An Exposition of Section 27 of the Customs Act, 1962: Procedural Imperatives and Judicial Interpretations in India

Introduction

Section 27 of the Customs Act, 1962 ("the Act") stands as a pivotal provision governing the mechanism for claiming refunds of customs duty and interest paid by an assessee. The Customs Act, 1962, itself was enacted to consolidate and amend the law relating to customs, sternly and expeditiously deal with smuggled goods, and curb revenue loss (Sampad Narayan Mukherjee v. Union Of India And Others, Calcutta High Court, 2019; Virbhadra Singh & Anr. Petitioners v. Enforcement Directorate & Anr., Delhi High Court, 2017). The Act is an important legislation for the country's economic stability by preventing smuggling (Amritlakshmi Machine Works v. Commissioner Of Customs, Bombay High Court, 2016). While the Act provides for the levy of duties on goods imported into or exported from India (Customs Act, 1962, Sec. 12), Section 27 provides the pathway for assessees to reclaim duties paid under specific circumstances. The interpretation and application of this section have been subjects of extensive judicial scrutiny, leading to a rich body of jurisprudence that delineates its scope, limitations, and interplay with other provisions of the Act. This article seeks to analyze Section 27, focusing on key judicial pronouncements that have shaped its contemporary understanding, particularly concerning the necessity of challenging assessment orders, adherence to time limits, the doctrine of unjust enrichment, and its interaction with other statutory provisions like Sections 18, 28, 27A, and 154 of the Act.

Legislative Framework of Section 27

Core Provisions and Evolution

Section 27(1) of the Customs Act, 1962, allows any person claiming a refund of any duty or interest, which was either "paid by him" or "borne by him," to make an application for such refund. This application must be in the prescribed form and manner, submitted to the Assistant Commissioner of Customs or Deputy Commissioner of Customs.

A significant aspect of Section 27 is the time limitation for filing such refund applications. As it currently stands, following amendments (e.g., Finance Act, 2011), the application must be made "before the expiry of one year, from the date of payment of such duty or interest" (Principal Commissioner Of Custom v. Riso India Pvt. Ltd., Delhi High Court, 2015). Prior to this, the limitation period was six months (Sheonath Prasad Suraj Prasad v. Collector Of Customs, Calcutta, CESTAT, 1993).

A crucial proviso to Section 27(1) states that the limitation of one year shall not apply where any duty or interest has been paid under protest (Principal Commissioner Of Custom v. Riso India Pvt. Ltd., Delhi High Court, 2015). The significance of payment under protest was also noted in older cases under different statutory regimes, though Section 27 of the 1962 Act has specific provisions unlike its predecessor, Section 40 of the Sea Customs Act, 1878 (Incheck Tyres Ltd. v. Assistant Collector Of Customs For Refund Section, Calcutta & Others, Calcutta High Court, 1986).

Section 27(1A) mandates that the application under sub-section (1) shall be accompanied by such documentary or other evidence (including the documents referred to in section 28C) as the applicant may furnish to establish that the amount of duty or interest in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty or interest has not been passed on by him to any other person.

Sub-section (2) of Section 27 lays down the procedure for the proper officer upon receipt of the application. If satisfied that the whole or any part of the duty and interest paid by the applicant or borne by him is refundable, the officer may make an order accordingly. However, the refund is subject to the doctrine of unjust enrichment, mandating that the amount be credited to the Consumer Welfare Fund unless the applicant proves that the incidence of duty has not been passed on.

The Imperative of Challenging Assessment Orders

The Landmark Ruling in ITC Limited

A watershed moment in the interpretation of Section 27 came with the Supreme Court's decision in ITC Limited v. Commissioner Of Central Excise, Kolkata IV (2019 SCC 17 46, Supreme Court Of India, 2019). The Court definitively held that refund applications under Section 27 of the Customs Act cannot be entertained unless an appeal against the order of assessment (including self-assessment) has been filed and pursued. The Court reasoned that the Finance Act, 2011, explicitly included "self-assessment" within the definition of "assessment" under Section 2(2) of the Act. Therefore, even if an importer self-assesses duty, this constitutes an assessment order. If this assessment is contested, leading to a claim for refund, it must be challenged through the appellate mechanism provided under Section 128 of the Act.

The Supreme Court in ITC Limited clarified that the removal of the phrase "in pursuance of an order of assessment" from Section 27 by an earlier amendment did not imply that refund applications could bypass the appeal process. Refund proceedings were characterized as being in the nature of execution proceedings, not a forum for reassessing duties on merits. To allow refund claims without challenging the underlying assessment would disrupt the statutory hierarchy of assessment and appeal.

Supporting Precedents and Rationale

This principle was not entirely novel. The Supreme Court in Priya Blue Industries Ltd. v. Commissioner Of Customs (Preventive) (2005 SCC 10 433, Supreme Court Of India, 2004) had earlier affirmed a Tribunal decision which held that a refund claim was not maintainable as no appeal had been filed against the assessment order. The Tribunal in Priya Blue had followed the judgment in CCE v. Flock (India) (P) Ltd. (2000) 6 SCC 650, which established that refund claims cannot be used to question the correctness of an unchallenged assessment order. The review petition in Priya Blue Industries Ltd. was dismissed, reiterating this stance.

