptly encashed the bank guarantee and recovered an amount of ₹9.19 lakh.
The legal tide turned in 2015 when the Supreme Court in Union of India v. Param Industries Ltd held that such tariff value notifications must be made available to the public to be effective. Relying on this ruling, Ruchi Soya applied for a refund of the amount recovered through the encashed bank guarantee.
The customs department objected, citing the doctrine of unjust enrichment under Section 27 of the Customs Act, which bars the refund of duty if the importer has passed on the tax burden to another party. Ruchi Soya filed fresh writ petitions in 2015, challenging this denial and sought directions to process the refund without insisting on compliance with the unjust enrichment requirement.
In 2016, a Division Bench of the Gujarat High Court comprising Justices Akil Kureshi and AY Kogje dismissed the petitions. It held that once the High Court’s interim relief had been vacated and the bank guarantee was encashed, the recovered amount constituted “duty” under the Customs Act. The High Court added that such “duty” payments were subject to the statutory refund mechanism, including the bar on unjust enrichment. The Court distinguished earlier Supreme Court rulings which held that encashment of a bank guarantee does not amount to duty payment if the underlying demand had been quashed.
Ruch Soya then approached the Supreme Court which granted it relief today.
Meanwhile, Patanjali Ayurved acquired Ruchi Soya in 2019 for ₹4,350 crore through an NCLT-approved resolution plan, reviving the company’s operations and rebranding it as a key arm of the Patanjali consumer goods empire. The outcome of the case may have financial implications for the company post-resolution.
Source #Bar and Bench
