CESTAT Bangalore Allows Refund: Quashing of Unconstitutional Export Duty on SEZ Supplies

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 17.07.2026

CESTAT Bangalore Allows Refund: Quashing of Unconstitutional Export Duty on SEZ Supplies

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) Bangalore recently delivered a significant judgment in the case of Vikas Telecom Private Limited, addressing the refund of customs duty paid under provisions later declared unconstitutional. This article provides a detailed analysis of the case, its legal context, and its implications for Special Economic Zone (SEZ) developers and the broader business community.

Background of the Case

Vikas Telecom Private Limited, an SEZ developer approved under Section 2(g) of the Special Economic Zone Act, 2005, was engaged in developing Embassy Tech Village, a notified SEZ. Under Section 26 of the SEZ Act, SEZ developers are exempt from customs duties on goods and services required for authorized operations. However, a customs notification (No. 66/2008-Cus) imposed a 20% export duty on iron and ferrous products, and subsequent administrative instructions required SEZ developers to pay this duty upfront.

Challenging these instructions, Vikas Telecom and other SEZ developers filed writ petitions, arguing that such levies contradicted the SEZ Act. The Karnataka High Court, in the case of Shyamaraju & Co. (India) Pvt. Ltd. & Others v. Union of India, ruled that imposing export duty on supplies to SEZs was unconstitutional. The Supreme Court later upheld this decision, quashing the duty demand.

The Refund Claim Journey

Despite the favorable court orders, Vikas Telecom had already paid the disputed export duty (including interest) during the pendency of litigation. The company sought a refund through the following steps:

1. Initial Application: Filed with SEZ authorities, who redirected the claim to the Customs Department.
2. Subsequent Applications: Filed with the Assistant Commissioner and then the Additional Commissioner of Customs, Air Cargo Complex, Bangalore.
3. Rejection at Lower Levels: The refund was rejected at both the adjudication and appellate levels, citing lack of evidence, limitation period, and concerns over unjust enrichment.

Key Legal Issues Examined

1. Limitation Period for Refund Claims

Authorities argued that the refund claim was time-barred, as it was filed beyond the one-year limitation prescribed under Section 27 of the Customs Act. However, CESTAT relied on Supreme Court and High Court precedents, holding that when tax is paid under mistake or compulsion and later declared unconstitutional, the limitation does not apply strictly. The Tribunal emphasized that refusing to return such amounts would violate Article 265 of the Constitution (no tax without authority of law).

2. Unjust Enrichment

The department contended that Vikas Telecom had not proven it bore the duty’s incidence and had not passed it on to others, especially since a contractor (JMC Projects India Ltd.) was involved. However, Vikas Telecom provided:

• Certificates from the contractor confirming the duty was recovered from Vikas Telecom and not claimed by the contractor.
• Chartered Accountant certificates confirming the duty was not passed on to any other party.
• Bank evidence of payment.

CESTAT found these documents sufficient, noting that the steel was used for SEZ development and not resold, so the presumption of unjust enrichment did not apply.

3. Jurisdiction and Procedural Issues

The department also raised jurisdictional objections and questioned whether the correct authority was approached. The Tribunal clarified that the refund process followed by Vikas Telecom was reasonable, given the directions and returns from various authorities.

The Tribunal’s Decision

CESTAT set aside the orders rejecting the refund, holding:

• The refund claim was not time-barred, as the payment was made under compulsion and later declared illegal.
• There was no unjust enrichment, as Vikas Telecom bore the duty and did not pass it on.
• The company followed due process in seeking the refund.

The Tribunal allowed the appeal, directing the refund of the customs duty to Vikas Telecom, with consequential relief as per law.

Implications and Takeaways

1. Affirmation of SEZ Exemptions: The ruling reinforces the statutory exemptions available to SEZ developers and the supremacy of the SEZ Act over conflicting notifications.
2. Refunds for Unconstitutional Levies: Businesses forced to pay duties or taxes later declared unconstitutional can claim refunds, even beyond standard limitation periods.
3. Burden of Proof for Unjust Enrichment: Proper documentation (CA certificates, contractor confirmations, payment evidence) is crucial to establish that the duty was not passed on.
4. Procedural Diligence: Persistence in following up with the correct authorities and maintaining a clear paper trail is essential for successful refund claims.

Conclusion

The Vikas Telecom CESTAT Bangalore decision is a landmark for SEZ developers and businesses facing similar disputes. It underscores the importance of legal clarity, procedural rigor, and the judiciary’s role in upholding statutory rights against administrative overreach. SEZ developers and other affected parties should review their past duty payments and consider seeking refunds where similar circumstances apply.

Connected Matter

Gujarat High Court Orders IGST Refund on Unconstitutional Ocean Freight Levy

Source: CESTAT Bangalore

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