Karnataka High Court Strikes Down Section 25(4) of Customs Act: Key Findings and Impact

1. Background and Reliefs Claimed

The Karnataka High Court, in Patanjali Foods Limited Vs Union of India, has aligned itself with a consistent judicial line taken by multiple High Courts and the Hon’ble Supreme Court regarding the validity and operation of Section 25(4) of the Customs Act, 1962.

The assessee approached the Court under Articles 226 and 227 of the Constitution of India, seeking multiple reliefs, primarily challenging the constitutional validity of Section 25(4) of the Customs Act, 1962, as amended by the Finance Act, 2016, and also disputing the applicability and effective date of Notification No. 29/2018-Cus dated 1.3.2018.

1.1 Principal Prayers in the Writ Petition

The assessee sought, inter alia, the following reliefs:

  • Declaration of invalidity of Section 25(4)
    A declaration that Section 25(4) of the Customs Act, 1962, as amended by the Finance Act, 2016, is arbitrary, illegal, ultra vires and unconstitutional, and liable to be struck down.

  • Quashing of Notification No. 29/2018-Cus dated 1.3.2018
    A writ of certiorari to set aside Notification No. 29/2018-Cus dated 1.3.2018 (Annexure G) as illegal, arbitrary, ultra vires and violative of the assessee’s fundamental right to trade.

  • Alternate prayer on effective date of notification
    In the alternative, a declaration that Notification No. 29/2018-Cus dated 1.3.2018 would be effective only from 6.3.2018 (the date of its publication and availability to the public), and not prior to that date, and that it would not govern the facts of the present case.

  • Challenge to reassessment of Bills of Entry
    A writ to quash the reassessment/assessment of the following Bills of Entry, where higher duty was demanded:

    • Ex-Bond Bill of Entry No. 5401809 (Annexure-K) dated 1.3.2018
    • Ex-Bond Bill of Entry No. 5401837 (Annexure-Y) dated 1.3.2018
    • Ex-Bond Bill of Entry No. 5401810 dated 1.3.2018
    • Bill of Entry No. 5420843 (Annexure-JJ) dated 2.3.2018

    These entries had been reassessed on 2.3.2018 and 5.3.2018 with an enhanced customs duty rate, which the assessee contended was illegal.

  • Refund of excess duty
    A writ of mandamus directing the respondents to refund Rs. 3,40,99,332/- along with interest from the date of deposit till the date of payment, being the amount collected by way of enhanced customs duty on the basis of Notification No. 29/2018-Cus.

  • Interim refund
    Pending final disposal, a direction to refund the same amount with accrued interest.

2. Hearing and Scope of Controversy

The High Court heard learned counsel for the assessee as well as for the Union and departmental authorities. On examining the record, the Court noted that the entire controversy—both on the constitutional challenge to Section 25(4) and on the effective date and enforceability of Notification No. 29/2018-Cus—was no longer res integra.

The Court found that all material issues were directly and fully governed by a series of judgments rendered by various High Courts and the Hon’ble Supreme Court, including:

  1. Ruchi Soya Industries Ltd. Vs. Union of India – 2019 SCC Online AP 151 (Andhra Pradesh High Court)
  2. Ruchi Soya Industries Ltd. Vs. Union of India & others – 2020 SCC Online Guj. 3595 (Gujarat High Court)
  3. M.D. Overseas Ltd. Vs. Union of India & others – 2019 SCC Online Delhi 11885 (Delhi High Court)
  4. Ruchi Soya Industries Ltd. Vs. Union of India & others – (2020) 13 GSTR – OL – 585 (Madras High Court)
  5. Union of India & others Vs. G.S. Chatha Rice Mills & another – (2021) 2 SCC 209 (Supreme Court)

The Karnataka High Court placed primary reliance on these authorities, especially the detailed reasoning in Ruchi Soya Industries Ltd. (Andhra Pradesh and Gujarat), M.D. Overseas Ltd., and G.S. Chatha Rice Mills.

3. Key Precedents Relied Upon

3.1 Andhra Pradesh High Court in Ruchi Soya Industries Ltd. – 2019 SCC Online AP 151

The Andhra Pradesh High Court examined the operation of Section 25(1), Section 25(2A) and Section 25(4) of the Customs Act, 1962 in the context of Notification No. 29/2018-Cus. The facts involved import of crude palm oil where:

  • The assessee had contracted for bulk purchase of crude palm oil.
  • Ex-bond Bills of Entry were filed and initially assessed at a basic customs duty of 30% plus social welfare surcharge, in line with Notification No. 50/2017-Cus and Notification No. 87/2017-Cus dated 17.11.2017.
  • **Notification No.