Customs Duty Refund and Self-Assessment: Supreme Court Clarifies Legal Position

The case of ITC Limited v. Commissioner of Central Excise, Kolkata IV and connected appeals dealt with the critical issue of whether a refund application for customs duty could be entertained without filing an appeal against the assessment order. The judgment, delivered by the Supreme Court of India, examined the provisions of the Customs Act, 1962, particularly regarding self-assessment, refund claims, and the requirement to challenge assessments before seeking refunds.

The main question in these appeals was whether an importer or assessee could claim a refund of customs duty without appealing against the assessment order that determined the duty liability. While different High Courts had taken varying stances on this matter, the Supreme Court provided a definitive ruling on the issue.

Arguments of the Petitioner (ITC Limited)

The counsel for ITC Limited argued that the refund application was valid even without challenging the assessment order. The key points presented were:

The amendment to Section 27 of the Customs Act allowed a person to claim a refund of duty paid or borne without requiring an assessment order.
The requirement to challenge the assessment order before seeking a refund was not explicitly mentioned in the Customs Act post the 2011 amendment.
Self-assessment by an importer should not be equated with a formal assessment order passed by customs authorities.
The High Courts of Delhi and Madras had ruled in favor of allowing refunds without requiring an appeal against the assessment order.

Arguments of the Respondent (Commissioner of Central Excise)

The Commissioner of Central Excise, representing the revenue department, opposed the refund claim, stating:

Once an order of self-assessment is passed, it must be challenged through an appeal under Section 128 of the Customs Act before a refund claim can be entertained.
Self-assessment is recognized as an assessment order under Section 2(2) of the Customs Act, making it binding unless modified through an appeal.
A refund claim is not an appellate proceeding, and the officer processing the refund cannot sit in judgment over an existing assessment order.
The Supreme Court had previously ruled in Flock India Pvt. Ltd. and Priya Blue Industries Ltd. that a refund claim could not be entertained without challenging the assessment order.

Key Observations of the Supreme Court

The Supreme Court, after analyzing various precedents and statutory provisions, made the following crucial observations:

“As the order of self-assessment is nonetheless an assessment order under the Act, obviously, it would be appealable by any person aggrieved thereby. The expression ‘any person’ is of wider amplitude. The revenue, as well as the assessee, can also prefer an appeal aggrieved by an order of assessment.”

“The refund proceedings are in the nature of execution for refunding amounts. It is not an assessment or reassessment proceeding at all. Apart from that, there are other conditions which are to be satisfied for claiming exemption, as provided in the exemption notification.”

The Court held that since self-assessment is recognized as an assessment under Section 2(2) of the Customs Act, an assessee must first challenge the assessment order before seeking a refund. The Court rejected the High Courts’ interpretations that allowed refunds without an appeal, stating that such an approach would make the statutory scheme redundant.

Impact of the Judgment

The ruling has significant implications for importers and businesses dealing with customs duties:

Self-assessment under the Customs Act is now confirmed as a formal assessment order.
An appeal under Section 128 of the Act is mandatory before a refund application can be entertained.
Refund claims filed without first challenging the assessment order are not maintainable.
The ruling reinforces the principle that refund proceedings are not a substitute for an appeal against an assessment order.

With this ruling, the Supreme Court has provided clarity on the interaction between self-assessment and refund claims under the Customs Act. Businesses must now ensure they challenge self-assessments through proper appellate channels before seeking refunds.

Petitioner Name: ITC Limited.
Respondent Name: Commissioner of Central Excise, Kolkata IV.
Judgment By: Justice Arun Mishra, Justice Navin Sinha, Justice Indira Banerjee.
Place Of Incident: Kolkata.
Judgment Date: 18-09-2019.

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