Pranav B Prem

The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that refund claims for Extra Duty Deposit (EDD) collected during Special Valuation Branch (SVB) investigations are not subject to the one-year limitation period under Section 27 of the Customs Act, 1962. The bench, consisting of Anil G. Shakkarwar (Technical Member), allowed the appeal filed by the importer Gorakhram Haribux, and set aside the rejection of their refund claim by the adjudicating authority and Commissioner (Appeals), Nhava Sheva. The tribunal held that EDD is not customs duty and therefore does not fall within the scope of Section 27 of the Customs Act, which deals exclusively with the refund of customs duty.

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The dispute arose in relation to 20 Bills of Entry filed by the appellant between February 2015 and September 2015. Following clearance of goods for home consumption, the Revenue, on October 7, 2015, directed the importer to deposit ₹6,81,839, amounting to 1% of the assessable value, as EDD to facilitate SVB investigations. The investigation was concluded on July 11, 2016, when the Deputy Commissioner of Customs confirmed that the transaction values declared by the importer were correct, and no additional customs duty was payable.

Based on the clean outcome of the SVB inquiry, the appellant submitted a refund claim for the deposited EDD amount on September 30, 2019. However, this claim was rejected by the original adjudicating authority on March 5, 2021, citing that it was time-barred under the one-year limitation period provided in Section 27. The Commissioner (Appeals), in its order dated September 29, 2022, upheld the rejection, further observing that the Customs Act does not contain a provision for the refund of such amounts.

CESTAT disagreed with the findings of the lower authorities. Referring to CBEC Circular No. 5/2016-Cus dated February 9, 2016, the Tribunal noted that the EDD collected during SVB investigations is classified as a “security deposit” and not as a payment of customs duty. The Tribunal emphasized that the nature of the EDD is provisional and contingent on the outcome of the SVB inquiry, and since the valuation was ultimately accepted without any enhancement, the basis for retaining the EDD ceased to exist.

In support of its conclusion, the Tribunal relied on the judgment of the Delhi High Court in Sentec India Company Pvt. Ltd. v. Assistant Commissioner of Customs, where it was held that limitation under Section 27 is not applicable to refund of EDD, as it is not duty. The High Court had categorically observed that EDD is a security deposit intended to safeguard revenue in the event of undervaluation and that once the allegation of under-declaration is found unsustainable, the deposit must be returned along with applicable interest.

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The Tribunal reproduced the relevant excerpts from the Delhi High Court’s judgment, which clarified that: “The substratum of the deposit of EDD itself no longer exists… The Customs Department could not have rejected the prayer for EDD refund… The period of limitation for seeking refund under Section 27 would not apply qua EDD.” Accordingly, the CESTAT allowed the appeal and directed the Revenue to refund the EDD amount of ₹6,81,839 to the appellant within one month from the date of the order, along with applicable interest in accordance with law.

Appearance

Counsel For  Petitioner: Ramnath Prabhu with Ms. Ananya Maitin

Counsel For Respondent: L.B. D’Coasta

Cause Title: Gorakhram Haribux V. Commissioner of Customs (Import)

Case No: Customs Appeal No. 85031 of 2023

Coram: Anil G. Shakkarwar [Technical Member]