2025 (3) TMI 75 - HC - Customs

Extra Duty Deposit ruled as security deposit not customs duty under Section 27 refund applications exempt from limitation period

Sentec India Company Private Limited Versus Assistant Commissioner Of Customs, Delhi & Ors.

The Delhi HC held that Extra Duty Deposit (EDD) is not customs duty under Section 27 of the Customs Act, 1962, but merely a security deposit to secure ... Refund of Extra Duty Deposit (EDD) - rejection on the ground being filed beyond the period of limitation prescribed under the provision i.e., beyond one year - related party under Rule 2 (g) (2) (iv) & (v) of the Customs Valuation (Determination of Value of Imported Goods), Rules, 2007 - relationship has led to undervaluation of the imported goods or not. Whether EDD constitutes a payment in the nature of customs duty under the scope of Section 27 of the Customs Act, 1962? - HELD THAT:- This issue is no longer res integra. Firstly, Circular No.5/2016-Customs dated 9th February, 2016, as submitted by the Petitioner, expressly clarifies that payment collected after provisional assessment for the release of goods shall be in the form of ‘security deposit’. The question, therefore, is as to whether EDD constitutes customs duty. This issue has been settled by various High Courts. Madras High Court in Nithin India Tech Ltd v. The Deputy Commissioner of Customs (Refund) [2024 (9) TMI 1502 - MADRAS HIGH COURT] has observed that 'The amount that was collected by the Assessing Officer in view of the Special Valuation Branch (SVB) proceedings are nothing to [‘to’ here is to be read as ‘but’] deposit and not a customs duty as is contemplated under Section 12 of the Customs Act, 1962, although such deposit were eligible to be appropriated towards the duty liability of the petitioner after final assessment of the Bill of Entry.' A perusal of Section 27 would show that the same deals with refund of customs duty. It is abundantly clear that EDD is not in the nature of customs duty. The deposit of the EDD was itself to secure any customs duty which may have been later on found to be payable, due to the allegation of under-declaration - The impugned order holding that the refund application is beyond the limitation is, thus, untenable. Moreover, the impugned order itself acknowledges that the said amount is over and above with duty which was determined by the SVB. The Customs Department could not have rejected the prayer for EDD refund. Conclusion - The period of limitation for seeking refund of customs duty under Section 27 of the Customs Act, 1962, would not apply qua EDD. EDD is not equivalent to customs duty and thus not subject to the limitation period under Section 27. Petition allowed. The core legal issues considered in this judgment include whether the Extra Duty Deposit (EDD) constitutes a customs duty under Section 27 of the Customs Act, 1962, and whether the refund claim for EDD is subject to the limitation period prescribed under the same section. Additionally, the court examined whether the petitioner should be relegated to the appellate remedy instead of seeking relief through this petition.Regarding the first issue, the relevant legal framework involves the interpretation of Section 27 of the Customs Act, 1962, which deals with the refund of customs duties. The court also considered Circular No. 5/2016-Customs, which clarifies that EDD is a form of security deposit rather than a customs duty. Precedents from various High Courts, including the Madras and Karnataka High Courts, were examined to determine the nature of EDD and its treatment under the law.The court's interpretation focused on the distinction between EDD and customs duty. It found that EDD, collected during provisional assessments, is intended as a security deposit to cover potential customs duty liabilities. This distinction is crucial because Section 27 applies specifically to customs duties, not security deposits like EDD. The court noted that once the final assessment revealed no undervaluation, the basis for retaining the EDD ceased to exist.Key evidence included the investigation report and SVB order, which concluded that the relationship between the importer and exporter did not lead to undervaluation. The court also considered the petitioner's repeated requests for a refund and the respondent's refusal based on the limitation period under Section 27.The court applied the law to the facts by emphasizing that EDD is not customs duty, as supported by the Circular and judicial precedents. It rejected the respondent's argument that the refund claim was time-barred, noting that the limitation period under Section 27 does not apply to EDD. The court also dismissed the argument for relegating the petitioner to the appellate remedy, as EDD does not fall within the scope of Section 27.In addressing competing arguments, the court acknowledged the respondent's position that the petitioner had previously pursued an appellate remedy in similar circumstances. However, it found this argument unpersuasive, given the distinct nature of EDD and the inapplicability of Section 27's limitation period.The court concluded that the petitioner's claim for a refund of EDD is valid and not subject to the limitation period under Section 27. It directed the Customs Department to refund the EDD within two weeks, with interest as per the law. The court also provided the petitioner with the option to seek further relief if the refund is not processed within the stipulated time.Significant holdings include the court's determination that EDD is not equivalent to customs duty and thus not subject to the limitation period under Section 27. The court emphasized that the Customs Department's refusal to refund EDD based on this limitation was untenable. The judgment reinforces the principle that security deposits like EDD, collected during provisional assessments, must be refunded when the basis for their retention no longer exists.The final determination on the issue is that the Customs Department must refund the EDD to the petitioner, along with applicable interest, as EDD does not constitute customs duty and is not subject to the limitation period under Section 27 of the Customs Act, 1962.