Introduction: For levy of Customs Duty on imported goods, the Special Valuation Branch of Customs department conducts an investigation of transactions involving special relationships between buyer & seller in accordance with the Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 or those involving other special circumstances surrounding the sale of imported goods, both of which have a bearing on the assessable value of imported goods, in accordance with Rule 3(3) of the CVR, 2007. Pending investigation by SVB, assessment of such import shipments is done provisionally and interest of revenue is safeguarded by taking Extra Duty Deposit (EDD) also known as Revenue Deposit (RD).
Nature of EDD: CBEC Circular No. 11/2001-Cus dated 23.02.2001, dealing with SVB procedure, provides that once Importer submits requisite documents and information, EDD shall be discontinued and imports will continue to be assessed provisionally, till completion of investigation, on the basis of a PD Bond without any EDD. CBEC Circular No. 5/2016-Customs dated 9th Feb, 2016, reiterates the same. Thus, the EDD being paid in terms of these CBEC Circulars for provisional assessment of the Bills of Entry is only a Security Deposit and not a payment of duty. CESTAT, Bangalore in the case of ‘SKF Technologies (India) Pvt Ltd. vs Commissioner of Customs [2016-TIOL-3063-CESTAT-BANG] held that EDD is in the form of security and the doctrine of ‘unjust enrichment’ is not applicable in the case of refund of EDD.
Suo-motu Refund of EDD: CBEC Circular No. 5/2016-Customs dated 9th Feb, 2016, provides that upon receipt of Investigative Report (IR) from the SVB for accepting the declared value under Rule 3 of the CVR, 2007, the customs stations where provisional assessments have been undertaken shall immediately proceed to finalise the same, without issuing a speaking order therein. This implies that Importer need not to make any application for finalization of such provisional Bills of Entries. Further, EDD being a security, provisions of Section 27 of the Customs Act, 1962 would not apply to the refund of EDD. Extra Duty Deposit is obtained from the Importers as a precaution to safeguard the interest of the revenue. If after final assessment any part of this deposit is found in excess it is liable to be refunded suo-motu once the bill of entry is finalized or at least on a simple letter request by the Importer. Hon’ble Bombay High Court in the case of ‘Suvidha Ltd vs. UOI [1996 (86) ELT. 177(Bom)] held that the term ‘extra duty deposit’ is a misnomer and has to be understood correctly as nothing that is collected ‘extra’ or over and above what is allowed under the statue can be termed as a duty. What is meant is that an extra amount has been deposited towards duty liability that may arise in future as a safeguard and not as an advance deposit or extra duty, as the amount collected cannot be treated as duty until and unless the said deposit is adjusted towards such duty on finalization thereof as per law. Similar view was taken in case of Commissioner of Customs Chennai vs Madras Fertilizers Ltd. [2012-TIOL-984-CESTAT-MAD]. Hon’ble Supreme Court in the case of ‘Mafatlal Industries Ltd. vs UOI [2002-TIOL-54-SC-CX-CB] held that any provision appearing or trying to bar recovery of illegally collected tax is violative of Article 265 of the Constitution and must be struck down. If the realization of tax is in excess of the charge imposed by the Excise Act, then such levy of tax is not authorized by law. The collection of such excess unlawful levy is also invalid. Once it is established that more than what is payable under the statute has been collected from the tax payer, the tax-payer automatically gets a right to get back the whole amount.
Section 27 not applicable to Refund of EDD: Section 18(2)(a) of the Customs Act, 1962 provides that when the duty leviable on such goods is assessed finally or reassessed by the proper officer, then the amount paid shall be adjusted against the duty finally assessed or reassessed as the case may be and if the amount so paid falls short of or is in excess of the duty finally assessed or re-assessed, as the case may be, the Importer shall pay the deficiency or be entitled to a refund, as the case may be. This provision implies that when an amount becomes refundable after a final order is passed under Section 18(1A), the same has to be refunded immediately and for this purpose, the assessee is not required to file an application under Section 27 and accordingly sub-section (1B)(c) and sub-section (2) to Section 27 providing on limitation, would not apply in refunds of EDD. Please note that earlier there was Explanation II to Section 27 of the Customs Act, 1962, introduced w.e.f. 1st August, 1998 providing that where any duty is paid provisionally under section 18, the limitation of one year or six months, as the case may be, shall be computed from the date of adjustment of duty after the final assessment thereof. Thereafter the said Explanation II was substituted with sub-section (1B)(c) to Section 27 w.e.f. 8th April, 2011 providing almost similar provisions to Explanation II. Gujarat High Court in the case of ‘Commissioner vs Hindalco Industries Ltd [2008-TIOL-477-HC-AHM-CUS] held that prior to 13th July, 2006, no provision existed in Section 18 of the Act which invokes the principles of unjust enrichment in relation to duty paid in excess upon finalization of provisional