Case: Commissioner of Customs Vs. Finacord Chemicals Ltd. and Ors

In August, 1991, respondent nos. 1 and 2 herein imported 2 and 3 containers respectively of alcohol under the descriptionEthyl Alcohol (Malt Spirit plus or minus 59.3% Vol.) from an intermediary, M/s. Ravco International Ltd., England (hereinafter referred to as RIL for short). As per the Department, these imports were under invoiced at pound 1.40 per litre whereas the actual price of the said goods was pound 3.78 per litre. This led to issuance of a show cause notice dated 28.09.1992 upon the importers/respondents herein. It was alleged that the correct transaction value of the imported goods was pound 3.78 per bulk litre and that the goods were imported against invalid licenses. Accordingly, demand of customs duty was raised against respondent nos. 1 and 2. It also proposed confiscation of the goods and penal action against theCollector of Customs vide Order-in-Original dated 28.02.1995 upheld the misdeclaration and undervaluation and further held respondent no. 1 to pay customs duty of Rs.1,63,74,648/- along with penalty of Rs.1,64,00,000 and goods to be confiscated. Respondent no.2 goods valued at Rs.83,04,501/- to be confiscated. However, the same were provisionally released on furnishing Bank Guarantee of Rs. 1 crore, differential duty to the tune of Rs. 77,34,994/-. A further penalty of Rs. 2.63 crores was imposed. Respondent no. 3 was directed to pay Rs. 20 lakhs as penalty, respondent no. 4 was imposed the penalty of Rs. 1 crore and respondent no. 5 was to pay Rs. 1 lakh asthe respondents filed appeals before the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT) and the CESTAT vide its final order dated 10.09.2003, partly allowed the appeals thereby setting aside the order of the Collector regarding enhancement of the unit price, while upholding that import of the said goods was unauthorised and was liable for confiscation. However, the CESTAT reduced the amount of fine imposed and set aside the penalties imposed on the respondents. Hence the presentAppeal No. 6541 ofappellants herein are carrying on the business, inter alia, of manufacturing, sale and distribution of Indian Made Foreign Liquor (IMFL). They are the successor in interest of Shaw Wallace Distilleries. It so happened that in same proceedings which were initiated against one M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited, who had imported certain goods from England and had sold to the appellant herein, the said goods which were in custody of the appellant were seized by the Customs Department in those proceedings. The appellant felt aggrieved by the said seizure and approached the High Court of Bombay for release of the goods. In the said Writ Petition No. 3220 of 1991 filed by the appellant, interim order dated 25.10.1991 was passed which reads as under:returnable forthwith Respondents waive service. Order as per minutes. Petition disposed of accordingly adjudication proceedings to proceed. Upon the petitioner no. 1 depositing the amount of Rs.1,56,64,500/- with the Additional Collector of Customs, Bombay the Petitioners are allowed to utilize 15664,50 bulk liters of Ethyl Alcohol which are the subject matter of the Supurthnama datedto the aforesaid order, the appellant deposited a sum of Rs. 1,56,64,500/- and got the seized goods released. The appellant, thereafter, moved another application in the said writ petition praying that the money deposited by it be kept with the Nationalised Bank in a Fixed Deposit. On the said application, order dated 30.10.1991 was passed. Though the aforesaid request of the appellant was rejected, but at the same time, the Court gave the direction that in the event it is ultimately held that the appellant is entitled to get back the amount deposited by it, the same shall be refunded to the appellant with interest at the rate of 13 per cent per annum which was the rate of interest payable by the Nationalised Bank on Fixed Deposits at the relevantmatter was proceeded against M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited. The Order-in-Original was passed by the Commissioner against those firms. However ultimately the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to CESTAT) in the appeals filed by them, gave them substantial relief by allowing the appeals partly. The issue as to whether there was an under-invoicing in the import of the goods was decided in favour of the said parties and on that ground, the additional demand of duty was struck down. Even the redemption fine was reduced to Rs. 10 lakhs and as far as penalty is concerned, it was completely knocked off and set aside. We may mention here that against that order passed by the CESTAT, the Department had filed appeal and this court has affirmed that part of the order of the CESTAT dismissing the appeal of the Department. The effect thereof is that even qua M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited, no additional duty or the penalty is payable and the only redemption fine to the extent of Rs. 10 lakhs isthe aforesaid background, the appellant herein, which was not even the importer of the goods but had purchased the goods from M/s. Finacord Chemicals Private Limited, made an application for refund of the amount of Rs.1,56,64,500 which was deposited pursuant to the order dated 25.10.1991 passed by the High Court of Bombay in Writ Petition No. 3220 of 1991. The Commissioner while dealing with the case of M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited had recorded certain findings in respect of the appellant herein as well. Insofar as the appellant