Classification dispute refunds: duty paid under protest cannot be retained, and limitation and unjust enrichment may not bar refund.

Duty collected under protest during a classification dispute cannot be retained or adjusted as lawful duty under another tariff heading once the goods are finally held classifiable elsewhere. A refund claim based on such unauthorised collection is not barred by limitation where payment was made under protest, and the purchaser may seek refund if entitled on the facts. The unjust enrichment bar does not apply where the incidence of duty has not been passed on, including where the goods were used captively. Interest on delayed refund is not payable unless the statutory conditions for such interest are satisfied.

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Issues: (i) Whether duty collected on goods under one tariff heading could be retained or adjusted when the goods were finally held classifiable under a different heading. (ii) Whether the refund claim filed by purchasers was barred by limitation or by unjust enrichment, and whether interest on delayed refund was payable.

Issue (i): Whether duty collected on goods under one tariff heading could be retained or adjusted when the goods were finally held classifiable under a different heading.

Analysis: The duty had been paid under protest during a classification dispute, and once the goods were held not classifiable under the heading adopted by the Department, the amount could not be treated as duty lawfully leviable under that heading. Where collection is without authority of law, the Department cannot retain the amount merely because another heading was suggested or because an adjustment was attempted without first following the statutory demand procedure for recovery of short-levied duty.

Conclusion: The Department could not retain or adjust the amount as duty under a different tariff heading; the appellants succeeded on this issue.

Issue (ii): Whether the refund claim filed by purchasers was barred by limitation or by unjust enrichment, and whether interest on delayed refund was payable.

Analysis: The initial payment had been made under protest, so the ordinary limitation period for refund did not apply. Purchasers of the goods were competent to seek refund of amounts collected without authority of law. On the facts, the bar of unjust enrichment was not attracted, as the goods had been used captively and there was no showing that the incidence had been passed on. However, interest on delayed refund was not attracted because no refund order under the relevant refund sub-section had been passed.

Conclusion: The refund claim was not barred by limitation and was not defeated by unjust enrichment, but interest was not payable; this issue was substantially decided in favour of the appellants.

Final Conclusion: The refund claims were maintainable and payable, and the impugned orders rejecting the claims were set aside, though no interest was awarded.

Ratio Decidendi: Duty collected without authority of law cannot be retained or adjusted against another tariff heading, and where the payment was made under protest, the refund claim is not defeated by limitation or unjust enrichment if the incidence has not been passed on.

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