Section 25(4) of Customs Act Declared Arbitrary: Karnataka HC Orders Refund to Patanjali Foods [Read Order]

The Karnataka High Court in a recent case has ordered a refund of ₹3.40 crore to Patanjali Foods, holding that Section 25(4) of the Customs Act of 1962 as amended by fiance act of 2016, is unconstitutional and arbitrary.

The issue arose when the basic customs duty was raised by the Notification No. 29/2018‑Cus dated 01.03.2018 on crude palm oil from 30% to 44%. Patanjali Foods (formerly Ruchi Soya Industries) the petitioner, had submitted bills of entry on 01.03.2018, which were assessed at the prevailing 30% duty.

Moreover, customs authorities reassessed the entries and demanded the higher duty,in accordance with Section 25(4), even though the notification was only electronically published in the official gazette on 06.03.2018. The petitioner paid the differential duty under protest and approached the High Court, challenging both Section 25(4) and the notification.

The bench of Justice S.R. Krishna Kumar observed that the issue had already been considered by the Supreme Court and several High Courts.

In Ruchi Soya Industries Ltd. v. Union of India (2019) The Andhra Pradesh High Court held that Section 25(4) was unconstitutional, holding that notifications cannot take effect before publication in the Gazette.

The Court highlighted that publication is essential for imparting knowledge to the public, and considering notifications effective from the date of issue created absurdity, confusion, and conflict with Section 25(1) and (2A). The AP High Court mandated the refund of excess duty collected before publication.

Similarly, the Gujarat High Court in Ruchi Soya Industries Ltd. v. Union of India (2020 SCC OnLine Guj 3595) ruled that bills of entry submitted before publication should not face enhanced duty. The Court reiterated that Section 25(4) was inconsistent with the statutory scheme and violated principles of predictability under the rule of law.

In the case of M.D. Overseas Ltd. v. Union of India (2019) the Delhi High Court addressed the issue in the context of gold coin imports. Depending on Section 8 of the Information Technology Act, 2000 and the Office Memorandum dated 30.09.2015 compelling exclusive e‑publication of Gazette notifications, the Court held that notifications take effect only upon electronic publication. Imports affected before publication could not be subjected to restrictive notifications.

In Ruchi Soya Industries Ltd. v. Union of India (2020) the Madras High Court adopted the reasoning of the Andhra Pradesh High Court, declaring Section 25(4) arbitrary and directing the refund of enhanced duty collected under protest. The Court said that fiscal statutes must be understood to avoid absurdity and ensure transparency.

In Union of India v. G.S. Chatha Rice Mills (2021, the Supreme Court provided authoritative guidance on the issue. The Court held that with the shift to electronic gazettes, the precise time of publication assumes significance.

Notifications cannot operate retrospectively unless expressly authorised by statute. The rate of duty crystallises at the time of presentation of bills of entry, and subsequent publication cannot alter it.

The Court reaffirmed earlier principles from Harla v. State of Rajasthan (1952), B.K. Srinivasan v. State of Karnataka (1987), and Param Industries Ltd. (2016), that laws must be made known before they bind citizens.

Applying these precedents, the Karnataka High Court held that Section 25(4) was arbitrary and contrary to Section 25(1) and (2A), which mandate publication in the Official Gazette. Notifications cannot be deemed effective from the date of issue for publication, as this deprives the public of knowledge and creates unpredictability. The Court quashed the reassessed bills of entry dated 01.03.2018 and 02.03.2018 and directed refund of ₹3.40 crore with interest within three months.

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