The rationale is that an order of assessment is an adjudication, and unless it is modified or set aside in appeal or review, it remains binding. A refund claim cannot serve as an alternative to challenging the assessment itself. Some older Tribunal decisions, such as in Mecon Ltd. v. Commissioner Of Customs, Calcutta (CESTAT, 2002), had suggested that lodging a refund claim could amount to a request for reassessment, citing M/s. Karnataka Power Corpn. Ltd. v. CC (Appeals). However, the Supreme Court's pronouncements in Priya Blue and especially in ITC Limited provide definitive clarity, establishing the primacy of the appellate process.

Time Limitation for Refund Claims

Statutory Mandate and Judicial Affirmation

The time limit prescribed in Section 27(1) for filing a refund claim is a mandatory statutory requirement. The Supreme Court in Union Of India And Another v. Kirloskar Pneumatic Co. Ltd. (1996 SCC 4 453, Supreme Court Of India, 1996) held that a High Court could not direct customs authorities to disregard the time bar stipulated in Section 27 and decide a refund application on merits. This underscores the binding nature of the limitation period.

The Tribunal in Sheonath Prasad Suraj Prasad v. Collector Of Customs, Calcutta (CESTAT, 1993), citing the Supreme Court in Miles India Ltd. v. Collector (1987 (30) E.L.T. 641), also emphasized that Customs authorities are bound by the period of limitation provided in Section 27(1). If a claim is filed under Section 27, the time bar will apply, even if the duty paid was in excess of what was legally due (Customs 21879 Of 2014, CESTAT, 2016).

The Proviso: Payment Under Protest

The proviso to Section 27(1), exempting claims from the one-year limitation where duty was paid "under protest," is a significant exception. This allows assessees who dispute the levy but pay the duty to safeguard their position to claim a refund without being fettered by the standard time limit. The importance of this proviso is highlighted by the fact that if duty is paid without protest, the subsequent claim will be subject to the limitation period (Principal Commissioner Of Custom v. Riso India Pvt. Ltd., Delhi High Court, 2015).

The Doctrine of Unjust Enrichment

Core Principle and Application

A fundamental principle underpinning refund claims under Section 27 is the doctrine of unjust enrichment. This doctrine posits that a person should not be unjustly enriched at the expense of another. In the context of tax refunds, it means that an assessee who has passed on the incidence of tax to the consumer (or another party) cannot claim a refund of that tax, as it would amount to an undue benefit.

The Supreme Court in Mafatlal Industries Ltd. And Others v. Union Of India And Others (1997 SCC 5 536, Supreme Court Of India, 1996), primarily dealing with Central Excise, extensively discussed this doctrine. It held that if a manufacturer has passed on the burden of excise duty, they have suffered no loss and thus have no valid claim for refund. The Court also emphasized Article 265 of the Constitution, which states that no tax shall be levied or collected without authority of law, implying that illegally collected taxes must be refunded to the rightful party, but not if it leads to unjust enrichment of the claimant.

This principle was squarely applied to customs refunds in Union Of India And Others v. Solar Pesticides Pvt. Ltd. And Another (2000 SCC 2 705, Supreme Court Of India, 2000). The Court held that the doctrine of unjust enrichment applies even in cases of captive consumption of imported raw materials if the importer has passed on the burden of duty, directly or indirectly.

Section 28D: Presumption and Burden of Proof

Section 28D of the Customs Act, 1962, introduces a presumption that every person who has paid duty on any goods has passed on the full incidence of such duty to the buyer. The burden of proving the contrary lies on the claimant. The sufficiency of evidence, such as a Chartered Accountant's certificate, to rebut this presumption is a matter of factual determination (DRIVE INDIA ENTERPRISE SOLUTION LIMITED v. COMMISSIONER OF CUSTOMS-JAIPUR, CESTAT, 2025 [likely typo, earlier date intended]).

Interplay with Other Provisions of the Customs Act, 1962

Section 18: Provisional Assessment

When goods are provisionally assessed under Section 18 of the Act, and upon final assessment, it is found that a lesser duty was payable, a question arises regarding the procedure for refund. In Commissioner Of Customs v. Indian Oil Corporation (2012 SCC ONLINE DEL 119, Delhi High Court, 2012), the issue was whether Section 27 and its time limits would apply, or if the refund should be processed automatically following finalization. The Tribunal, in that case, had followed the Gujarat High Court's view in Commissioner of Customs v. Hindalco Industries Ltd. (2008 (231) ELT 36 (Guj.)), suggesting that once assessment is finalized under Section 18, the refund becomes due without a separate application under Section 27, thus rendering the time limit in Section 27 inapplicable. This presents a nuanced area where the refund arises directly from the finalization of a provisional assessment by the department itself.