is concerned, it is categorically held that no role could be attributed to the appellant in the import of goods in question and the appellant was the bona fide purchaser of the goods from the said two importers. The Commissioner also referred to the interim orders passed by the High Court of Bombay in the Writ Petition filed by the appellant, which are taken note of above. However, in his order, he ultimately recorded that the question of refund would arise only if the adjudication order holds the appellant to be entitled to this amount or part thereof. At the same time, it is significant to note some pertinent observations made by him in the order to the effect that the amount in question was in the nature of deposit by the appellant in lieu of permission to take back the goods and to utilise those goods pending adjudication and if adjudication orders so warrants, this amount could be appropriated towards dues as adjudicated, according to law. After the order of the CESTAT holding that no additional duty was payable, the appellant made an application for refund of the amount deposited by it stating that even the importers were held not liable to pay any duty. This application was, however, rejected invoking the doctrine of unjust enrichment. Challenging the order, the appellant preferred Customs Appeal No. 56 of 2008 before the High Court of Bombay. Vide the impugned judgment dated 25.06.2009 rendered by the High Court of Bombay in the aforesaid appeal, the High Court has confirmed the applicability of the doctrine of unjust enrichment insofar as the demand of duty is concerned. However, insofar as the demand of fine is concerned, the High Court has held that the principle of unjust enrichment would not beis this judgment which is under challenge in the presentAugust, 1991, respondent nos. 1 and 2 herein imported 2 and 3 containers respectively of alcohol under the descriptionl Alcohol (Malt Spirit plus or minus 59.3% Vol.) from an intermediary, M/s. Ravco International Ltd., England (hereinafter referred to as RIL for short). As per the Department, these imports were under invoiced at pound 1.40 per litre whereas the actual price of the said goods was pound 3.78 per litre. This led to issuance of a show cause notice dated 28.09.1992 upon the importers/respondents herein. It was alleged that the correct transaction value of the imported goods was pound 3.78 per bulk litre and that the goods were imported against invalid licenses. Accordingly, demand of customs duty was raised against respondent nos. 1 and 2. It also proposed confiscation of the goods and penal action against theCollector of Customs vide Order-in-Original dated 28.02.1995 upheld the misdeclaration and undervaluation and further held respondent no. 1 to pay customs duty of Rs.1,63,74,648/- along with penalty of Rs.1,64,00,000 and goods to be confiscated. Respondent no.2 goods valued at Rs.83,04,501/- to be confiscated. However, the same were provisionally released on furnishing Bank Guarantee of Rs. 1 crore, differential duty to the tune of Rs. 77,34,994/-. A further penalty of Rs. 2.63 crores was imposed. Respondent no. 3 was directed to pay Rs. 20 lakhs as penalty, respondent no. 4 was imposed the penalty of Rs. 1 crore and respondent no. 5 was to pay Rs. 1 lakh asthe respondents filed appeals before the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT) and the CESTAT vide its final order dated 10.09.2003, partly allowed the appeals thereby setting aside the order of the Collector regarding enhancement of the unit price, while upholding that import of the said goods was unauthorised and was liable for confiscation. However, the CESTAT reduced the amount of fine imposed and set aside the penalties imposed on the respondents. Hence the presentAppeal No. 6541 ofs herein are carrying on the business, inter alia, of manufacturing, sale and distribution of Indian Made Foreign Liquor (IMFL). They are the successor in interest of Shaw Wallace Distilleries. It so happened that in same proceedings which were initiated against one M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited, who had imported certain goods from England and had sold to the appellant herein, the said goods which were in custody of the appellant were seized by the Customs Department in those proceedings. The appellant felt aggrieved by the said seizure and approached the High Court of Bombay for release of the goods. In the said Writ Petition No. 3220 of 1991 filed by the appellant, interim order dated 25.10.1991 was passed which reads as under:e forthwith Respondents waive service. Order as per minutes. Petition disposed of accordingly adjudication proceedings to proceed. Upon the petitioner no. 1 depositing the amount of Rs.1,56,64,500/- with the Additional Collector of Customs, Bombay the Petitioners are allowed to utilize 15664,50 bulk liters of Ethyl Alcohol which are the subject matter of the Supurthnama datedto the aforesaid order, the appellant deposited a sum of Rs. 1,56,64,500/- and got the seized goods released. The appellant, thereafter, moved another application in the said writ petition praying that the money deposited by it be kept with the Nationalised Bank in a Fixed Deposit. On the said application, order dated 30.10.1991 was passed. Though the aforesaid request of the appellant was rejected, but at the same time, the Court gave the direction that in the event it is ultimately held that the appellant is entitled to get back the amount deposited by it, the same shall be refunded to the appellant with interest at the rate of 13 per cent per annum which was the rate of interest