M/S PATANJALI FOODS LIMITED [APPELLANT(S)] Vs. UNION OF INDIA & ORS.  [RESPONDENT(S)]

CIVIL APPEAL NOS. 3833-3835 OF 2025

(2JB, ABHAY S. OKA and UJJAL BHUYAN JJ., delivered by UJJAL BHUYAN, J.)

In a landmark judgment, the Supreme Court of India ruled in favour of Patanjali Foods Limited (formerly Ruchi Soya Industries Ltd.) in a two-decade-old customs dispute with the Union of India. The apex court directed the customs department to refund over ₹77 lakh, along with 6% interest, to Patanjali within four months, declaring the department’s recovery of customs duty through bank guarantee encashment as coercive and legally untenable.

The case dates back to 2002 when Ruchi Soya, one of India’s major edible oil companies, imported crude degummed soybean oil at the Jamnagar port. The customs authorities demanded duty based on tariff values under Section 14(2) of the Customs Act, rather than on the transaction value under Section 14(1). Ruchi Soya challenged the demand, arguing that the tariff notification was not in the public domain on the date of import and hence unenforceable. The Gujarat High Court provisionally allowed the clearance of goods against a bank guarantee covering the differential duty.

However, the legal tide shifted in 2012 when the Gujarat High Court dismissed Ruchi Soya’s petition and allowed the customs authorities to encash the bank guarantee, recovering ₹9.19 lakh. The situation changed again in 2015 when the Supreme Court, in Union of India v. Param Industries Ltd., ruled that tariff value notifications must be published to be legally effective. Based on this precedent, Ruchi Soya sought a refund of the recovered amount.

The customs department rejected the refund request, invoking the doctrine of unjust enrichment under Section 27 of the Customs Act, which disallows refunds if the duty burden has been passed on to another party. Ruchi Soya countered with fresh petitions, asserting that the recovery via bank guarantee did not constitute “duty” and hence was not subject to the unjust enrichment bar.

In 2016, a Division Bench of the Gujarat High Court dismissed these claims, holding that once interim relief was vacated and the guarantee encashed, the amount became duty, subject to the usual refund rules. The High Court also distinguished this case from earlier Supreme Court judgments that ruled encashment of a bank guarantee is not duty payment when the underlying demand is legally unsustainable.

Ruchi Soya then approached the Supreme Court, which delivered a decisive verdict in its favour on May 19, 2025. Justices Abhay S. Oka and Ujjal Bhuyan held that the customs authorities acted hastily and without legal sanction by encashing the guarantee. The Court ruled that such recovery was coercive and that retention of the funds was unjust and unlawful. Referring to earlier cases like Oswal Agro Mills Ltd. and Somaiya Organics, the Court reiterated that providing a bank guarantee does not equate to duty payment.

The judgment carries financial implications for Patanjali Foods, which acquired Ruchi Soya in 2019 through an NCLT-approved resolution plan for ₹4,350 crore. Senior Advocate Balbir Singh represented Patanjali, while the Centre and customs department were represented by Senior Advocates Nisha Bagchi and Nalin Kohli.