Refund – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.
Refund – CA Final IDT Study Material
Question 1.
Explain the relevant dates as provided in Section 26A(2) of Customs Act, 1962 for purpose of refund of duty under specified circumstances, namely:
(i) goods exported out of India
(ii) relinquishment of title to goods
(iii) Goods destroyed or rendered valueless. [Nov. 2016, 4 Marks]
Answer:
The relevant dates provided under Explanation to section 26A(2) of the Customs Act, 1962 for the purpose of refund of duty under specified circumstances are as follows:
| Specified case | Relevant Date |
| (i) Goods are exported out of India | Date on which the proper officer makes an order permitting clearance and loading of goods for exportation |
| (ii) Relinquishment of title to goods | Date of such relinquishment |
| (iii) Goods destroyed or rendered valueless | Date of such destruction or rendering of goods commercially valueless |
Question 2.
State briefly with reference to the provisions of Sec. 27 of Customs Act, 1962 whether the principle of “unjust enrichment” will apply in the following cases:
(i) Refund of wrongly encashed bank guarantee.
(ii) Refund of excess interest paid by the assessee.
(iii) Refund of duty on car imported for personal use. [May 2008, 2 × 3 = 6 Marks]
Answer:
| Case | Applicability of Principal of Unjust Enrichment | Reason |
| (i) Refund of wrongly encashed bank guarantee | No question arises | The Supreme Court in OSWAL Agro mills Ltd. [SC/1994] held that furnishing of a bank guarantee for all or part of the disputed duty is NOT equivalent to payment of “duty”. The furnishing of bank guarantee is only a security to safeguard the interest of the Revenue. Since section 27 governs the refund of ‘duty’, and the bank guarantee is not ‘duty’, the limitation prescribed therein for refund of duty would not apply to refund of a bank guarantee. Also the requirement to establish that the duty incidence had not been passed on by the assessee to any other person would also not get attracted when section 27 is not attracted. |
| (ii) Refund of excess interest paid by the assessee | Yes but Refund is subject to principle | Sec. 27 provides for refund of custom duty as well as interest if any so in this case the refund will be granted for interest paid in excess, subject to unjust enrichment. |
| (iii) Refund of duty on car imported for personal use. | Not applicable | Proviso to Sec. 27(2) clearly provides for refund of import duty, if the importer is an individual and has imported the goods for his personal purpose. |
Question 3.
Write a brief note on sanctioning of refund of customs duty under Sec. 27(2) of the Customs Act, 1962 under which refunds will not be credited to the consumer welfare fund. [Nov. 2010, 4 Marks]
Answer:
The Sec. 27(2) of the Customs Act, 1962 provides if the Assistant/Deputy Commissioner of Customs is satisfied about the refund claim made by the applicant, then in view of the provisions of unjust enrichment enshrined in the Customs Act, the amount found refundable has to be
credited to the Consumer Welfare Fund.
Cases of direct payment [First Proviso to section 27(2)]:
In the following situations, the amount of duty and interest found refundable, instead of being credited to consumer welfare fund, is to be paid to the applicant:
(a) if the importer has not passed on the incidence of such duty and interest to any other person.
(b) if imports were made by an individual for his personal use.
(c) if the buyer who has borne the duty and interest, has not passed on the incidence of such duty and interest to any other person.
(d) if amount found refundable relates to export duty paid on goods which has returned to exporter as specified in section 26.
(e) if amount relates to drawback of duty payable under sections 74 and 75.
(f) if the duty or interest was borne by a class of applicants which has been notified for such purpose in the Official Gazette by the Central Government.
(g) if the duty paid in excess by the importer before an order permitting clearance of goods for home consumption is made where-
- such excess payment of duty is evident from the bill of entry in the case of self- assessed bill of entry; or
- the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment.
Question 4.
Discuss briefly the provisions relating to manner of computation of limitation period of one year in three situations contemplated under Sec. 27(1B) of the Customs Act, 1962 for purpose of refund of duty. [May 2012, 3 Marks]
Answer:
The situations require computation of limitation period of one year as contemplated under Sec. 27(1B) of the Customs Act, 1962 are as follows:
| Section | Event | Limitation of one year to be computed from the |
| 27(1B)(a) | Exempt from payment of duty by a special order issued under Sec. 25(2) of the Customs Act | Date of issue of such order |
| 27(1B )(b) | When duty becomes refundable on account of any judgment, decree, order or direction of the appellate authority, Court/Tribunal | Date of judgment decree, order or direction |
| 27(1B)(c) | Provisional payment of duty under section 18 | Date of adjustment of duty after the final assessment or in case of re-assessment, from the date of such re-assessment. |
Question 5.
What is the minimum monetary limit prescribed in the Customs law below which no refund shall be granted? [May 2014, 1 Mark]
Answer:
As per 3rd Proviso to Sec. 2 7(1) of Customs Act, 1962, the minimum monetary limit below which refund cannot be granted is ₹ 100. It means if the amount is less than ₹ 100, no refund will be allowed under Customs Act.
Question 6.