payable by the Nationalised Bank on Fixed Deposits at the relevantr was proceeded against M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited. The Order-in-Original was passed by the Commissioner against those firms. However ultimately the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to CESTAT) in the appeals filed by them, gave them substantial relief by allowing the appeals partly. The issue as to whether there was an under-invoicing in the import of the goods was decided in favour of the said parties and on that ground, the additional demand of duty was struck down. Even the redemption fine was reduced to Rs. 10 lakhs and as far as penalty is concerned, it was completely knocked off and set aside. We may mention here that against that order passed by the CESTAT, the Department had filed appeal and this court has affirmed that part of the order of the CESTAT dismissing the appeal of the Department. The effect thereof is that even qua M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited, no additional duty or the penalty is payable and the only redemption fine to the extent of Rs. 10 lakhs isthe aforesaid background, the appellant herein, which was not even the importer of the goods but had purchased the goods from M/s. Finacord Chemicals Private Limited, made an application for refund of the amount of Rs.1,56,64,500 which was deposited pursuant to the order dated 25.10.1991 passed by the High Court of Bombay in Writ Petition No. 3220 of 1991. The Commissioner while dealing with the case of M/s. S. R. Nagpal and company and M/s. Finacord Chemicals Private Limited had recorded certain findings in respect of the appellant herein as well. Insofar as the appellant is concerned, it is categorically held that no role could be attributed to the appellant in the import of goods in question and the appellant was the bona fide purchaser of the goods from the said two importers. The Commissioner also referred to the interim orders passed by the High Court of Bombay in the Writ Petition filed by the appellant, which are taken note of above. However, in his order, he ultimately recorded that the question of refund would arise only if the adjudication order holds the appellant to be entitled to this amount or part thereof. At the same time, it is significant to note some pertinent observations made by him in the order to the effect that the amount in question was in the nature of deposit by the appellant in lieu of permission to take back the goods and to utilise those goods pending adjudication and if adjudication orders so warrants, this amount could be appropriated towards dues as adjudicated, according to law. After the order of the CESTAT holding that no additional duty was payable, the appellant made an application for refund of the amount deposited by it stating that even the importers were held not liable to pay any duty. This application was, however, rejected invoking the doctrine of unjust enrichment. Challenging the order, the appellant preferred Customs Appeal No. 56 of 2008 before the High Court of Bombay. Vide the impugned judgment dated 25.06.2009 rendered by the High Court of Bombay in the aforesaid appeal, the High Court has confirmed the applicability of the doctrine of unjust enrichment insofar as the demand of duty is concerned. However, insofar as the demand of fine is concerned, the High Court has held that the principle of unjust enrichment would not bes this judgment which is under challenge in the present

Reasoning:
the order of the Collector reveals that the respondents-assessees have relied upon a letter indicating that the goods were imported at the rate of UK pound 1.40 per bulk litre. After discussing elaborately, the Collector rejected the authenticity or evidentiary value of the said letter. However, apart from this letter, the respondents had also produced invoices and in these invoices price of UK pound 1.40 per bulk litre is specifically mentioned. The Collector has not taken into account or considered the import of these invoices. On the other hand, the CESTAT has remarked and rightly so, that when the invoices are produced showing the purchase price of the goods in question and authenticity of these invoices is not doubted by the Department, these will form as the primary evidence in support of the contention of the respondents that the imported goods were purchased at UK pound 1.40 per bulk litre. We thus, do not find any flaw in the reasoning of the CESTAT while deciding thisview of our finding on issue (i) that the goods are liable to confiscation as they have been imported without cover of a valid licence. We hold that levy of fine isare of the opinion that the CESTAT has given valid reasons for reducing the penalty and fine and the discretion exercised by the CESTAT on valid considerations does not call for anythe aforesaid narration of facts, it is clear that insofar as the appellant is concerned, it had not imported the goods in question. The importers were M/s.S.R.Nagpal and company and M/s. Finacord Chemicals Private Limited. The dispute of under-invoicing was also qua the said two importers on the basis of which custom was claiming lesser payment of duty by the said importers. In the adjudication proceedings, while imposing the duty against the said importers, a categorical finding was also recorded at the same time that the appellant had no role to play therein and was a bona fide purchaser of the goods from the said importer which were imported by them. It is also manifest that the appellant came into picture only when the goods purchased by the appellant were seized by the