Provisions of Refunds under Customs Act, 1962

Section 26 of the Customs Act, 1962 prescribes provision for refund of export duty, Section 26A of the Customs Act, 1962 deals with refund of import duty in certain cases and Section 27 of the Customs Act, 1962 prescribes claim for refund of duty in case of excess payment duty on importation. The relevant provisions of Customs Acts are summarized as under:

Refund of export duty in certain cases (Section 26):

Where on the exportation of any goods any duty has been paid, such duty shall be refunded to the person by whom or on whose behalf it was paid, if –

(a) the goods are returned to such person otherwise than by way of re-sale;

(b) the goods are re-imported within one year from the date of exportation; and

(c) an application for refund of such duty is made before the expiry of six months from the date on which the proper officer makes an order for the clearance of the goods.

Refund of import duty in certain cases (Section 26A):

(1) Where on the importation of any goods capable of being easily identified as such imported goods, any duty has been paid on clearance of such goods for home consumption, such duty shall be refunded to the person by whom or on whose behalf it was paid, if—

(a) the goods are found to be defective or otherwise not in conformity with the specifications agreed upon between the importer and the supplier of goods :

Provided that the goods have not been worked, repaired or used after importation except where such use was indispensable to discover the defects or non-conformity with the specifications;

(b) the goods are identified to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs as the goods which were imported;

(c) the importer does not claim drawback under any other provision of this Act; and

(d) (i) the goods are exported; or

(ii) the importer relinquishes his title to the goods and abandons them to customs; or

(iii) such goods are destroyed or rendered commercially valueless in the presence of the proper officer,

in such manner as may be prescribed and within a period not exceeding thirty days from the date on which the proper officer makes an order for the clearance of imported goods for home consumption under section 47 :

Provided that the period of thirty days may, on sufficient cause being shown, be extended by the Principal Commissioner of Customs or Commissioner of Customs for a period not exceeding three months:

Provided further that nothing contained in this section shall apply to the goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force.

(2) An application for refund of duty shall be made before the expiry of six months from the relevant date in such form and in such manner as may be prescribed.

Explanation. – For the purposes of this sub-section, “relevant date” means, —

(a) in cases where the goods are exported out of India, the date on which the proper officer makes an order permitting clearance and loading of goods for exportation under section 51;

(b) in cases where the title to the goods is relinquished, the date of such relinquishment;

(c) in cases where the goods are destroyed or rendered commercially valueless, the date of such destruction or rendering of goods commercially valueless

(3) No refund under sub-section (1) shall be allowed in respect of perishable goods and goods which have exceeded their shelf life or their recommended storage-before-use period.

(4) The Board may, by notification in the Official Gazette, specify any other condition subject to which the refund under sub-section (1) may be allowed.

Claim for refund of duty (Section 27):

(1) Any person claiming refund of any duty or interest, —

     (a) paid by him; or

     (b) borne by him,

may make an application in such form and manner as may be prescribed for such refund to the Assistant Commissioner of Customs or Deputy Commissioner of Customs, before the expiry of one year, from the date of payment of such duty or interest :

Provided further that the limitation of one year shall not apply where any duty or interest has been paid under protest:

Provided also that where the amount of refund claimed is less than rupees one hundred, the same shall not be refunded.

Explanation. — For the purposes of this sub-section, “the date of payment of duty or interest’’ in relation to a person, other than the importer, shall be construed as “the date of purchase of goods” by such person.

(1A) The application under sub-section (1) 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 or interest in relation to which such refund is claimed was collected from, or paid by him and the incidence of such duty or interest, has not been passed on by him to any other person.

(1B) Save as otherwise provided in this section, the period of limitation of one year shall be computed in the following manner, namely:—

(a) 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 shall be computed from the date of issue of such order;

(b) where the duty becomes refundable as a consequence of any judgment, decree, order or direction of the appellate authority, Appellate Tribunal or any court, the limitation of one year shall be computed from the date of such judgment, decree, order or direction;

(c) where any duty is paid provisionally under section 18, the limitation of one year shall be computed from the date of adjustment of duty after the final assessment thereof or in case of re-assessment, from the date of such re-assessment.]

2) If, on receipt of any such application, the [Assistant Commissioner of Customs or Deputy Commissioner of Customs] is satisfied that the whole or any part of the [duty and interest, if any, paid on such duty] paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:

Provided that the amount of duty and interest, if any, paid on such duty as determined by the Assistant Commissioner of Customs or Deputy Commissioner of Customs under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to –

(a) the duty and interest, if any, paid on such duty paid by the importer, [or the exporter, as the case may be] if he had not passed on the incidence of such [duty and interest, if any, paid on such duty] to any other person;

(b) the duty and interest, if any, paid on such duty on imports made by an individual for his personal use;

(c) the duty and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such [duty and interest, if any, paid on such duty] to any other person;

(d) the export duty as specified in section 26;

(e) drawback of duty payable under sections 74 and 75;

(f) the duty and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify :

(g) the duty paid in excess by the importer before an order permitting clearance of goods for home consumption is made where —

(i) such excess payment of duty is evident from the bill of entry in the case of self-assessed bill of entry; or

(ii) the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment :

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty and interest, if any, paid on such duty has not been passed on by the persons concerned to any other person.

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal, National Tax Tribunal or any Court or in any other provision of this Act or the regulations made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).

(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette.

Interest on delayed refunds (Section 27A):

If any duty ordered to be refunded under sub-section (2) of section 27 to an applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, [not below five per cent] and not exceeding thirty per cent per annum as is for the time being fixed [by the Central Government by Notification in the Official Gazette], on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty :

Provided that where any duty, ordered to be refunded under sub-section (2) of section 27 in respect of an application under sub-section (1) of that section made before the date on which the Finance Bill, 1995 receives the assent of the President, is not refunded within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date, till the date of refund of such duty.