assessment under Section 18 of the Act. Interpretation of Section 18 implies that on finalisation of assessment if any excess duty is found to have been paid at the time of provisional assessment, Revenue is bound in law to make the refund without any claim being required to be made by an Assessee. Following this judgement, Delhi High Court in case “Commissioner of Customs vs Indian Oil Corporation [2012-TIOL-52-HC-DEL-CUS] further clarified that Explanation II to Section 27 of the Customs Act implies that in the situation where the Assessee has paid provisional duty which gets reduced on final assessment, he becomes entitled to refund which is payable in terms of Rule 9B of the Excise Act, 1944 or Section 18 of the Customs Act, 1962. For refund on this account, no application is required to be filed under Section 27 of the Act and therefore sub-section (2) to Section 27 is not applicable. In the second situation where Assessee becomes entitled to additional refund on account of appellate orders or orders passed by a court, he is under an obligation to file an application under Section 27 of the Act, the limitation period accordingly applies and doctrine of unjust enrichment is also applicable. Hon’ble Madras High Court in the case of ‘Commissioner of Customs (Export), Chennai vs Sayonara Exports’ [2015-TIOL-740-HC-MAD-CUS] held that the assessee is entitled for automatic refund of the EDD made pending finalization of the provisional assessment without filing an application for refund under Section 27 of the Customs Act, 1962 and that limitation period and doctrine of unjust enrichment stipulated under sub-section (2) to Section 27 do not apply to such refund of EDD. Similar view was taken by CESTAT, Ahmedabad in the case of ‘China Steel Corporation (India) Pvt. Ltd. vs Commissioner of Customs, Ahmedabad [2022-TIOL-697-CESTAT-AHM]
Law of Limitation not applicable: Sub–section (1B)(c) to Section 27 of the Customs Act, 1962 provides that 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. In this regard it may be noted that as discussed above, interpretation of Section 18(2)(a) implies that when an amount becomes refundable on finalization of Bills of Entry assessed provisionally under Section 18 ibid, the same has to be refunded immediately and for this purpose, the assessee is not required to file an application under Section 27 and accordingly sub–section (1B)(c) and sub-section (2) to Section 27 ibid, providing for limitation, would not apply in refunds of EDD. Thus, in view of the various judgements cited above, the law of limitation is not applicable in refund of EDD.
Unjust Enrichment not applicable: As discussed above, interpretation of Section 18(2)(a) of the Customs Act, 1962 implies that when an amount becomes refundable after a final order is passed under Section 18(1A), the same has to be refunded immediately and provisions of sub-section (5) to Section18 and sub-section (2) to Section 27 ibid, invoking Doctrine of Unjust Enrichment, would not apply to such refunds. Hon’ble Supreme Court in the case of Mafatlal Industries Ltd. cited supra held that the concept of unjust enrichment would not be attracted on finalization of provisional assessments. This was followed by Supreme Court in the case of Commissioner of Central Excise, Chennai vs TVS Suzuki Ltd [2003-TIOL-08-SC-CX-LB]. Further Apex Court in the case of ‘Commissioner of Central Excise, Mumbai-II vs Allied Photographics India Ltd [2004-TIOL-27-SC-CX] held that refund of duty paid under protest after final assessments attracts bar of unjust enrichment whereas bar of unjust enrichment not applicable to refund consequent upon finalization of provisional assessments under Rule 9B of erstwhile Central Excise Rules, 1944. Similar view was taken by the Apex court in the case of Commissioner of Customs vs Hindustan Zinc Ltd. [2023(384) ELT. 626 (SC)] and also in ‘Commissioner of Customs vs Mangalore Refinery and Petrochemicals Ltd [2023(385)ELT. 94(SC)].
Documents for refund of EDD: CBIC has clarified vide Customs Manual-Part 5 at Sr No. 2 of Customs Series Form Nos.102 that for refund of EDD arising out of SVB order / IR, Importer should submit copy of Bills of Entry finalised by the concerned customs stations and the copy of SVB order. Since there is no circular / notification specifying documents required for refund of EDD, reliance may be placed on Board Circular No.01/2012-Customs dated 05.01.2012 governing the Refund of 4% Additional Duty of Customs in terms of Notification No.102/2007-Customs dated 14.09.2001. The Board, at Para 3 thereof, has authorized Statutory Auditor/Cost Accountants/ Chartered Accountants to issue the requisite certificate. The Principal Bench of CESTAT, Delhi in the case of Telecare Network India Pvt Ltd. [2023-TIOL-305-CESTAT-DEL] held that there is no requirement in law that a certificate must be issued only by statutory auditors for refund of excess additional duty of customs paid under protest.
Conclusion: EDD is not a payment of duty. EDD is a security deposit paid for provisional assessment under Section 18 of the Customs Act, 1962. Importer becomes entitled for refund of excess amount of EDD paid automatically on finalisation of such provisional assessment and he is not required to file any application for refund under Section 27. So, the Law of Limitation and Doctrine of Unjust Enrichment, stipulated under Section 27, are not applicable for refund of EDD.
Author Bio