The assessee, an Importer, filed a refund application under Sec. 27 of the Customs Act, 1962. In support of the refund claim, the assessee submitted a Chartered Accountant’s certificate giving the various facts ruling out unjust enrichment under the Customs Act. The department denied the refund on the grounds being insufficient evidence.
Examine the validity of departmental action citing a decided case, if any[May 2014,3 Marks]
Answer:
Facts of the given Case Study
- The assessee has submitted a Chartered Accountant’s certificate giving the various facts ruling out unjust enrichment under the Customs Act.
- The department denied the refund on the grounds being insufficient evidence.
Related Provisions
(a) The present case is based upon Sec. 27(1A) of the Customs Act, 1962 which provides that refund application shall be accompanied by such documentary or other evidence including documents referred to in Sec. 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 by him to any person.
(b) Similar view was given by the High Court in the case of CCus., Chennai v. BPL Ltd. (2010).
Decision
The Chartered Accountant’s Certificate is not sufficient proof for establishing the conditions for refund as given above. Thus, the denial by the department is justified in this case.
Question 7.
Mr. N has imported 1000 units of an article “ZEP”, which has been valued at 1,150 per unit. The customs duty on this article has been assessed 250 per unit and paid by Mr. N. He adds his profit margin 350 per unit and sells the article for 1,750 per unit.
After one month of sale of whole units of article “ZEP”, Mr. N found that there was an error in assessment resulting in excess collection of duty by the Customs Department and such excess collection of 100 per unit is liable to be refunded by department. Mr. N files an application and demands refund.
Calculate the amount of refund to be received by Mr. N. Also mention provisions of the Customs Act, 1962 related to refund in above said situation. [CA-Final, Nov. 2015, 4 Marks]
Answer:
Amount of Refund claimed by assessee = 1000 units @ ₹ 100 per unit = ₹ 1,00,000
Amount of Refund received by assessee = Nil (as it is subject to unjust enrichment)
Facts of the case
- The importer has paid @ ₹ 100 per unit due to erroneous assessment by the department.
- As it is an error resulting in excess payment of duty, such excess duty is liable to be refunded.
- Also, the importer has already collected the duty from the purchaser.
Provision of Customs Act, 1962
Section 27 :
- The applicant has to make an application
- in such form and manner as may be prescribed for such refund to the AC/DC of Customs
- before the expiry of one year from the date of payment of such duty.
As per third proviso to section 27(1), where the amount claimed is less than ₹ 100, it will not be refunded.
Decision/ Comment
Since the importer has passed the burden to the consumers, if any refund is granted to him, it would confer on him a double benefit to which he does not have a valid right.
Therefore, refund will not be given to him but will be credited to consumer welfare fund.
Question 8.
Mr. Varad has, over three consignments of 300, 500 and 600 units, imported a total of 140 units of an article “FIXIT”, which has been valued at ₹ 3,500 per unit. The customs duty on this article has been assessed ₹ 350 per unit. He adds his profit margin @ 20% on cost and sell the article for ₹ 4,620 per unit.
After one month of selling the entire consignment of the article “FIXIT”, Mr. Varad found that there had been an error in payment of amount of duty, in which duty for the consignment of 300 units was paid as if it was 450 units, resulting in excess payment of duty. Mr. N files an application for refund for ₹ 37,500 (150 @ ₹ 250). Is the bar of unjust enrichment attracted?
Answer:
Facts of the case
Mr. Varad has paid customs duty on 1,550 units whereas he had imported 1,400 units only. After one month, he filed application for refund.
Provisions of Customs Act, 1962
Mr. Varad’s invoices show that he collected duty of ₹ 350 per unit on 1,400 items. However he paid duty on 150 items more. This payment, in the normal course, was made before the order permitting the clearance of the goods. It would be evident from the bill of entry that the amount paid was more than the amount of duty assessed. Thus, Mr. Varad’s case falls within the exception to unjust enrichment listed at clause (g) of the first proviso to section 27(2). He will be able to refute the charge of unjust enrichment.
Furthermore, clause (a) of the same sub-section provides that the doctrine of unjust enrichment will not apply to the refund of duty and interest, if any, paid on such duty if such amount is relatable to the duty and interest paid by the importer/exporter, if he had not passed on the incidence of such duty and interest to any other person. Mr. Varad’s invoices will show how much duty he collected from his customers, hence he may be covered by this clause also to escape the bar of unjust enrichment
Decision/ Comment
The bar of unjust enrichment is not attracted.
Question 9.
PQR Ltd. imported certain machine parts and filed a Bill Entry in the usual course. The said machine parts are entitled for concessional rate in terms of a notification. The assessee PQR Ltd. omitted to claim the benefit of the aforesaid notification at the time of filing and assessment of the Bill of Entry. Later when PQR Ltd., discovered about the benefit under the notification as aforesaid they filed a refund claim for the excess amount paid as customs duty under Sec. 27 of the Customs Act, 1962.
There was no assessment order since the duty was paid on the basis of the Bill of Entry filed in the usual course. The refund claim was rejected on the ground that Sec. 27 of the Customs Act, 1962 could be invoked only if an assessment order has been passed and duty payment made pursuant thereto.
