INTRODUCTION:
In the landmark judgment rendered in M/s Ajay Industrial Corporation Ltd. v. Assistant Commissioner of Customs (Refund) & Anr., Writ Petition No. 11118 of 2025, the Bombay High Court confronted a fundamental question concerning the limits of customs liability under the Customs Act, 1962: Can an importer be compelled to bear customs duty for goods that were never received, never cleared for home consumption, and never entered the stream of importation? The petitioner, M/s Ajay Industrial Corporation Ltd., challenged the Customs Department’s refusal to refund ₹35,37,358/– paid as duty for 100 metric tons of PVC Resin that were admittedly never delivered. The division bench comprising Justices M.S. Sonak and Advait M. Sethna noted that, despite a joint survey confirming short-landing of the consignment, and despite statutory provisions expressly absolving duty liability where goods are pilfered, lost, or not cleared, the authorities continued to insist on procedural formalities such as a “closure letter”, placing an undue burden upon the importer. The Court emphasised that the Customs Act does not burden innocent importers with fiscal liability for goods that never entered their possession and underscored that duty paid in anticipation of clearance must be refunded if clearance does not transpire. This ruling reaffirms the primacy of statutory protection for importers against wrongful collection of duty and clarifies the interplay between Sections 13, 23, and 27 of the Act. The case thus serves as a critical judicial exposition on the rights of importers, administrative responsibility, and the boundaries of fiscal authority exercised by customs agencies.
ARGUMENTS OF THE PETITIONER:
The petitioner, M/s Ajay Industrial Corporation Ltd., contended that the Customs Department acted wholly arbitrarily and in contravention of statutory provisions by refusing to refund duty paid on goods that never arrived in India. The petitioner submitted that 100 metric tons of Polyvinyl Chloride (PVC) Resin were imported under a Bill of Entry dated 27 April 2022. Upon filing the Bill of Entry, the petitioner was compelled to pay ₹35,37,358/– as customs duty. However, despite payment of this substantial sum, the consignment was never delivered. The petitioner argued that a joint survey conducted on 8 June 2022 conclusively revealed that the goods had short-landed and were untraceable. This factual finding was further endorsed by the Mumbai Port Authority, leaving no dispute over the non-receipt of the consignment.
The petitioner submitted that the Customs Act contains explicit safeguards to ensure that importers are not unfairly made to bear duty where the goods never enter commerce. Under Section 13, pilferage of imported goods before clearance absolves the importer of liability for duty. Under Section 23, if goods are lost or destroyed before clearance for home consumption, the importer is entitled to remission of duty. Finally, Section 27 creates an express statutory mechanism for refund of duty paid in excess or without authority. The petitioner argued that once these statutory protections were triggered, the Customs Department was duty-bound to refund the amount paid. The petitioner further contended that the insistence on a “closure letter” from the Port Authority was not grounded in statute, making it an illegal administrative hurdle that had no bearing on the substantive right to refund. The petitioner argued that administrative procedures cannot override statutory entitlements, and no importer can be penalised for bureaucratic friction between Customs and Port authorities.
Moreover, the petitioner highlighted that despite repeated attempts to resolve the matter—including representations before higher officials and the filing of a grievance on the CPGRAMS portal—the Customs authorities exhibited an unjustified reluctance to release the refund. The rejection of the petitioner’s claim was portrayed as a clear abuse of power and a derogation of statutory duty. The petitioner argued that allowing Customs to retain duty under such circumstances would amount to unjust enrichment by the State—an outcome expressly prohibited by constitutional norms. The petitioner relied on judicial precedents emphasising that neither procedural lapses nor inter-departmental disputes can prejudice the rights of private actors. The petitioner thus urged the Court to restore legal sanity by directing immediate refund with applicable interest and to hold that the Department’s conduct violated both statutory obligations and principles of natural justice.
ARGUMENTS OF THE RESPONDENTS:
The Customs Department, representing the respondents, attempted to justify its refusal to refund the amount by asserting that procedural requirements remained incomplete. The Department contended that without a formal “closure letter” from the Mumbai Port Authority establishing that the consignment had short-landed, the refund could not be processed. The respondents suggested that internal procedures and inter-agency communication mechanisms existed to determine responsibility for missing consignments, and until these processes reached closure, refund could not be authorised. The respondents implied that releasing refunds without completing such internal formalities risked confusion in fixing liability for loss.
Further, the respondents argued that Section 27 of the Customs Act mandates that refund claims must comply with statutory formalities, and any deviation from procedure undermines accountability. They contended that the importer’s claim was premature as the Port Authority had not conclusively reported the status of the goods and that processing a refund without a closure letter would compromise administrative integrity. They submitted that responsibility for missing consignments could lie with multiple authorities, including the custodians, shipping lines, or steamer agents, and unless liability was officially assigned, refund could not be issued. The respondents thus maintained that their refusal was not arbitrary but merely procedural and in line with departmental policies.
However, the Court noted—and the respondents were unable to deny—that the importer never received the consignment, that a joint survey confirmed short-landing, and that the Port Authority itself acknowledged that the goods did not arrive. The respondents ultimately presented no substantive defence on statutory interpretation, nor did they counter the petitioner’s position that Sections 13, 23, and 27 mandate refund where goods are lost or undelivered. Their reliance on procedural formalities without statutory backing was insufficient to rebut the petitioner’s claim.
COURT’S JUDGMENT:
The Bombay High Court delivered a scathing and incisive judgment, holding that the Customs Department cannot retain customs duty paid on goods that were never delivered to the importer and never cleared for home consumption. The Court categorically held that the statutory scheme of the Customs Act prohibits imposition or retention of duty where the goods have not entered domestic circulation. It reaffirmed that the combined reading of Sections 13, 23, and 27 establishes a clear legislative intent: customs duty is contingent upon actual receipt and clearance of goods, not merely upon filing of a Bill of Entry.
The Court observed that the petitioner unequivocally proved non-receipt of goods, a fact that neither Customs nor the Port Authority disputed. The Court emphasised that Section 13 extinguishes duty where goods are pilfered before clearance, Section 23 mandates remission when goods are lost or destroyed before clearance, and Section 27 creates a legal obligation to refund duty paid without authority. These statutory provisions render administrative objections irrelevant. The Court held that the Customs Department’s insistence on a closure letter was extraneous and not a condition precedent for refund under the Act.
The bench criticised the Customs Department for forcing the importer into unnecessary litigation and remarked that no importer can be penalised for systemic deficiencies or inter-agency disputes. The Court further held that the Department’s stance violated the principles of fairness, reasonableness, and non-arbitrariness embedded in Article 14 of the Constitution. The retention of duty without delivery of goods was described as legally untenable, amounting to unjust enrichment by the State.
Accordingly, the Court directed the Assistant Commissioner of Customs (Refund) to process the refund of ₹35,37,358/– with 9% interest from the date of payment within four weeks and to file a compliance report. The Court expressly left open the question of inter-se liability between the Customs Department and the Port Authority, observing that an innocent importer cannot be made to bear the fiscal consequences of bureaucratic failures.
This judgment not only clarifies legal liability under the Customs Act but also reinforces the principle that procedure cannot defeat substantive rights. It sets a precedent for importers across India, ensuring that statutory protections prevail over administrative rigidity and establishing judicial intolerance towards governmental retention of funds contrary to law.