Section 154: Correction of Clerical Errors

The interaction between Section 154 (which allows for the correction of clerical or arithmetical mistakes in any decision or order by customs officers "at any time") and Section 27 (with its time limit for refunds) has been contentious. The question is whether a refund arising from a correction under Section 154 is governed by the time limits of Section 27.

A Larger Bench of CESTAT in Polymer Paints v. Collector of Customs, Bombay (CESTAT, 1994) held by majority that Section 154 and Section 27(1) must be read harmoniously, and Section 154 cannot override or negate the limitation laid down in Section 27(1). However, some later decisions have taken a different view. For instance, in PRINCIPAL COMMISSIONER, CUSTOMS -NEW DELHI v. LAVA INTERNATIONAL LIMITED (CESTAT, 2023), the Tribunal referred to the Bombay High Court's decision in Keshari Steels v. Collector of Customs (2000 (115) E.L.T. 320 (Bom.)), where it was held that rejecting a refund claim as time-barred under Section 27, after a mistake was rectified under Section 154, was not in accordance with law. This suggests that if the error is corrected under Section 154, the consequential refund might not be strictly bound by Section 27's limitation, though this remains an area with evolving interpretations. The case of INA Bearings (India) Pvt. Ltd. v. Commr. of Cus. (Import), Nhava Sheva (CESTAT, 2010) also involved a refund claim arising from an alleged clerical mistake, where the assessee argued for the applicability of Section 154 to bypass the time limit of Section 27.

Section 28: Recovery of Duties

Section 28 of the Act provides the mechanism for the recovery of duties not levied, not paid, short-levied, short-paid, or erroneously refunded. It is, in essence, the counterpart to Section 27. As outlined in M/S NAVAYUGA ENGINEERING CO.LTD. v. UNION OF INDIA (Supreme Court Of India, 2024), Section 28 details procedures for such recovery, including different limitation periods depending on whether there was collusion, wilful misstatement, or suppression of facts. Understanding Section 28 provides context to the overall scheme of duty assessment, payment, refund, and recovery. Fraudulent activities aimed at evading duties, as discussed in Commissioner Of Customs, Kandla v. Essar Oil Ltd. And Others (2004 SCC 11 364, Supreme Court Of India, 2004), can trigger provisions under Section 28 and other penal sections.

Section 27A: Interest on Delayed Refunds

Section 27A, inserted by Act 22 of 1995, provides for the payment of interest if any duty ordered to be refunded under Section 27(2) is not refunded within three months from the date of receipt of the application under Section 27(1). Prior to this insertion, there was no statutory provision for interest on delayed refunds. Consequently, the Supreme Court in Union Of India And Others v. Orient Enterprises And Another (1998 SCC 3 501, Supreme Court Of India, 1998) held that writ petitions solely seeking interest on delayed refunds were not maintainable for periods before Section 27A came into force. Post-amendment, interest claims are governed by Section 27A (Ivrcl Infrastructures & Projects Ltd. v. Union Of India, Bombay High Court, 2010). The provisions of Section 27A also apply to refunds of Special Additional Duty (SAD) (Principal Commissioner Of Custom v. Riso India Pvt. Ltd., Delhi High Court, 2015).

Pre-deposits under Section 129E

It is important to distinguish amounts paid as "duty" from amounts paid as pre-deposits for availing the remedy of an appeal under Section 129E of the Act. The CESTAT in Acc Ltd v. Shimla (CESTAT, 2024) held that amounts paid as pre-deposit are not "duty" for the purpose of Section 27, and therefore, the provisions of Section 27 (including the presumption under Section 28D regarding unjust enrichment) would not apply to the refund of such pre-deposits. This aligns with the Supreme Court's view in the context of Section 11B of the Central Excise Act, 1944 (which is pari materia with Section 27 of the Customs Act).

Conclusion

Section 27 of the Customs Act, 1962, is a critical provision that balances the assessee's right to refund of erroneously paid duties with the revenue's interests and the principles of procedural propriety. The Supreme Court's judgment in ITC Limited has firmly established that an appeal against the assessment order is a sine qua non for maintaining a refund claim under Section 27, thereby reinforcing the integrity of the assessment and appellate hierarchy. The mandatory nature of the time limits prescribed under Section 27, subject to the exception for payments under protest, has been consistently upheld by the judiciary.

The doctrine of unjust enrichment, buttressed by the statutory presumption in Section 28D, remains a cornerstone, ensuring that refunds do not result in undue benefit to claimants who have already passed on the duty incidence. While the core principles of Section 27 are largely settled, its interplay with provisions like Section 18 (provisional assessment) and Section 154 (clerical errors) continues to present nuanced challenges, requiring careful consideration of specific factual matrices and evolving judicial interpretations. The classification of goods for exemption, as seen in cases like Sun Export Corporation, Bombay v. Collector Of Customs, Bombay And Another (1997 SCC 6 564, Supreme Court Of India, 1997), can also lead to refund claims, which would then be processed under the framework of Section 27, subject to all its conditions. Overall, a thorough understanding of Section 27 and its judicial gloss is indispensable for navigating the complexities of customs duty refunds in India.