Discuss with a brief note and decided case law if any whether the stand of the department is correct in law. [CA-Final, Nov. 2011, 3 Marks]
Answer:
Facts of the given Case Study
- PQR Ltd. imported certain machine parts and filed a Bill Entry in the usual course.
- The assessee omitted to claim the benefit of concessional rate notification at the time of filing and assessment of the Bill of Entry.
- There was no assessment order since the duty was paid on the basis of the Bill of Entry filed in the usual course.
- Now assessee has filed a refund claim for the excess amount paid as customs duty under Sec. 27 of the Customs Act, 1962.
- The refund claim was rejected
Related Provisions
(a) Sec. 27(1) of the Customs Act, 1962, inter alia provides that any person claiming refund of any duty and interest:
(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.
Since clauses (i) and (ii) of sub-sec. (1) of Sec. 27 have the expression ‘or’ in between them, it is clear that application for refund cannot only be made in pursuance of an assessment order but also when the duty is borne by the applicant. In fact, Sec. 27(1 )(n) aims to cover those very cases where the duty is paid by a person without an order of assessment.
(b) Aman Medical Products v.CCus. 2010 (250) E.L.T. 30 (Del.)
In this the High Court has held that it is not necessary that a refund can be claimed only when the duty paid by the importer is in pursuance to an order of assessment. The refund can also be claimed when the duty paid by the importer is ‘borne by him’.
Decision
In view of the above discussion, the stand taken by the Department is not correct in law.
Note: This case has been appealed to Supreme Court and appeal is pending in 2010(256) ELT A57 (Supreme Court).
Question 10.
The assessee had imported capital goods under a licence with a condition to fulfil an export obligation within a certain time limit. The assessee failed to discharge the export obligation within the said time limit. Consequently, the department invoked the bank guarantee and realize the amount. However, subsequently the assessee was able to fulfil the export obligation and the department cancelled the bank guarantee.
The assessee thereafter filed a refund claim for the amount realized by invocation of the bank guarantee by the department. The department rejected the refund claim on the ground that it was barred in terms of Sec. 27(1)(b) of the Customs Act, 1962 as the assessee had not been able to establish that the incidence of duty had not been passed on by him to any other person. Examine briefly with the help of any decided case law whether the stand taken by the department is correct in law. [Nov. 2009, 5 Marks]
Answer:
Facts of the given Case Study
- The assessee failed to discharge export obligation.
- Department invoked bank guarantee.
- Subsequently, the guarantee was cancelled because assessee fulfilled Export Obligation.
- The department rejected the claim on the ground of time barred as per section 27(1)(&).
Related Provisions
CCus. (Exports) v. Jraj Exports (P) Ltd. 2007 (217) E.L.T. 504 (Mad.),
The facts of the given case study are similar to above case. In the above cited case, the High Court observed that when the Department had accepted the fulfilment of export obligation, there was no need to invoke the bank guarantee and retain the amount. The High Court opined that the Department’s claim that refund had been time barred was not sustainable as furnishing of bank guarantee in order to fulfil the export obligation could not be regarded as payment of duty.
The High Court relied on the Supreme Court’s ruling in the case of Oswal Agro Mills Ltd. and Another v. Asstt. Collector of Central Excise 1994 (70) ELT 48 (SC), wherein it was held that furnishing of bank guarantee pursuant to an order of the Court/Tribunal would not be equivalent to payment of excise duty. The furnishing of Bank guarantee is only a security to safeguard the interest of the Revenue. Applying the principle laid down in this case, the Court/Tribunal stated that the requirement to establish that the duty incidence had not been passed on by the assessee to any other person would also not get attracted since Sec. 27 has no application to this case.
Decision
Since section 27 is not applicable, no question arises to prove non-transfer of duty incidence. Thus, the stand of the Revenue is not correct in law.
Question 11.
A manufacturer of excisable goods imported epoxy resin under bill of entry dated 28th March, 1992 and put them in a bonded warehouse. He later on cleared it on payment of duty. Subsequently, he realized that there was an excess payment of duty and put in a refund claim.
He used the imported goods in the manufacture of other goods and the burden of duty had not been passed on. The imported goods were not sold to any other buyer. The Customs Department refused the claim to refund on the ground of unjust enrichment. Was the decision justified? Discuss. [May 2000, 4 Marks]
Answer:
Facts of the given Case Study
- The assessee failed to discharge export obligation.
- Department invoked bank guarantee.
- Subsequently, the guarantee was cancelled because assessee fulfilled Export Obligation.
- The department rejected the claim on the ground of time barred as per section 27(1)(b).
Related Provisions
The Supreme Court has held in Solar Pesticides case 2000 (116) ELT 401 that the bar of unjust enrichment will apply to refunds even in case of captive consumption of inputs by the importer, as the incidence of duty paid on the inputs are passed on to the customers.
Infact, when imported raw materials are captively consumed in manufacture of finished products, which are sold, duty on such materials is presumed to have been passed on to buyer.
Decision/Comment
The Principle of unjust enrichment applies. Thus, the Customs Department is right in denying refund on such ground.