Lex/S PATANJALI FOODS LIMITED (FORMERLY KNOWN AS M/S RUCHI SOYA INDUSTRIES LTD.) versus UNION OF INDIA & ORS.
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[2025] 5 S.C.R. 2141 : 2025 INSC 733 M/s Patanjali Foods Limited (Formerly known as M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors. (Civil Appeal No(s). 3833-3835 of 2025) 19 May 2025 [Abhay S. Oka and Ujjal Bhuyan,* JJ.] Issue for Consideration 1. Whether encashment of bank guarantees furnished under court orders can be treated as “payment of duty” for the purpose of refund under Section 27 of the Customs Act? 2. Whether the doctrine of unjust enrichment apply to amounts realized through such encashment? 3. Whether the Department was right in encashing the guarantees when the civil appeals were pending before this Court? Headnotes† Customs Act, 1962 – Encashment of bank guarantees furnished under interim orders of High Court – Whether such encashment amounts to “payment of duty” under Section 27 of the Act: Held: Furnishing of a bank guarantee is a measure of securing revenue interest during litigation and cannot be equated with actual payment of duty – Encashment of such guarantees following dismissal of writ petitions does not amount to statutory duty ‘paid’ by the assessee within the meaning of Section 27 – The scheme of the Customs Act contemplates refund only where duty has been voluntarily or mandatorily deposited under assessment orders – In the present case, realization was only by coercive encashment of guarantees, and thus falls outside the ambit of Section 27 – Consequently, insistence on compliance with Section 27 requirements, including filing in prescribed form and proof of non-passing of incidence, was misplaced. [Paras 23, 30-31] Doctrine of Unjust Enrichment – Applicability to amounts realized by encashment of bank guarantees: * Author 2142 [2025] 5 S.C.R. Supreme Court Reports Held: Doctrine inapplicable where no duty was ‘paid’ – Encashment of bank guarantee is realization of security and does not constitute a levy or collection of duty – Precedents in Oswal Agro Mills Ltd. v. Asstt. Collector of Central Excise (1994) 2 SCC 546 and Somaiya Organics (India) Ltd. v. State of U.P. (2001) 5 SCC 519 conclusively establish that such encashment cannot be treated as duty paid, and thus unjust enrichment principle has no application – High Court erred in relying on DCW Ltd. v. Union of India (2016) 15 SCC 789, which involved encashment expressly authorized after default of assessee. The facts in that decision are distinguishable and not comparable – Accordingly, doctrine of unjust enrichment not attracted in the present case. [Paras 19.2, 25-29] Levy and Collection of Duty – Distinction emphasized in assessing validity of Revenue’s action: Held: Levy refers to imposition of duty; collection refers to actual realization – Furnishing of a bank guarantee is neither levy nor collection – Encashment without legal authority amounts to coercive realization, not a statutory collection – Constitution Bench in Somaiya Organics (India) Ltd. v. State of U.P. (2001) 5 SCC 519 underscored that what cannot be collected directly under law cannot be realized indirectly through guarantee encashment – Retention of such amounts is contrary to Article 265 of the Constitution, which prohibits tax collection without authority of law. [Paras 27-29] Refund Claims Under Section 27, Customs Act – Scope and inapplicability in cases of coercive encashment: Held: Section 27 states that any person claiming refund of any duty may make an application for refund of the same with interest to the Assistant Commissioner of Customs or Deputy Commissioner of Customs if he had paid the duty in pursuance of an order of assessment or borne by him and evidence either documentary or other to establish that the amount of duty and interest which is claimed as refund and that the incidence of such duty and interest had not been passed on by him to any other person has to be produced – Encashment of bank guarantees does not fall in this category and consequently, procedural rigour of Section 27, including filing of supporting financial documents, does not apply – A nine-Judge Bench of this Court in Mafatlal Industries Ltd. v. Union of India (1997) 5 SCC 536 considered various questions concerning [2025] 5 S.C.R. 2143 M/s Patanjali Foods Limited (Formerly known as M/s Ruchi Soya Industries Ltd.) v. Union of India & Ors. refund of excise and customs duty collected contrary to law including unjust enrichment – The amount of the disputed tax or duty that is secured by a bank guara
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