Customs refund order quashed for improper retrospective application of Instruction 22/2022 on gold sale claim

The HC quashed the customs refund order dated 20.03.2024 that sanctioned only Rs. 19,69,787/- against petitioner's claim of Rs. 41,47,261/-. The court held that Instruction No. 22/2022-Customs could not be applied retrospectively to a 2020 gold sale and cannot override binding judicial precedents requiring refund calculation based on market value on refund date. The respondent failed to provide procedural fairness by not allowing petitioner to respond to the instruction and did not consider established legal principles. The matter was remanded for fresh consideration with directions to grant personal hearing and pass a speaking order by 31.07.2025.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the order dated 20.03.2024, which sanctioned a partial refund of Rs. 19,69,787/- against the Petitioner's claim of Rs. 41,47,261/-, is valid and lawful.
• Whether Instruction No. 22/2022 - Customs dated 06.09.2022, issued by the Central Board of Indirect Taxes and Customs (CBIC), can be applied retrospectively and whether it is legally binding or overrides statutory provisions.
• Whether the Respondent was justified in calculating the refund based on the net realised value of the sale of seized gold rather than the market value of the gold on the date of refund, as per binding precedent.
• Whether the Petitioner was afforded a fair opportunity to respond to the reliance on Instruction No. 22/2022-Customs in the refund calculation.
• Whether proper service and intimation regarding the sale of seized gold were given to the Petitioner in accordance with statutory requirements and procedural fairness.
• Whether the deduction of customs duty on the sale value for refund calculation was appropriate, or whether the tariff value on the date of import should have been considered.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the refund order dated 20.03.2024 sanctioning partial refund

The Petitioner challenged the impugned order sanctioning only Rs. 19,69,787/- against a claim of Rs. 41,47,261/-. The Petitioner contended that the refund should be based on the market value of the seized gold on the date of refund, less redemption fine and penalty, relying on the binding precedent established by this Court in Leyla Mehmoodi Vs. Additional Commissioner of Customs. The Respondent, however, calculated the refund based on the net realised value of the sale of seized gold after deducting customs duty and expenses, relying on Instruction No. 22/2022-Customs.

The Court noted that the impugned order did not consider the Petitioner's contention fully and did not apply the binding precedent. The Respondent's reliance on the net realised sale value was inconsistent with the established legal framework requiring compensation based on market value on the date of refund. The Court found that the Respondent failed to apply the correct legal principle and thus the order was liable to be set aside to the extent of refusal to grant the balance refund.

Issue 2: Legality and applicability of Instruction No. 22/2022-Customs dated 06.09.2022

The Petitioner argued that Instruction No. 22/2022 could not be applied retrospectively, as the sale of seized gold occurred on 05.03.2020, well before the issuance of the Instruction. Further, the Petitioner contended that circulars or instructions issued by the Board cannot override statutory provisions or binding judicial precedents.

The Court acknowledged that instructions issued by the Board cannot prevail over the statute and that retrospective application of such instructions is impermissible unless expressly provided. Since the sale took place prior to the issuance of the Instruction, its application to this case was inappropriate. The Court emphasized that reliance on the Instruction without granting the Petitioner an opportunity to respond was also procedurally unfair.

Issue 3: Opportunity to respond and procedural fairness

The Petitioner submitted that no opportunity was granted to respond to the reliance on Instruction No. 22/2022-Customs in the impugned order. The Court agreed that procedural fairness requires that if the Respondent intends to rely on any documents, judgments, or Instructions, copies must be furnished to the Petitioner in advance to enable a proper response. The failure to do so vitiated the impugned order.

Issue 4: Service and intimation regarding sale of seized gold

The Petitioner disputed receipt of notices dated 05.02.2019 and 13.02.2020 informing about the sale of the seized gold, and no acknowledgment of service was produced by the Respondents. Furthermore, the Petitioner's advocate had repeatedly requested the Respondents not to proceed with the sale, but the sale was conducted on 05.03.2020 without intimation to the Petitioner or the Adjudicating Authority as mandated under para 2.4.2 (v) of the Disposal Manual, 2019 issued by the CBIC. No corrigendum to the Show Cause Notice was issued indicating the sale. The Court found these facts raised serious doubts about proper service and compliance with procedural requirements, which the Respondent failed to address in the impugned order.

Issue 5: Deduction of customs duty and consideration of tariff value in refund calculation

The Petitioner contended that the Respondent wrongly deducted customs duty on the sale value in calculating the refund and did not consider the tariff value of gold on the date of import. The Court noted that the impugned order did not clarify the basis for such deductions and did not consider the tariff value as contended by the Petitioner. This issue required fresh consideration in light of the correct legal principles and factual matrix.

3. SIGNIFICANT HOLDINGS

The Court held:

• The impugned order dated 20.03.2024 is quashed and set aside to the extent it refuses the Petitioner's claim for refund of the balance amount of Rs. 21,77,474/-. The refund already granted is not disturbed.
• The Respondent is directed to reconsider the Petitioner's claim afresh, applying the correct legal principles, including the binding precedent that the refund should be based on the market value of the seized gold on the date of refund, after deducting redemption fine and penalty.
• The Court emphasized that Instruction No. 22/2022-Customs dated 06.09.2022 cannot be applied retrospectively to the sale conducted on 05.03.2020 and cannot override statutory provisions or binding judicial precedents.
• The Respondent must provide the Petitioner with copies of any documents, judgments, or instructions it intends to rely upon, including Instruction No. 22/2022, well in advance to enable the Petitioner to respond.
• The Respondent is directed to grant a personal hearing to the Petitioner before passing a fresh speaking order, considering all contentions and evidence on record.

The Court stated: "many of the contentions raised by the Petitioner have not been considered by Respondent No. 3 whilst passing the impugned order," and accordingly remanded the matter for fresh consideration.

All contentions of the parties were kept open for the fresh proceedings, and the Respondent was directed to pass a speaking order expeditiously but not later than 31.07.2025.

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