Compounding Fee not Tax or Duty: Delhi HC directs Legal Metrology Department to Refund Compounding Fee paid by Oil Marketing Companies [Read Order]

The Delhi High Court directed Legal Metrology Department to refund compounding fee paid by Oil Marketing Companies and noted that compounding fee is not Tax or Duty.

All the appellants had imported fuel dispensing equipment from M/s Dresser Wayne Fuel Equipment (Shanghai) Co. Ltd. and M/s Tatsuno for use at various retail outlets situate throughout the country. The units were imported without obtaining the registration as contemplated under Section 19 of the Legal Metrology Act 2009.

The respondents appear to have thus taken the stand that the appellants had failed to comply with the provisions of the Legal Metrology Act and consequently drew proceedings against the appellants. In the course of those proceedings, the appellants also deposited compounding fee consequent to demands raised by the respondents.

The Single Judge firstly took up for consideration the question of whether the appellants were liable to obtain registration under Section 19 of the Legal Metrology Act and came to the conclusion that the appellants could neither be viewed as dealers under the Legal Metrology Act nor were they obliged to register under the said enactment before effecting import of the items in question.

A Division Bench comprising observed that “Once the Single Judge had come to conclude that the appellants could not be held to have violated any provision of the Legal Metrology Act, we fail to appreciate why they should be held liable to pay a compounding fee. Regard must be had to the fact that a compounding fee is not in the nature of a tax or duty. It is essentially a deposit made by a person to avoid the rigours of coercive proceedings being initiated and to obtain closure.”

The Court further went on to hold that the respondents being “State” cannot be countenanced to retain monies which are otherwise not payable by the appellants under the provisions of the Legal Metrology Act and when viewed in that light, it is evident that the issue of deposit without demur or protest could not have justified the retention of compounding fee.

The Bench concluded by noting that “In view of the aforesaid, we find merit in the challenge raised by the appellants and find ourselves unable to uphold the view taken by the Single Judge that the prayer for refund of compounding fee was liable to be refused.”

To Read the full text of the Order CLICK HERE

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