The Supreme Court held that encashment of bank guarantees furnished as interim security for disputed customs duty does not constitute “payment of duty” under Section 27 of the Customs Act, 1962. Consequently, the doctrine of unjust enrichment is inapplicable to refund claims arising from such encashment. The Revenue must refund such amounts with interest when the underlying duty demand is invalidated by court order, without insisting on compliance with Section 27.
Facts Of The Case:
M/s M.P. Glychem Industries Ltd. (later merged into Ruchi Soya Industries Ltd., now Patanjali Foods Ltd.) imported crude degummed soyabean oil at Jamnagar in 2002. The Customs Department demanded higher duty based on a tariff value fixed under a notification issued under Section 14(2) of the Customs Act, 1962. The importer contested this, arguing the notification was not in force/public domain at the time of import, so duty should be assessed under Section 14(1). To secure release of the goods during pending litigation before the Gujarat High Court, the importer furnished three bank guarantees covering the disputed differential duty amounts. The High Court initially dismissed the importer’s writ petitions in 2012. While appeals against this dismissal were pending before the Supreme Court, the Customs Department encashed the bank guarantees in January 2013. Subsequently, the Supreme Court in Param Industries Ltd. (2016) held that demanding duty based on the impugned notification (not offered for sale when goods were cleared) was unjustified. Patanjali Foods then filed refund claims for the encashed amounts. The Department insisted on documentation under Section 27 of the Customs Act to prove no “unjust enrichment,” leading Patanjali to file fresh writ petitions challenging this demand, which were dismissed by the High Court in 2016, prompting the present appeal to the Supreme Court.
Procedural History:
The dispute originated with Special Civil Application No. 9308/2002 filed before the Gujarat High Court (2002) challenging the customs duty demand. The High Court granted interim relief permitting clearance of goods against bank guarantees for the differential duty. After the High Court dismissed the petitions (2012), the appellant appealed to the Supreme Court (Civil Appeal Nos. 1808–1813/2013). Pending these appeals, the Customs Department encashed the bank guarantees (January 2013). The Supreme Court allowed the appeals in Param Industries Ltd. (2015), holding the duty demand invalid. The appellant then filed refund applications (June 2015), which the Department rejected for non-compliance with Section 27 of the Customs Act (unjust enrichment documentation). The appellant challenged this rejection via fresh writ petitions (Special Civil Applications Nos. 14540–14542/2015), dismissed by the High Court (April 2016). The appellant then approached the Supreme Court (SLP(C) Nos. 22572–22574/2016), leading to the present Civil Appeal Nos. 3833–3835/2025, culminating in the Supreme Court’s judgment dated May 19, 2025
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Court Observation:
The Court emphatically rejected the applicability of the unjust enrichment doctrine (Section 27, Customs Act) to refund claims arising from encashed bank guarantees. It held that coercive encashment of interim security instruments does not constitute “payment of duty” under statutory provisions. Criticizing the Revenue’s “extreme haste” in encashing guarantees during pending appeals, the Bench clarified that such recovery is merely a security realization, not duty payment triggering refund procedures. Reliance on Oswal Agro Mills (1994) and Somaiya Organics (2001) was affirmed, establishing that bank guarantees operate as contingent liabilities until final adjudication. Conversely, DCW Ltd. (2016) was distinguished as involving court-authorized encashment post-default. Consequently, the Revenue’s retention of funds post-invalidation of the duty demand was declared legally untenable, warranting immediate refund with 6% interest from encashment dates.
Final Decision & Judgement:
The Supreme Court allowed the appeals, setting aside the Gujarat High Court’s judgment dated April 28, 2016. It held that the encashment of bank guarantees – furnished as interim security for disputed customs duty – does not constitute “payment of duty” under Section 27 of the Customs Act, 1962. Consequently, the doctrine of unjust enrichment was inapplicable, and the Revenue could not insist on compliance with Section 27 for refunds. The Court directed the Respondents (Union of India & Customs Authorities) to refund ₹77,43,859 (the total encashed amounts from three bank guarantees) to Patanjali Foods Ltd. with 6% annual interest from the respective dates of encashment (January 22/28, 2013). The refund must be processed within four months from the judgment date (May 19, 2025). No costs were awarded.
Case Details:
Case Title:M/S Patanjali Foods Limited (Formerly M/S Ruchi Soya Industries Ltd.) vs. Union of India & Ors. Citation:(2025) INSC 733 Civil Appeal No:Civil Appeal Nos. 3833-3835 of 2025 Date of Judgement:May 19, 2025 Judges/Justice Name: Justice Ujjal Bhuyan & Justice Abhay S. Oka
Download The Judgement Here