Explanation. — Where any order of refund is made by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or any court against an order of the Assistant Commissioner of Customs or Deputy Commissioner of Customs under sub-section (2) of section 27, the order passed by the Commissioner (Appeals), Appellate Tribunal, National Tax Tribunal or as the case may be, by the court shall be deemed to be an order passed under that sub-section for the purposes of this section.

Case Laws on  Refunds under Customs Act, 1962

The Hon’ble Supreme Court in the case of Priya Blue Industries Ltd v. Commissioner of Customs (Prev.), reported in 2004(172) E.L.T. 145 (S.C.), held that “Once an Order of Assessment is passed the duty would be payable as per that order. Unless that order of assessment has been reviewed under Section 28 and/or modified in an Appeal that Order stands. So long as the Order of Assessment stands the duty would be payable as per that Order of Assessment. A refund claim is not an Appeal proceeding. The Officer considering a refund claim cannot sit in Appeal over an assessment made by a competent Officer. The Officer considering the refund claim cannot also review an assessment order” (Para-6)

Therefore, as per Apex Court verdict assessees should challenge the assessment order in the bill of entry first by filing appeal lest the said order becomes final.

The Hon’ble Tribunal in the case of Vimal Alloys Pvt. Ltd v. Commissioner of Customs , reported in 2011(264) E.L.T. 524 ( Tri. Delhi), held that amount paid by importer could not be said to be duty. At best it was a deposit converted into duty. In that view, refund filed beyond prescribed period could not be said to be time-barred. (Para 5).

The Hon’ble Tribunal in the Case of Southern Petrochem. Indus. Corpn. Ltd. v. Collector of Customs, reported in 1994(69) E.L.T.710 (Tri, Madras), held that “ It is now well settled that the refund claim cannot be enlarged before the Appellate Forum after the expiry of statutory period under Section 27 of the Customs Act. Therefore, we have to reject the claim of the appellants for refund of additional duty and CV duty as available under Notification No. 132/88-C.E. as being as fresh claim, which is inadmissible in law, as having been made beyond the prescribed time limit under Section 27 of the Act. (Para 10).

The Revisionary Authority, in the case of Bombay Oil Industries Pvt. Ltd and others- reported in 1982( 10) E.L.T-707 (G.O.I), held that “exemption is granted under the Act and not independent of the Act. In the matter of assessment where there is a dispute regarding application of an exemption notification, it is left to the proper officer who is required to assess the goods under the Act, to determine as to whether such exemption notification is attracted or not. Such decision is taken by the proper officer in the normal course in exercise of his jurisdiction and not in excess of jurisdiction. If in accordance with the proper officer the goods are not covered by exemption notification and such finding is eventually set aside by an authority higher than him, it cannot be said that the said erroneous decision fell outside the jurisdiction of the assessing officer. In other words if the goods attract duty being covered under a tariff item or heading of the Central Excise Tariff or Customs Tariff, as the case may be, the proper officer of Customs or Central Excise, as the case may be, will have complete jurisdiction to decide as to the quantum of duty chargeable on the goods. In fact there is not a single good reason that has been adduced by the petitioners in support of their contention that their claims which were hit by limitation under Section 27(1) of the Customs Act should still be considered on merits. (Para 15).

The Hon’ble Tribunal in the case of S. R. Polyvinyl Ltd. v. Commissioner of Customs, reported in 2020 (37) E.L.T. 283 (Tri. Del.), held that “the delay in release of the refund claim of the petitioner was not justified and it could not be said that the refund application was made prematurely. Accordingly, we allow the present petition and quash the order dated 14-6-2018 passed by the respondents denying the petitioner’s claim for interest on the refund amount. We direct the respondents to pay the interest on the aforesaid amounts in terms of Section 27A of the Customs Act within the period of 8 weeks from the date of receipt of the copy of this order.”

The Hon’ble Tribunal in the case of Commissioner of Customs v. L. G. Electronics Pvt. Ltd, reported in 2019 (370) E.L.T. 441 ( Tri. All.), held that “we find that the issue before the original adjudicating authority was claim of refund of SAD which stands denied by him. As such there was no occasion for the original adjudicating authority to deal with interest aspect. Further Commissioner (Appeals) though had allowed the refund claims, but rejected the interest amount by one line observations reproduced above. There was no discussion or observations by Commissioner (Appeals) as regards interest claimed by the assessee. As such we are of the view that the matter should be remanded to original adjudicating authority for deciding the appellant’s claim of interest, in the light of the declaration of law by the Hon’ble Delhi High Court and followed by the Tribunal in the above referred cases. Accordingly he would decide the interest liability of the Revenue by referring to the above decisions as also by referring to the facts of the case. We would like to observe here that the appellant’s entitlement to interest would be considered by treating the original date of filing of refund as the relevant date in terms of the provisions of Section 27A of the Customs Act.”

The Hon’ble Tribunal larger bench in the case of DCM Shriram Consolidated Ltd. v. Commissioner of Customs, reported in 2004( 173) E.L.T. 238 ( Tr.-LB.) , held that “though refund claim was filed on 22-4-1997 the assessment was finalized on 16-2-2001 only and the refund, if any, has become due to them only from that date. Thus, interest, if any, will be payable from 3 months after 16-2-2001 and not from 22-4-1997 as at that time no refund was due to the Applicants. We, therefore, hold that the applicants are entitled for the interest on Rs. 34,83,457/- from 3 months after 16-2-2001 (i.e. 17-5-2001) till the date of payment of the said amount to the applicants at the rate prevailing during the relevant period. The application is disposed of in the above terms.”