Deekshitha Sharmile

The High Court of Bombay Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna held that an importer cannot be made liable to pay customs duty on goods that were never cleared for home consumption and never reached the importer and directed the customs authorities to refund the duty with interest. The case concerned a consignment of polymer raw material for which duty had been paid, but which was later found to be untraceable amid a dispute between the Customs Department and the Port Authority over whether the goods had short-landed or been lost after unloading. The Court held that, under Sections 13, 23 and 27 of the Customs Act, duty paid in anticipation of clearance must be refunded once such non-receipt is established.

The petitioner, a company engaged in manufacturing PVC/CPVC pipes, imported 100 metric tons of Polyvinyl Chloride Resin Suspension Grade 5. A Bill of Entry dated 27 April 2022 was filed, and customs duty of ₹35,37,358 was paid in parts through bank transfer and SCRIP licenses. The goods were recorded as having arrived at Mumbai Port on 10 May 2022.

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Subsequently, the petitioner was unable to obtain a landing certificate from the port authority. Joint surveys conducted in June and August 2022 confirmed that the consignment was not traceable. A police complaint was lodged, leading to registration of an FIR in September 2022. The port authority later issued a Short Landing Certificate in April 2023.

The petitioner applied for refund of customs duty in September 2022, which was rejected by customs in December 2022 citing deficiencies and requiring a closure letter of the Bill of Entry. Multiple representations and grievances filed thereafter were not acted upon. The petitioner argued entitlement to refund under Sections 13 and 23 of the Customs Act, 1962. Customs contended that the refund claim was premature without closure of the Bill of Entry. The port authority maintained that the goods had short-landed and liability rested with customs.

In explaining the statutory scheme governing clearance and liability, the Court observed: “Sections 46 and 47 prescribe the procedural framework for presentation and clearance of goods through the Bill of Entry. The statutory sequence makes it clear that unless an order for clearance (“Out of Charge”) is passed under Section 47, the goods continue to remain in the legal custody of the custodian under Section 45. The importer’s liability for duty crystallises only upon such clearance, and if the goods are pilfered or short-landed prior thereto, the incidence of duty cannot be fastened upon the importer.”

Addressing the facts and the applicable provisions, the Court recorded: “The facts, as they stand, make out a clear case where the Petitioner has paid customs duty for goods which were never received. The Customs Act, 1962, specifically provides in Sections 13, 23, and 27 in such circumstances. Section 13 provides that where goods are pilfered after unloading but before clearance for home consumption, the importer is not liable to pay duty on such goods. Section 23 mandates remission of duty on goods lost or destroyed before clearance, and Section 27 grants the importer the right to claim a refund of any duty paid in such a situation.”

On the legal consequence of non-receipt and absence of clearance, the Bench stated: “The combined effect of these provisions is that, once it is established that the imported goods were never received and that the proper officer never granted clearance, the customs duty cannot be retained. The duty collected in anticipation of clearance becomes refundable as it was paid without the corresponding receipt of goods. To hold otherwise would be contrary to both the letter and spirit of the statute and would result in collecting and retaining duty without the authority of the law, not to mention unjust enrichment of the revenue at the cost of the importer.”

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Finally, on the nature of the payment and the importer’s right, the Court further stated: “Moreover, in the present case, the amount paid by the Petitioner was not in response to a valid demand but in anticipation of the clearance of goods that never materialised. Such payment, therefore, partakes the character of a deposit rather than a duty and must, in equity and under the statutory scheme, be refunded. The refund of such duty is a statutory entitlement, not a discretionary relief. The Customs Department, being the authority which collects the duty, cannot indefinitely withhold it on the pretext of unresolved internal coordination with the Port Authority.”

The Court directed: “Accordingly, we direct Respondent No.1 to refund to the Petitioner the sum of ₹35,37,358/- paid as customs duty under Bill of Entry No.8441729 dated 27 April 2022, together with statutory interest under Section 27A of the Customs Act, 1962, from the date of payment till realization. The refund shall be processed and disbursed within a period of eight weeks from the date of this judgment. The Petition is allowed in the above terms as against Respondent No.1. The Petition stands dismissed as against Respondent No.2.”

Advocates Representing the Parties

For the Petitioners: Mr. Rajiv Jaipal i/b Mr. Sunil, Advocates
For the Respondents: Mr. J. B. Mishra a/w Mr. Abhishek Mishra a/w Mr. Rupesh Dubey, Advocates; Mr. Mohammed Oomar Shaikh i/b M. V. Kini & Co.

Case Title: M/s. Ajay Industrial Corporation Ltd. v. Assistant Commissioner of Customs (Refund) & Anr.
Neutral Citation: 2025:BHC-AS:49633-DB
Case Number: Writ Petition No. 11118 of 2025
Bench: Justice M.S. Sonak, Justice Advait M. Sethna