2025 (8) TMI 1661 - AT - Customs

Appeal dismissed; refund after redemption fine confirmed as rig not imported for home consumption, no duty payable

COMMISSIONER OF CUSTOMS-IMPORT, MUMBAI IMPORT-I Versus M/s. ABAN OFFSHORE LTD. (ERSTWHILE KNOWN AS M/s. ABAN LLOYD CHILES LTD.)

CESTAT MUMBAI - AT dismissed the Department's appeal and confirmed grant of a refund (after deduction of the redemption fine) from the deposit made during ... Grant of refund made after deduction of redemption fine confirmed through CESTAT order from total deposit made during investigation - import (of rig) had taken place without payment of customs duty and the same was allowed to be provisionally released by the Commissioner (Imports) NCH, Mumbai - goods not released into territorial water of India - Principles of unjust enrichment - HELD THAT:- At the outset it is imperative to have a look at the observation made by this Tribunal in its order dated 30.06.2003, in the first round of litigation, whereby it had set aside the duty demand in its totality with an observation, that is also noted in para-7 of the order passed by the Commissioner (Appeals), that the Rig had entered the territory water of India only for the purpose of repairs, the import was not complete and therefore, it was not imported goods for home consumption and consequently for no importation of goods, no duty was leviable. The said order has been appealed before the Hon’ble Supreme Court who vide their order dated 02.02.2017 confirmed the same. This being the facts on record, when goods were not released into the territorial water of India, it is not sold to any other person and recovery of the amount paid towards provisional release of Rig for being imported would not arise and therefore it would be improbable option given to the Respondent/Importer to produce documentary proof that it had not collected the said amount from any other person, which in instant case should be customer of goods who is supposed to purchase goods under proper invoice. Since no such thing happened, it cannot be expected that Respondent/Importer would provide documentary proof to substantiate that it was not unjustly enriched when transaction was not in existence. Further, it has to be noted that even though Hon’ble Supreme Court considered its own decision in Sahakari Khand Udyog Mandal Ltd [2005 (3) TMI 116 - SUPREME COURT] and opined in Finacord Chemicals Private Ltd. case [2015 (5) TMI 371 - SUPREME COURT] that doctrine of unjust enrichment would not apply to redemption fine and penalty, it would also be worthwhile to look at the ratio of Sahakari Khand Udyog Mandal Ltd decision wherein it was clearly noted that to claim a refund, Assessee had to show that he had paid the amount for which relief is sought ( which in the instant case is a admitted fact by both the parties), has not passed on the burden on consumers (which in the instant case is an improbability since goods were not released to Indian territories for home consumption) and if no relief of refund was granted, the assessee would suffer loss, which in the instant case is unbearable since it was huge amount of Rs. 50 lacs, on which it might be losing interest and investment returns on the amount lying with the Appellant Department since 25.08.1999 because of protracted litigation that continued without a just cause. The appeal filed by the Department is devoid of any merit and the same is required to be set aside with consequential relief to the Respondent to which it is entitled - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the doctrine of unjust enrichment is applicable to deny refund of a security deposit/amount paid for provisional release of imported goods where the import was not completed for home consumption. 2. Whether the respondent bore a legal burden to produce documentary proof showing that the deposit/amount had not been passed on to any third party (i.e., customers) before being entitled to refund. 3. Whether amounts characterized as security deposits for provisional release (as distinct from duty) fall within the ambit of unjust enrichment jurisprudence as clarified by controlling precedents. 4. Whether the impugned order granting refund (after deduction of redemption fine) by the appellate authority ought to be set aside on grounds of unjust enrichment and related precedent. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of unjust enrichment to refund of security deposit where import was not for home consumption Legal framework: The doctrine of unjust enrichment permits denial of restitution where a claimant would retain an undue benefit, with courts assessing whether the claimant paid the amount, whether it passed on the burden to others, and whether refusal would cause loss. Statutory provisions (e.g., Section 27(2) referenced) permit diversion of refunds where unjust enrichment is found. Precedent treatment: Two lines of authority were considered - the decision recognizing the general applicability of unjust enrichment principles to refunds, and a later pronouncement indicating limits (distinguishing redemption fine/penalty from duty). The Tribunal examined both and treated them as relevant to the present facts. Interpretation and reasoning: The Court emphasized the factual finding, upheld in final appeal, that the rig entered territorial waters only for repairs and was not imported for home consumption; therefore no sale in India and no duty leviable. Given absence of an actual commercial transaction in India, it is improbable that the appellant could have passed the deposit burden to any third party. The Tribunal held that requiring documentary proof of non-passing-on would be unrealistic and inappropriate where there was no market transaction to generate such proof. Ratio vs. Obiter: Ratio - where importation for home consumption is absent and goods were not released into domestic market, the doctrine of unjust enrichment cannot properly be invoked to deny refund on the ground of passed-on burden, because the essential element of a transaction enabling passing-on is missing. Obiter - observations on generalities of unjust enrichment as a doctrine in other contexts. Conclusions: Unjust enrichment was not applicable to deny the refund of the security deposit in these facts because the deposit related to an import that was not completed for home consumption and there was no realistic possibility of passing-on; refusal of refund would cause undue loss to the claimant. Issue 2: Burden of proof to demonstrate non-passing-on and entitlement to refund Legal framework: Under established law the claimant seeking refund must satisfy certain elements (payment, non-passing-on, and loss if refund denied). The burden lies on the claimant to prove entitlement; however, the nature of proof demanded must be reasonable and attainable in the factual matrix. Precedent treatment: The Tribunal relied on the ratio that an assessee must show payment, non-passing-on and resultant loss; it also noted subsequent authority which limited unjust enrichment's reach in special categories (see Issue 3). Interpretation and reasoning: The Tribunal applied a pragmatic standard: where goods were not imported for home consumption and were not released into the market, documentary evidence proving non-passing-on is improbable and cannot be insisted upon as a precondition for refund. The admitted fact of payment of the deposit coupled with the factual finding of no domestic sale sufficed. Denying refund for lack of such documentary proof would be inequitable given the long retention period and the financial prejudice to the payer. Ratio vs. Obiter: Ratio - the evidentiary requirement of proving non-passing-on must be adapted to circumstances; where no market transaction occurred, demanding third-party receipts is unreasonable. Obiter - general statements about usual burden shifting in refund claims. Conclusions: The claimant satisfied the pragmatic evidentiary standard; absence of documentary proof of non-passing-on did not defeat the refund claim in the peculiar factual matrix. Issue 3: Characterization of the deposit (security vs. duty) and effect of precedents limiting unjust enrichment Legal framework: Distinction between deposits made as security for provisional release and amounts that are payments of customs duty is legally significant. Whether unjust enrichment applies may depend on the nature of the amount refunded (duty v. fines/penalties/security). Precedent treatment: The Tribunal considered two strands - one recognizing broad application of unjust enrichment to refunds, and subsequent authority clarifying that unjust enrichment does not apply to redemption fines and penalties though it may apply to duty. The Court examined and applied the core reasoning of the earlier precedent (requiring payment, non-passing-on, and loss) while noting the limiting pronouncement. Interpretation and reasoning: The impugned refund related to a deposit furnished as security for provisional release, not a duty payment; the adjudicatory history, upheld by final court, established absence of import for home consumption and that duty demand had been set aside. Consequently, the Tribunal found the later limitation (that unjust enrichment may not apply to redemption fines/penalties) consistent with the present outcome because the contested refund was not a tax-demand refund susceptible to passing-on analysis in the usual way. Ratio vs. Obiter: Ratio - characterization of the amount as security (and the factual finding of non-import for home consumption) places the refund outside the ordinary unjust-enrichment denial rationale applicable to duty refunds. Obiter - comments on the application of the limiting precedent to other factual permutations. Conclusions: The deposit being a security for provisional release and not a duty (coupled with the established fact of non-import for home consumption) weighs decisively in favour of refund and against application of unjust enrichment to deny it. Issue 4: Legality of the appellate authority's refund order after earlier directions and remand Legal framework: Administrative refund decisions must conform to principles of law including unjust enrichment analysis when relevant; remand proceedings must be conducted with regard to the legal standards set by courts. Precedent treatment: The Tribunal considered earlier orders, remand outcomes and the interplay of appellate and sanctioning authorities' decisions, applying settled legal standards and relevant precedent to ascertain whether the final appellate order was lawful. Interpretation and reasoning: The Tribunal found that earlier steps (including a remand and earlier denial of refund by the sanctioning authority referencing unjust enrichment) could not override the factual predicament established by the Tribunal and later affirmed by the final court: no import for home consumption and admitted payment. Given this, the Commissioner (Appeals) properly granted refund (less redemption fine) and the departmental appeal seeking to set aside that order on unjust enrichment grounds lacked merit. The Tribunal also weighed the long retention period and prejudice to the payer. Ratio vs. Obiter: Ratio - the appellate refund order was legally sustainable where the factual record showed payment, absence of domestic sale, and impracticability of proving non-passing-on; resultant departmental appeal was without merit. Obiter - remarks on administrative practice in assessing unjust enrichment claims in similar fact situations. Conclusions: The appellate authority's refund order (after deduction of redemption fine) was lawful and is to be upheld; the departmental appeal is dismissed. Cross-references Refer to Issue 1 and Issue 3 for the interrelated reasoning on non-importation for home consumption and the characterization of the amount as security rather than duty, which jointly determine in favour of refund despite general unjust-enrichment principles discussed in precedent.