The Supreme Court has ruled in favor of Patanjali-owned Ruchi Soya, ordering a refund of customs duty recovered in 2012 through a bank guarantee. The Court held the recovery invalid and barred by the doctrine of unjust enrichment.
In a major decision, the Supreme Court on Monday allowed an appeal filed by Patanjali Foods Limited (formerly known as Ruchi Soya Industries Ltd.) against a previous ruling by the Gujarat High Court.
The High Court had earlier denied the company a refund of customs duty that was recovered by the customs authorities by encashing a bank guarantee.
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The Supreme Court’s latest judgment provides big relief to the company in a legal battle that has continued for over two decades.
The case was heard by a Bench of Justices Abhay S. Oka and Ujjal Bhuyan. The judges ruled that the claim made by the customs department was barred by the legal principle called the “doctrine of unjust enrichment.”
According to this principle, if someone receives money by mistake or in an unfair way, they cannot keep it unless they can prove that the money has not been passed on to another person.
In strong words, the Court observed:
“Respondents (customs) had recovered the duty amount by using coercive method. In the facts of the case, encashment of bank guarantee cannot be treated as (recovery of) customs (duty). They could have waited for the outcome by this Court (in a case that had a bearing on such custom duty demands). Respondents have no authority in law to hold the money. Retention of such amount will carry 6%. Let the amount be released in 4 months from today.”
The written judgment is still awaited, but the verbal orders in Court have already brought closure to a long-standing financial and legal issue for the company.
The background of the case goes back to September 2002. At that time, Ruchi Soya Industries Ltd., a major Indian edible oil company, imported crude, degummed soyabean oil of edible quality at Jamnagar port in Gujarat.
For clearing the goods through customs, the company filed a bill of entry.
However, the customs authorities demanded duty based on the tariff value fixed under Section 14(2) of the Customs Act, 1962, rather than under Section 14(1), which considers the actual transaction value of the goods.
Ruchi Soya challenged the customs department’s demand. They argued that the notification setting the tariff value under Section 14(2) was not publicly available on the date of their transaction, and therefore, the customs authorities had no legal right to enforce it.
The Gujarat High Court admitted the company’s writ petition in 2002 and allowed the goods to be cleared provisionally, provided that Ruchi Soya gave a bank guarantee for the difference in customs duty.
Years later, in 2012, the Gujarat High Court dismissed Ruchi Soya’s petition and also vacated the interim protection that was earlier granted. Right after that, the customs department took immediate steps and encashed the bank guarantee, recovering around ₹9.19 lakh from the company.
However, things took a positive turn for Ruchi Soya in 2015.
The Supreme Court in Union of India v. Param Industries Ltd. held that tariff value notifications under Section 14(2) of the Customs Act must be published and made accessible to the public to be valid and enforceable.
Relying on this judgment, Ruchi Soya submitted a refund claim, saying that the money taken from the bank guarantee should be returned, as the original duty demand was illegal.
But the customs department refused the refund. They said that according to Section 27 of the Customs Act, the refund could not be given unless the company proved that it had not passed on the tax burden to another party.
This is the essence of the “doctrine of unjust enrichment.”
So in 2015, Ruchi Soya filed fresh writ petitions in the Gujarat High Court, asking the Court to direct the customs department to refund the money without applying the bar of unjust enrichment.
However, in 2016, a Division Bench of the Gujarat High Court, consisting of Justices Akil Kureshi and AY Kogje, dismissed these petitions.
They ruled that once the earlier interim relief had been withdrawn and the bank guarantee was encashed, the money became “duty” under the Customs Act.
Therefore, it had to be treated like any other duty paid under the law and would be subject to refund rules, including the unjust enrichment clause.
The High Court also said that previous Supreme Court judgments, where encashment of a bank guarantee was not considered duty payment, did not apply in this situation.
Still disagreeing, Ruchi Soya approached the Supreme Court, which has now ruled in the company’s favour.
The case is not just important from a legal standpoint, but also has financial implications. In 2019, Ruchi Soya was acquired by Patanjali Ayurved for Rs 4,350 crore under the Insolvency and Bankruptcy Code through a resolution plan approved by the National Company Law Tribunal (NCLT).
After this acquisition, the company was renamed Patanjali Foods Limited and has become a key player in Patanjali’s fast-growing consumer goods business.
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The company was represented in the Supreme Court by Senior Advocate Balbir Singh, along with Advocates Rajesh Rawal, Karan Sachdev and Ashwani Kumar.
The Union of India and the Customs Department were represented by Senior Advocates Nisha Bagchi and Nalin Kohli, with assistance from Advocates Sarthak Karol, Abhishek Singh, Pratyush Srivastava and Krishna Prasad.
This Supreme Court decision brings closure to a 20+ year-old legal battle and ensures that government authorities cannot unfairly hold money from businesses, especially when the legal position is later clarified by the highest court.
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