Refund of Auction Deposits Sanctioned: CESTAT Delhi Rules on Confiscated Cigarettes Post-CBIC Circular Implementation
Overview of the Dispute
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Delhi Bench delivered a significant ruling in the matter of Muchipara Consumers Co-Operative Stores Ltd Vs Commissioner of Customs (Appeals), addressing the complex interplay between auction proceedings for confiscated goods and subsequent regulatory changes affecting their marketability.
The case arose from an electronic auction conducted by the Customs Department for the sale of confiscated cigarettes of foreign origin. The successful bidder sought refund of deposits after regulatory changes made it impossible to legally receive and sell the auctioned goods in the domestic market.
Background and Chronological Events
Initial Auction Process
The Customs Department published an e-auction notification on 25.01.2017, scheduling the auction for 07.02.2017. The auction pertained to cigarettes that had been seized or confiscated by the department. According to the prescribed terms, potential bidders needed to deposit ₹25,000 as initial security before participating.
The auction conditions further stipulated that the successful bidder would be required to:
- Deposit additional security within three days following the conclusion of the auction
- Pay the remaining sale consideration along with applicable duties and taxes within five days from receiving the acceptance letter or sale order
Appellant's Participation and Bid Success
Muchipara Consumers Co-Operative Stores Ltd participated in this auction by depositing the required ₹25,000. The cooperative society emerged as the highest bidder and received formal intimation dated 07.02.2017 directing them to deposit ₹29,19,444 within the stipulated three-day period. The appellant complied promptly and deposited this amount on 08.02.2017.
Subsequent Correspondence and Concerns
On 14.03.2017, the department issued a letter requesting the appellant to deposit the balance amount. However, the appellant raised crucial concerns through an email dated 27.03.2017, noting that:
- The department had failed to provide the testing report
- Information regarding the date of manufacture was essential, given that cigarettes have a shelf life of one year from manufacture
- Without such information, compliance with legal requirements would be impossible
The department issued the acceptance letter on 28.03.2017.
Regulatory Intervention Through CBIC Circular
On 29.03.2017, the Central Board of Excise and Customs (CBEC) issued Circular No. 9/2017-Cus addressing disposal procedures for confiscated cigarettes of foreign origin. This Circular introduced critical restrictions, mandating that cigarette packets failing to comply with various legal provisions—including the Cigarettes and Other Tobacco Products Act (COTPA), Packaging & Labelling Rules, and Legal Metrology requirements—must not be released for domestic consumption and should instead be destroyed.
Appellant's Request for Refund
Following the issuance of this Circular, the appellant sent an email on 31.03.2017 explaining that lifting the cigarette packets had become impossible due to non-compliance with legal requirements. The appellant requested refund of all amounts deposited.
The appellant further elaborated through a letter dated 17.04.2017 that the test report lacked crucial information regarding the date of manufacture. Since Rule 3 of the Cigarettes and other Tobacco Products (Packaging and Labelling) Rules, 2008 mandates this information, selling cigarettes without such declaration would constitute a legal violation. The appellant requested either fresh testing to ascertain manufacturing details, departmental confirmation of such details, or refund of deposits.
Departmental Response and Forfeiture
Rather than addressing the substantive concerns raised, the department refused refund and communicated through a letter dated 23.06.2017 that the deposits stood forfeited. The stated reason was the appellant's failure to deposit the balance bid amount within five days from issuance of the acceptance letter.
Administrative and Judicial Proceedings
Writ Petition and Refund Application
The appellant approached the Delhi High Court, which passed an order on 14.07.2023 in Writ Petition No. 9301 of 2023. Following this judicial direction, the appellant filed a formal refund application on 02.08.2023 before the appropriate customs authority.
The Assistant Commissioner (Refund) rejected this application through an order dated 29.04.2024, maintaining the position that forfeiture was justified due to non-payment of the balance amount within the prescribed timeline from the acceptance letter's issuance.
Appeal to Commissioner (Appeals) and Jurisdictional Issues
Aggrieved by the refund rejection, the appellant filed an appeal before the Commissioner (Appeals). However, this appeal was returned on dual jurisdictional grounds:
- The forfeiture order emanated from an officer of equivalent rank (Commissioner level)
- The dispute was characterized as contractual in nature, falling outside the Commissioner (Appeals)'s jurisdiction
Delhi High Court's Intervention and Directions
The appellant challenged the Commissioner (Appeals)'s order dated 07.07.2025 by filing Writ Petition No. 14311/2025 before the Delhi High Court. On 16.09.2025, the High Court disposed of this petition with significant observations and directions.
The High Court noted that:
"The forfeiture of the EMD is by the Commissioner of Customs. Irrespective of the said order, the remedy against the order dated 30th April, 2024 passed by the Assistant Commissioner (Refund) cannot be completely foreclosed insofar as the Petitioner is concerned."
Recognizing the unique circumstances, the High Court permitted the appellant to approach CESTAT to challenge both the refund rejection order dated 30.04.2024 and the Commissioner (Appeals) order dated 07.07.2025. Critically, the High Court specifically directed CESTAT to adjudicate whether the forfeiture was in accordance with law.
Arguments Before CESTAT
Appellant's Contentions
Shri S. Sunil, learned counsel representing the appellant, advanced the following submissions:
Primary Argument on Circular Applicability:
Paragraph 6 of the CBIC Circular dated 29.03.2017 explicitly prohibits release of cigarette packets that fail to comply with specified legal provisions for home consumption, mandating their destruction. Given this regulatory position, the appellant's request for refund was justified and its rejection was arbitrary.
Admission of Non-Compliance:
The cigarette packets subjected to auction admittedly did not comply with the laws referenced in the Circular dated 29.03.2017. Since the Circular was issued to address difficulties faced in implementing earlier Instructions dated 10.02.2010, it would apply to the present situation.
Temporal Application:
The cigarette packets had not been delivered to the appellant prior to the Circular's issuance on 29.03.2017. Consequently, the regulatory changes would apply to these goods still under departmental custody.
Legal Impossibility of Performance:
Following the Circular's issuance, the department legally could not release the cigarette packets to the appellant. This rendered performance impossible and entitled the appellant to refund.
Precedential Support:
In analogous circumstances, the Assistant Commissioner of Customs, Cochin, passed an order dated 24.05.2018 sanctioning refund of amounts deposited after acceptance of the highest bid. This established a precedent for the appellant's case.
Unjustified Forfeiture:
The departmental view that security amounts stood forfeited due to non-payment of the balance amount within five days was clearly unjustified given the supervening legal impossibility.
Department's Contentions
Shri Nikhil Mohan Goyal, learned authorized representative for the department, raised the following arguments: