2026 (3) TMI 217 - HC - Customs

Voluntary Payment and Estoppel bar refund claims where investigation closure followed payment and no proof of absence of unjust enrichment.

The article addresses recovery and refund of differential customs duty where the importer paid during a DRI inquiry and sought closure. It holds that the ... Doctrine of “estoppel by conduct” - differential customs duty collected during DRI investigation - prospective operation of amendment - requirement for show cause notice where payment voluntary - wrong availment of concessional rate of duty​​​​​​​ - closure of investigation estops refund claim - unjust enrichment burden on refund claimant. Estoppel by conduct - differential customs duty collected during DRI investigation was not paid under protest but was paid voluntarily. - HELD THAT: - The Court found that the petitioner, by its letter of 05.03.2019, informed DRI of payment of the differential duty and requested closure of the investigation and did not indicate payment was made under protest. Between that letter and DRI's letter of 03.07.2019 accepting closure, the petitioner raised no dispute. The petitioner's subsequent attempt to characterise the payment as made under protest is inconsistent with its earlier conduct and is barred by the doctrine of estoppel by conduct. The Court treated these facts as determinative that the payment was voluntary. [Paras 15, 18, 22, 29] Payment was voluntary and not under protest. Prospective operation of amendment - HELD THAT:- The Court examined Notification No.25/2019-Customs and the Finance Act, 2019, and observed that the measure effected was an amendment rather than a clarificatory retrospective provision. An amendment enacted by the Finance Act and the 2019 notification was held to have prospective effect and thus does not alter the lawful incidence of duty on imports made during 2014-2017. [Paras 23, 24, 25, 29] The notification/amendment is prospective and does not apply to the petitioner's 2014-2017 imports. Amendment notification not retrospective - Notification No.25/2019-Customs is an amendment to an earlier notification and cannot be treated as a substitution with retrospective effect. - HELD THAT: - On textual and contextual reading the Court held the 06.07.2019 notification amends Notification No.50/2017 and thus effects a change going forward. The Finance Act did not incorporate the Finance Bill wording relied upon by the petitioner as a 'clarification'; instead the enacted law uses amendment language. Consequently, the notification cannot be read to retrospectively alter duty applicable to earlier imports. [Paras 23, 24, 25, 29] Notification No.25/2019-Customs is an amendment and not retrospective. No requirement for show cause notice where payment voluntary - HELD THAT: - The respondents demonstrated that the petitioner paid the differential duty and requested closure of the DRI investigation, and DRI accepted closure under Section 28(2). Since payment was voluntary and the petitioner sought conclusion of the investigation, the Court held that issuance of a show cause notice was not necessary in the circumstances presented. [Paras 8, 15, 17, 29] No show cause notice under Section 28 was required given the voluntary payment and closure of the investigation. Closure of investigation estops refund claim - HELD THAT:- The Court held that by requesting DRI to accept payment and close the investigation, and by remaining silent during the interregnum, the petitioner placed itself in a position inconsistent with a later refund claim. Entertaining the refund would undermine finality of investigations and invite similar reopenings, thereby defeating the purpose of DRI proceedings. [Paras 15, 19, 22, 28, 29] Petitioner is estopped from seeking refund after requesting and obtaining closure of the investigation. Unjust enrichment burden on refund claimant - HELD THAT:- The Court explained that refunds of customs duty under Section 27 require substantiation that the claimant did not pass the excess duty to buyers and thus would not be unjustly enriched. The petitioner filed its refund application under Section 27 but did not produce evidence to show that the excess duty was not passed on to buyers. Accordingly the statutory requirement for refund was not satisfied. [Paras 20, 21, 29] Refund claim fails for want of evidence disproving unjust enrichment. Final Conclusion: The writ petition is without merit and is dismissed; the refund claim is rejected as the payment was voluntary, the relied-upon amendment is prospective, there was no requirement for a show cause notice in the circumstances, and the petitioner failed to discharge the burden to avoid unjust enrichment. Issues: (i) Whether the differential customs duty collected during DRI investigation was paid by the petitioner under protest or voluntarily; (ii) Whether the notification/clarification relied upon by the petitioner operates retrospectively or prospectively; (iii) Whether Notification No.25/2019-Customs dated 06.07.2019 is an amendment and its temporal effect; (iv) Whether collection of differential duty during DRI investigation without issuance of a show cause notice under Section 28 of the Customs Act, 1962 was proper; (v) Whether the petitioner is entitled to refund after requesting closure of the DRI investigation upon payment; (vi) Whether refund under Section 27 is permissible absent proof against unjust enrichment.Issue (i): Whether the differential customs duty collected during DRI investigation was paid by the petitioner under protest or voluntarily.Analysis: The petitioner's letter dated 05.03.2019 did not state that the payment was made under protest; the petitioner requested DRI to conclude the investigation and between 05.03.2019 and 03.07.2019 did not raise any dispute. DRI accepted closure under Section 28(2) on receipt of the payment. The Court applied the doctrine of estoppel by conduct to the petitioner's post-closure attempt to treat the payment as under protest.Conclusion: The payment was made voluntarily and not under protest; it was not a payment under protest in favour of the petitioner.Issue (ii): Whether the notification/clarification relied upon by the petitioner operates retrospectively or prospectively.Analysis: The Court contrasted the Finance Bill wording with the Finance Act and examined Notification No.25/2019-Customs. The Finance Act did not adopt the Finance Bill wording as a retrospective clarification; the amendment language and notification indicate prospective operation.Conclusion: The notification/clarification relied upon by the petitioner is prospective, not retrospective, and does not operate to alter duty for imports made during 2014-2017.Issue (iii): Whether Notification No.25/2019-Customs dated 06.07.2019 is an amendment to the earlier notification and its effect.Analysis: The text of Notification No.25/2019-Customs shows it amends Notification No.50/2017-Customs; the amendment language and the statutory exercise of power under Section 25(1) of the Customs Act indicate an amendment made in public interest and prospective effect.Conclusion: Notification No.25/2019-Customs is an amendment to the earlier notification and is prospective in effect.Issue (iv): Whether collection of differential duty during DRI investigation without issuance of a show cause notice under Section 28 of the Customs Act, 1962 was proper.Analysis: The petitioner voluntarily paid the differential duty and requested closure; DRI concluded the investigation under Section 28(2). Given the voluntary payment and the petitioner's request for closure, the Court found no legal necessity to issue a separate show cause notice under Section 28 before collecting the payment in the circumstances of this case.Conclusion: Collection of the differential duty under these facts was proper and did not require issuance of a show cause notice prior to collection.Issue (v): Whether the petitioner is entitled to refund after requesting closure of the DRI investigation upon payment.Analysis: The petitioner's conduct in requesting closure upon payment and acquiescing until DRI's closure letter, followed by later seeking refund, was held to be inconsistent and to attract estoppel by conduct; reopening the matter would undermine finality and the sanctity of investigations.Conclusion: The petitioner is not entitled to seek refund after requesting and obtaining closure of the investigation upon payment.Issue (vi): Whether refund under Section 27 is permissible absent proof against unjust enrichment.Analysis: An application under Section 27 requires evidence that the claimant did not pass on the duty to buyers to avoid unjust enrichment. The petitioner filed an application under Section 27(1)(a) but did not produce evidence to dispel unjust enrichment.Conclusion: Refund under Section 27 is not permissible because the petitioner failed to prove absence of unjust enrichment.Final Conclusion: The cumulative effect of the findings is that the petitioner's claim for refund fails on multiple grounds - voluntary payment, prospective operation of the amendment, propriety of collection without a separate show cause in the factual matrix, estoppel by conduct, and lack of proof against unjust enrichment - and the writ petition is without merit.Ratio Decidendi: Where an importer voluntarily pays differential customs duty and requests closure of an investigation, then allows the investigation to be closed without contemporaneously protesting the payment, the importer is estopped from later treating the payment as made under protest and seeking refund under Section 27 absent timely protest and satisfactory evidence negating unjust enrichment; an amendment notification that operates prospectively cannot be applied retrospectively to alter liability for past imports.