The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Allahabad has clarified that Extra Duty Deposit (EDD) collected during provisional assessment is not customs duty but a security deposit, and therefore the one-year limitation under Section 27 of the Customs Act, 1962 does not apply. This ruling restores the appellant’s right to refund of Rs. 1,81,656 with interest, overturning a flawed application of unjust enrichment principles.
Background & Facts
The Dispute
M/s Global YDK Electric Pvt. Ltd. (Appellant) imported goods under provisional assessment and deposited Extra Duty Deposit (EDD) @5% on two Bills of Entry to secure potential duty liability pending investigation by the Special Valuation Branch (SVB). After final assessment confirmed no under-declaration, the Appellant claimed refund of the EDD amounts. While one claim (Rs. 3,26,972) was granted, the second claim (Rs. 1,81,656) relating to Bill of Entry No. 7055380 dated 12.01.2022 was denied on grounds of limitation and unjust enrichment.
Key Facts
- Bill of Entry No. 2774040 dated 15.02.2021: EDD of Rs. 3,26,972 paid on 20.02.2021; final assessment dated 01.03.2023; refund granted.
- Bill of Entry No. 7055380 dated 12.01.2022: EDD of Rs. 1,81,656 paid on 21.01.2022; final assessment dated 12.01.2022, but systemically finalized on 29.03.2023 due to SVB investigation.
- Refund application filed on 21.02.2024.
- EDD was paid using funds loaned by promoter company M/s Global Autotech Ltd., recorded via Journal Voucher No. 801 dated 21.01.2022.
- Loan of Rs. 1,81,656 was repaid by Appellant on 07.03.2022 via Bank Payment Voucher No. 545.
- Chartered Accountant Certificate dated 06.02.2024 certified that EDD was not passed on to any third party and was borne by the Appellant.
- Balance Sheet for FY 2021-22 (Note 16) explicitly listed Rs. 1,81,656 as "Recoverable from Custom Authority".
- Balance Sheet for FY 2020-21 did not reflect this amount, as it pertained to a different financial year.
Procedural History
- 21.01.2022: EDD of Rs. 1,81,656 deposited against Bill of Entry No. 7055380.
- 12.01.2022: Provisional assessment of Bill of Entry completed; SVB investigation initiated.
- 11.02.2022: SVB Investigation Report (DIN 20220274NC000000B68E) submitted.
- 29.03.2023: Bill of Entry systemically finalized after SVB clearance.
- 21.02.2024: Refund application filed for EDD of Rs. 1,81,656.
- 01.07.2024: Assistant Commissioner (Refund) granted Rs. 3,26,972 but rejected Rs. 1,81,656 on limitation grounds.
- 27.03.2025: Commissioner (Appeals) set aside the order and remanded for reconsideration of unjust enrichment.
- 01.08.2025: Adjudicating Authority, on remand, held EDD passed on to M/s Global Autotech Ltd. and ordered transfer to Consumer Welfare Fund.
- 10.12.2025: Commissioner (Appeals) upheld the transfer order.
- 13.05.2026: CESTAT Allahabad allowed the appeal.
Relief Sought
The Appellant sought: (1) reversal of the order directing transfer of Rs. 1,81,656 to Consumer Welfare Fund; (2) refund of the full EDD amount; and (3) payment of interest under Section 18(4) of the Customs Act, 1962.
The Legal Issue
The central question was whether Extra Duty Deposit (EDD) constitutes "customs duty" under Section 27 of the Customs Act, 1962, and whether the one-year limitation period applies to its refund. Additionally, whether the principle of unjust enrichment applies when the EDD is paid via a loan from a promoter company and explicitly recorded as a receivable in the financial statements.
Arguments Presented
For the Appellant
The Appellant’s counsel argued that EDD is a security deposit, not customs duty, as confirmed by Circular No. 5/2016-Customs and judicial precedents including Nithin India Tech Ltd. and Hitachi Koki India Pvt. Ltd. The deposit was made solely to secure potential duty liability pending SVB investigation and was refundable upon clearance. The refund claim was filed within one year of final assessment (29.03.2023), making it timely. The Chartered Accountant Certificate and Balance Sheet entries for FY 2021-22 conclusively proved the Appellant bore the burden. The loan from M/s Global Autotech Ltd. was a separate financing arrangement and did not constitute passing on of duty incidence.
For the Respondent
The Respondent contended that the refund claim was barred by limitation under Section 27, as the assessment was finalized on 12.01.2022. It further argued that the EDD amount was passed on to M/s Global Autotech Ltd. because the payment originated from its ledger, invoking the unjust enrichment principle under the proviso to Section 27(2). The absence of the amount in FY 2020-21 Balance Sheet was cited as evidence that the Appellant did not bear the burden.
The Court's Analysis
The Tribunal conducted a meticulous review of statutory provisions, judicial precedents, and documentary evidence. It emphasized that EDD is not customs duty but a provisional security deposit, as held in Sentec India Company Private Limited and Nithin India Tech Ltd. The Tribunal observed:
"The deposit of the EDD was itself to secure any customs duty which may have been later on found to be payable, due to the allegation of under-declaration. However, when the said allegation has been disproved and the Department has taken a view that there was no under-declaration, the substratum of the deposit of EDD itself no longer exists."
The Court rejected the reliance on FY 2020-21 Balance Sheet to determine the burden of EDD paid in FY 2021-22, calling it a "patent error". It noted that the FY 2021-22 Balance Sheet (Note 16) clearly listed Rs. 1,81,656 as recoverable from Customs, thereby establishing the Appellant’s financial burden.
The Tribunal further distinguished the loan transaction from the import transaction. The loan from M/s Global Autotech Ltd. was a corporate financing arrangement, not a transfer of duty burden to a buyer of goods. The Chartered Accountant Certificate explicitly certified that the EDD was not passed on to any third party.
The Court also held that the limitation under Section 27 does not apply to EDD, as it is not "duty paid" but a security deposit. The refund claim was filed within one year of the actual final assessment date (29.03.2023), rendering it timely.
The Verdict
The Appellant succeeded. The Tribunal set aside the order dated 10.12.2025 and directed the Respondent to refund Rs. 1,81,656 to the Appellant within two weeks of the order. The Appellant is entitled to interest on the refund amount at the rate prescribed under Section 18(4) of the Customs Act, 1962, computed from the date of final assessment (29.03.2023) until actual payment.
What This Means For Similar Cases
EDD Is Not Customs Duty - Limitation Does Not Apply
- Practitioners must now argue that EDD claims are governed by the nature of the deposit, not Section 27’s limitation.
- Refund applications for EDD must be assessed based on the date of final assessment, not provisional assessment.
- Circular No. 5/2016-Customs and judgments from Madras, Karnataka, and Delhi High Courts are now binding precedents.
Unjust Enrichment Requires Direct Pass-On to Buyer
- A loan from a promoter or related entity does not constitute "passing on" of duty burden under Section 27(2).
- The burden is only passed on if the cost is embedded in the sale price to the end buyer of imported goods.
- Chartered Accountant certificates and Balance Sheet entries are critical evidence to rebut unjust enrichment claims.
Financial Statements Are Key Evidence
- Maintain clear, year-specific disclosures in Balance Sheets for all tax recoverables.
- Refund claims must be supported by contemporaneous accounting records, not retrospective interpretations.
- Discrepancies across financial years must be explained with documentary trail - failure to do so invites adverse inference.