custom department and he had to approach the High Court of Bombay for the release of those goods. What is significant is that as a condition for the release of the said goods, interim order directing the appellant to deposit the amount in the sum of Rs.1,56,64,500 was passed. It was not towards any custom duty. In this scenario, it is difficult to hold that the principle of unjust enrichment can at all befar as the deposit of the aforesaid amount by the appellant and seeking refund thereof is concerned, we need not discuss the law on this aspect in detail as the position would become completely transparent on taking note of some of the circulars issued by the Central Board of Excise and Customs, New Delhi, itself. Further, these circulars are issued to give effect to certain judicialcircular to which we would like to refer is Circular dated 02.01.2002 issued by the Board, wherein the Board clarified that in the matter of refund of pre-deposit, refunds would not be covered under the provisions of Section 11B of the Customs Act or Section 35F of the Central Excise Act, meaning thereby, the aforesaid provisions which pertain to aforesaid unjust enrichment would not be applicable. It is also specifically pointed out in the said circular that these deposits are other thananother Circular No.802/35/2004-CX., dated 08.12.2004 issued by the Board, the Board emphasised that such amounts should be refunded immediately as non-returning of the deposits attracts interest that has been granted by the courts in number ofis stated at the cost of repetition that since the amount in question was deposited in compliance with the interim order passed by the High Court of Bombay, which was not towards duty, the question of unjust enrichment would not arise atorder of the Collector reveals that the respondents-assessees have relied upon a letter indicating that the goods were imported at the rate of UK pound 1.40 per bulk litre. After discussing elaborately, the Collector rejected the authenticity or evidentiary value of the said letter. However, apart from this letter, the respondents had also produced invoices and in these invoices price of UK pound 1.40 per bulk litre is specifically mentioned. The Collector has not taken into account or considered the import of these invoices. On the other hand, the CESTAT has remarked and rightly so, that when the invoices are produced showing the purchase price of the goods in question and authenticity of these invoices is not doubted by the Department, these will form as the primary evidence in support of the contention of the respondents that the imported goods were purchased at UK pound 1.40 per bulk litre. We thus, do not find any flaw in the reasoning of the CESTAT while deciding thisview of our finding on issue (i) that the goods are liable to confiscation as they have been imported without cover of a valid licence. We hold that levy of fine ise of the opinion that the CESTAT has given valid reasons for reducing the penalty and fine and the discretion exercised by the CESTAT on valid considerations does not call for anythe aforesaid narration of facts, it is clear that insofar as the appellant is concerned, it had not imported the goods in question. The importers were M/s.S.R.Nagpal and company and M/s. Finacord Chemicals Private Limited. The dispute of under-invoicing was also qua the said two importers on the basis of which custom was claiming lesser payment of duty by the said importers. In the adjudication proceedings, while imposing the duty against the said importers, a categorical finding was also recorded at the same time that the appellant had no role to play therein and was a bona fide purchaser of the goods from the said importer which were imported by them. It is also manifest that the appellant came into picture only when the goods purchased by the appellant were seized by the custom department and he had to approach the High Court of Bombay for the release of those goods. What is significant is that as a condition for the release of the said goods, interim order directing the appellant to deposit the amount in the sum of Rs.1,56,64,500 was passed. It was not towards any custom duty. In this scenario, it is difficult to hold that the principle of unjust enrichment can at all befar as the deposit of the aforesaid amount by the appellant and seeking refund thereof is concerned, we need not discuss the law on this aspect in detail as the position would become completely transparent on taking note of some of the circulars issued by the Central Board of Excise and Customs, New Delhi, itself. Further, these circulars are issued to give effect to certain judicialr to which we would like to refer is Circular dated 02.01.2002 issued by the Board, wherein the Board clarified that in the matter of refund of pre-deposit, refunds would not be covered under the provisions of Section 11B of the Customs Act or Section 35F of the Central Excise Act, meaning thereby, the aforesaid provisions which pertain to aforesaid unjust enrichment would not be applicable. It is also specifically pointed out in the said circular that these deposits are other thanr Circular No.802/35/2004-CX., dated 08.12.2004 issued by the Board, the Board emphasised that such amounts should be refunded immediately as non-returning of the deposits attracts interest that has been granted by the courts in number ofs stated at the cost of repetition that since the amount in question was deposited in compliance with the interim order passed by the High Court of Bombay, which was not towards duty, the question of unjust enrichment would not arise at