Court’s decision
The Kerala High Court allowed the batch of writ petitions and held that the customs authorities were not justified in denying full refund of additional customs duty by applying a conversion factor that lacked statutory backing and uniform application. The Court found that the insistence on a higher conversion factor for converting Hoppus Ton to cubic meters, contrary to what had been consistently accepted in several adjudications, resulted in arbitrary levy and denial of refund.
The Court took note of the fact that different customs houses across the country were adopting different conversion factors for the same imported commodity, leading to unequal treatment of importers. It observed that such inconsistency directly undermines certainty in tax administration. The Court also considered the role of the Central Board in issuing clarifications to ensure uniformity.
Ultimately, the Court held that once the competent authorities themselves had accepted a particular conversion factor in several cases, the Department could not deny refund by insisting on a different factor without statutory support. The provisional duty bond requirement imposed on importers was also found to be unjustified in the absence of a crystallised liability.
Facts
The petitioners were importers of timber, primarily teak wood, from Myanmar and other foreign countries where the traditional unit of measurement for logs is the Hoppus Ton. At the time of import, customs duty was assessed by converting Hoppus Ton into cubic meters, which is the metric unit followed in India. The petitioners declared the quantity by adopting the conversion factor of one Hoppus Ton being equal to 1.416 cubic meters.
Subsequently, the petitioners became entitled to refund of additional customs duty under a statutory notification. However, while processing the refund claims, the customs authorities applied a different conversion factor, treating one Hoppus Ton as equivalent to 1.8027 cubic meters. On this basis, the refund was restricted and only a portion of the additional duty was returned, while the balance was withheld.
The authorities further insisted that provisional duty bonds be executed for release of the goods, citing pendency of departmental appeals before the appellate tribunal on the issue of conversion factors. Aggrieved by partial refunds and coercive conditions, the petitioners approached the High Court.
Issues
Whether customs authorities are entitled to apply different conversion factors for the same commodity without statutory prescription.
Whether refund of additional customs duty can be denied or curtailed by adopting a conversion factor inconsistent with prior adjudications.
Whether insistence on provisional duty bonds is justified when the refund entitlement flows from a statutory notification.
Whether administrative inconsistency across customs houses violates principles of equality and certainty in tax law.
Petitioner’s Arguments
The petitioners contended that the conversion factor of 1.416 cubic meters per Hoppus Ton had been consistently accepted by customs authorities in multiple adjudications and was based on internationally recognised standards. It was argued that there was no statutory provision authorising the Department to unilaterally apply a higher conversion factor.
The petitioners submitted that denial of full refund amounted to indirect taxation contrary to the exemption notification. They emphasised that similarly placed importers across the country were being treated differently solely due to administrative inconsistency, which violated Article 14 principles.
It was also argued that insistence on provisional duty bonds was arbitrary, especially when the petitioners had already paid duty and were only seeking refund of excess duty collected.
Respondent’s Arguments
The customs authorities argued that the conversion factor of 1.8027 cubic meters was based on technical standards followed by the Department and was necessary to ensure accurate valuation of imported timber. It was contended that the issue of correct conversion factor was pending consideration before the appellate tribunal, and therefore provisional measures were justified.
The Revenue submitted that refund claims could not be finally settled until the conversion factor dispute attained finality. It was argued that execution of provisional duty bonds was a reasonable safeguard to protect revenue interests in the event the Department succeeded in appeal.
The authorities further contended that the Court should not interfere in technical matters involving valuation and measurement standards.
Analysis of the law
The High Court examined the legal framework governing customs valuation and refund of additional duty. It reiterated that levy and collection of customs duty must strictly conform to statutory provisions and notifications issued thereunder. In the absence of a notified or statutorily prescribed conversion factor, administrative discretion cannot be exercised arbitrarily.
The Court emphasised that refund mechanisms under customs law are not discretionary but flow as a matter of right when statutory conditions are satisfied. Any administrative practice that defeats such right by introducing uncertainty is impermissible.
The Court also stressed the importance of uniformity in tax administration, holding that divergent practices across customs houses erode legal certainty and investor confidence. It observed that the Central Board is obligated to issue binding clarifications to resolve such inconsistencies.
Precedent Analysis
The Court relied on earlier decisions where it was held that valuation disputes cannot be resolved by adopting ad hoc methods unsupported by law. Precedents emphasising consistency in classification and valuation across jurisdictions were applied.
The Court also drew guidance from judgments holding that refund benefits under exemption notifications must be liberally construed once eligibility is established, and cannot be curtailed by departmental circulars or internal practices lacking statutory force.
These precedents reinforced the conclusion that the Department’s approach was legally unsustainable.
Court’s Reasoning
The Court found that the Department itself had accepted the conversion factor of 1.416 cubic meters in several adjudications, and appeals against those orders were still pending. In such circumstances, the Court held that it was impermissible to deny refund by selectively applying a higher conversion factor.
It reasoned that uncertainty created by inconsistent administrative practices cannot be resolved at the cost of taxpayers. The Court also held that insistence on provisional duty bonds, when no final liability was determined, amounted to unjust enrichment of the State.
The Court therefore concluded that the petitioners were entitled to full refund by applying the conversion factor declared by them.
Conclusion
The High Court directed the customs authorities to grant refund of the entire additional customs duty by applying the conversion factor of 1.416 cubic meters per Hoppus Ton. The requirement of executing provisional duty bonds was set aside. All connected writ petitions were allowed accordingly.
Implications
This judgment has far-reaching implications for customs valuation disputes, particularly in commodities measured using traditional or foreign units. It reinforces the principle that administrative convenience cannot override statutory certainty.
The ruling is also significant for importers seeking refunds, as it curtails arbitrary departmental practices and strengthens the right to uniform tax treatment across jurisdictions.