Delhi HC orders refund of Rs 15 lakh excess duty with 4% interest within three months due to unjust enrichment

Delhi HC held that respondents must refund Rs. 15,00,093 excess duty to petitioner with 4% simple interest within three months. Court found that retaining the amount constituted unjust enrichment since the re-crediting scheme was abolished when the original order was passed. While petitioner was entitled to refund, interest was reduced from statutory 6% to 4% due to petitioner's delay in filing appeals. Direct payment ordered instead of licence re-crediting.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the amount of Rs. 15,00,093/- that was re-credited to the Petitioner's import license pursuant to the refund order dated 13th September, 2019 was lawful, given that the re-crediting scheme had been abolished prior to the order;
• Whether the Petitioner's delay in filing the appeal against the re-crediting order could justify dismissal of the appeal on the ground of limitation;
• Whether the Respondents' retention of the amount re-credited to the license, instead of payment to the Petitioner, constituted unjust enrichment;
• The appropriate rate of interest payable on the refund amount in light of the Petitioner's delay in filing the appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of re-crediting Rs. 15,00,093/- to the Petitioner's import license

The relevant legal framework includes the Customs Act and the scheme of refund of duty paid, particularly the government's public notice No. 06 RE-2013(2009-14) dated 18th April, 2013, which abolished the re-crediting scheme for refunds. The Petitioner contended that since the re-crediting scheme was abolished well before the refund order dated 13th September, 2019, the direction to re-credit the amount to the license was untenable and contrary to law.

The Court observed that the re-crediting scheme was indeed not in existence at the time the refund order was passed. The Assistant Commissioner of Customs (Refund) had sanctioned a refund of Rs. 8,75,22,009/- but directed Rs. 15,00,093/- to be re-credited to the Petitioner's license rather than paid directly. The Petitioner challenged this, asserting that such re-crediting was impermissible and amounted to the Department retaining the amount.

The Court reasoned that since the re-crediting scheme had been abolished, the amount could not lawfully be re-credited to the license. Retention of the amount by the Respondents without payment to the Petitioner would constitute unjust enrichment, which is impermissible under principles of equity and law. The Court therefore held that the amount should have been refunded directly to the Petitioner.

In applying the law to the facts, the Court found that the direction to re-credit the amount was contrary to the applicable legal framework and the established scheme in force at the time. The Court thus directed that the amount of Rs. 15,00,093/- be refunded to the Petitioner along with interest.

Issue 2: Effect of delay in filing appeal on the entitlement to refund

The Commissioner (Appeals) and subsequently the Customs Excise & Service Tax Appellate Tribunal (CESTAT) dismissed the Petitioner's appeals against the re-crediting order on the ground of limitation. The appeal was filed 559 days after the expiry of the statutory period of three months plus 30 days condonation period, which ended on 12th December, 2019. The Petitioner failed to provide a satisfactory reason for the delay.

The Court noted that the limitation period for filing an appeal under customs law is strict and that appellate authorities have no jurisdiction to condone delay beyond the prescribed period. The Tribunal confirmed that the appeal was barred by limitation and the delay was attributable solely to the Petitioner.

The Court acknowledged the Petitioner's procedural fault but balanced this against the substantive right to refund. While the delay justified dismissal of the appeal, it did not justify the Department's retention of the amount, especially since the re-crediting scheme was abolished. Therefore, the Court directed refund with interest but reduced the interest rate in view of the Petitioner's delay.

Issue 3: Whether retention of the amount by Respondents constitutes unjust enrichment

The Court emphasized the principle that retention of amounts by the Department without lawful authority or justification amounts to unjust enrichment. Since the re-crediting scheme was abolished and the amount was not paid directly to the Petitioner, the Department's retention was impermissible.

The Court's reasoning reflects the fundamental legal principle that public authorities cannot retain money due to a party without lawful cause. The Petitioner's entitlement to refund was established, and the Department's failure to effect payment was contrary to law.

Issue 4: Appropriate interest rate on refund amount considering delay

Ordinarily, statutory interest on delayed refunds under customs law is 6% per annum. However, considering the Petitioner's fault in filing the appeal belatedly, the Court exercised discretion to reduce the interest rate to 4% simple interest per annum. This reflects a balancing of equities, recognizing both the Petitioner's entitlement and procedural lapse.

3. SIGNIFICANT HOLDINGS

The Court held:

"Admittedly, the re-crediting scheme was not in existence when the order dated 13th September, 2019 was passed. The sum of Rs. 15,00,093/, therefore, continues to be retained by the Respondents which would not be permissible as the same would constitute unjust enrichment."

"Since the re-crediting scheme had abolished the amount could not have been directed to be re-credited with the licence of the Petitioner. Accordingly, it is directed that the Respondents shall refund the said amount along with interest to the Petitioner within a period of three months from today."

"Considering that the Petitioner was also at fault having filed the appeals belatedly, instead of the statutory interest of 6%, it is directed that the amount shall be repaid with simple interest at 4% p.a."

The core principles established include:

• The abolition of the re-crediting scheme precludes refund amounts being credited to import licenses; such amounts must be paid directly to the importer;
• Retention of refund amounts by the Department without lawful authority constitutes unjust enrichment and is impermissible;
• Strict adherence to limitation periods for filing appeals is required, and delay beyond the statutory period cannot be condoned without satisfactory reasons;
• Courts may exercise discretion in awarding interest on refunds, adjusting rates based on parties' conduct and procedural delays.

On each issue, the Court concluded that while the Petitioner's delay in filing appeals justified dismissal of the appeals on limitation grounds, the Department could not lawfully withhold the refund amount by re-crediting it to the license. The amount of Rs. 15,00,093/- must be refunded with interest at 4% simple per annum within three months.

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