Once It Is Established That Goods Were Never Cleared for Home Consumption, Customs Duty Cannot Be Retained: Bombay High Court Orders Customs to Refund ₹35.37 Lakhs

“Importer Cannot Be Made to Suffer Because of Inter-Departmental Blame Game” — In a significant ruling reinforcing statutory protections for importers, the Bombay High Court  held that an importer is entitled to a full refund of customs duty with statutory interest when the imported goods are not received due to short landing or pilferage prior to clearance. The Court directed the Assistant Commissioner of Customs (Refund), Mumbai Port, to refund ₹35,37,358/- along with 9% interest to M/s. Ajay Industrial Corporation Ltd., within four weeks.

The Division Bench comprising Justice M.S. Sonak and Justice Advait M. Sethna made strong observations against the bureaucratic blame-shifting between the Customs Department and Mumbai Port Authority, asserting that the importer cannot be caught in the crossfire of administrative lethargy and internal procedural disputes.

“The petitioner cannot be penalised for an inter-departmental tussle over fixing responsibility for goods that were never delivered. Duty paid in anticipation of clearance becomes refundable when clearance never materialises,” the Court declared.

The writ petition under Article 226 was filed by the importer after being denied refund for over three years, even though the imported goods—100 metric tonnes of Polyvinyl Chloride Resin—were neither received nor cleared for home consumption.

“Whether It’s Short Landing or Pilferage, Refund Must Be Granted When Goods Were Not Delivered”—Statutory Duty Under Sections 13, 23 and 27 of Customs Act

The core legal issue before the Court was whether customs duty already paid could be retained when goods were not delivered, and clearance for home consumption was never granted.

The Court held:

“Whether the non-receipt of goods is regarded as a case of short landing or as loss after unloading but before clearance, the legal consequence remains the same: the importer cannot be held liable to pay customs duty on goods that were never cleared for home consumption.”

The Bench interpreted Section 13 (pilferage before clearance), Section 23 (remission of duty where goods are lost or destroyed before clearance), and Section 27 (claim for refund) of the Customs Act, 1962, to decisively affirm the petitioner's right to refund. It also invoked Section 27A, awarding interest at 9% from the date of payment till actual refund.

“To hold otherwise would be contrary to both the letter and spirit of the statute and would result in collecting and retaining duty without the authority of law, not to mention unjust enrichment of the revenue at the cost of the importer,” the Court cautioned.

“Insistence on Closure Letter Is a Bureaucratic Barrier Without Legal Justification”—Court Condemns Customs’ Procedural Rigor

The Customs Department had refused to process the refund application claiming that the Bill of Entry had not been formally “closed” due to the absence of a “closure letter” and lack of amendment to the Import General Manifest (IGM).

The Court found such insistence to be both legally untenable and procedurally unfair, holding:

“The insistence on a closure letter in such circumstances amounts to a denial of the substantive right of refund conferred by law. Such procedural conditions cannot defeat a statutory entitlement.”

The Court also noted that the “closure letter” was to be issued by the Customs themselves, and their refusal to do so while demanding it from the importer was “taking advantage of their own wrong.”

The Court dismissed the argument that the petitioner had an alternate remedy under Section 128 of the Act, stating that no appealable order had been passed, as the refund application was merely “returned” without adjudication.

“There is no fairness in the contention that the Petitioner should resort to an alternate remedy without the first respondent even bothering to pass an order rejecting the refund application. Such a contention is perhaps raised only to prolong the Petitioner’s misery.”

“Importer’s Payment Was Not Duty But a Deposit in Anticipation of Clearance”—Refund Is Not Discretionary, It’s Statutory

The Court clarified that the ₹35.37 lakh paid by the importer was not duty arising from a valid assessment, but rather a deposit in anticipation of goods clearance. Since the goods never reached the petitioner, and the Bill of Entry never culminated in an “Out of Charge” order, the amount must be refunded in law and equity.

“The refund of such duty is a statutory entitlement, not a discretionary relief. The Customs Department, being the authority which collects the duty, cannot indefinitely withhold it on the pretext of unresolved internal coordination.”

“Public Funds Are Being Used to Erect Procedural Barriers Against the Legitimate Claims of Importers”—Court Slams Administrative Conduct

The Court took a dim view of the conduct of both public authorities:

“The two public authorities utilise taxpayers’ money or public funds, and therefore have no hesitation in raising various issues to delay the refund of customs duty to the Petitioner, even after practically admitting that the Petitioner is not responsible for their situation.”

The Bench emphasized that neither the Customs nor the Port Authorities disputed that the importer had not received the goods. Instead, “each seeks to shift responsibility onto the other,” leaving the Petitioner without redress for nearly three years.

The Court expressly stated that the inter se dispute between the Customs and Port Authorities remains open for separate proceedings and should not hinder the refund owed to the importer.

Refund with 9% Interest to Be Paid Within Four Weeks; Compliance Report by 8 January 2026

Allowing the Writ Petition, the Court directed:

“Respondent No.1 is directed to process and refund ₹35,37,358/- along with interest at 9%, within a period of four weeks. The interest shall be computed from the date of payment of duty by the Petitioner till the actual date of refund.”

A compliance report is required to be filed by 8 January 2026, to ensure the importer is not forced to re-approach the Court for execution of the order.

“The Petitioner has been pursuing the matter for nearly three years without any effective redress, caught between Respondent No.1 and Respondent No.2... This Court finds that the Petitioner cannot be made to suffer for reasons beyond its control,” the Court concluded.

Date of Decision: 19 November 2025