Doctrine of Unjust Enrichment and Refunds Under Central Excise Law
The Management Accountant, Vol. 30, No. 2, pp. 147-149, February 1995
Posted: 31 Jan 2005
Unjust enrichment was the cause of the concern to the judges and jurists, right from the dawn of the civilization. Courts have adopted the doctrine in extension, to deal with various situations in life, to ameliorate and improve the lot of the common man. Fields of taxation is no different and Unrighteous enjoyment of colossal sums which belongs to small consumers have to be prevented.
The question of unjust enrichment resulting from refunds of Customs and Central Excise duties, in cases where the incidence of customs and excise duty, levied in the first instance, but which became due for refund on account of its having been wrongly levied, had already been passed onto the buyers of the goods, became the subject matter of discussion, in the light of a number of judicial pronouncements which pointed out the undesirability of granting such refunds. An introduction of suitable legislation to amend the Central Excises and Salt Act 1944, and the Customs Act 1962, to deny refunds in cases of unjust enrichment, was recommended by the Public Accounts Committee, in its enquiry report, which was presented to the Parliament on 11th March 1991.
Pursuant to it, Dr. Manmohan Singh, the Finance Minister, introduced on August 22, 1991, the Central Excises and Customs Laws (Amendment) Bill, 1991, which was later passed by the both houses of Parliament, and the President of India too gave assent.
The Central Government announced the date 20.09.91 as the date of coming into force of the amended provisions, by Notification No. 30/91-CE (NT)
The issue as to whether provisions of unjust enrichment would be applicable to the refund of cash deposits, furnished pursuant to interim orders of the court, came up for discussion in the case of U.O.I Vs, Jain Spinners Ltd. reported as 1992 (61) ELT321 (SC). While deciding the issue the Honble Apex Court had ruled as under:
If the contention advanced by the learned counsel is accepted, it would defeat the amended provisions of the Act, it would then be open to the assesses to obtain orders from Courts as in the present case, and instead of paying the assessed amount of duty to the authorities, deposit it in the court and raise a plea that what is deposited in the court is not duty and the assessees are entitled to get the refund either directly from the court or it it is withdrawn by the authorities, from the authorities, notwithstanding that they have passed on the duty to others. It would create two artificial classes of the assesses, viz., those who have paid the duty to the authorities and those who have obtained orders from the courts for depositing the duties in courts. The former will, and the later will not be governed by the amended provisions of the Act. This would result in a discriminatory and invidious situation. The view canvassed by the learned counsel will also open a new door for unjust enrichment by enabling the assesssees to by-pass the statutory provisions which have been specifically enacted to prevent the malpractice. (para 25).
The Apex Court had further held in the case ibid that the deposit made by the respondents in the court has to be held as one towards the duty. (para 26)
Thus, the provision of unjust enrichment are equally applicable to deposits of duty made by the assesses either with the Courts or with the authorities and also to the payment of duty that has been secured by way of bank guarantees, made pursuant to the interim orders of the Courts. The Supreme Court in the case of UOI Vs. ITC Ltd. Reported as 1993 (67) ELT 3 (SC) has held that in the event of failure of the assesses to rebut the presumption in the Section 12 B of the Central Excises and Salt Act, 1944, directions were issued to the assessee to pay back the amount of refund received by it along with 12% interest in accordance with interim orders of the Court. The Hon'ble Court further directed that on the failure of the respondent to pay the amount as per the above direction, the Deptt. shall be entitled to encash the bank guarantees and/or take such other steps as may be available to it in law for recovery of the amount.
From the foregoing, it emerges:
(i) that the bank guarantees furnished pursuant to the interim orders of the courts to secure the amount of the courts to secure the amount of Central Excise duty with the department have been accorded a same status to that of the duty paid by the assessee by way of cash deposits either with the Courts or with the department.
(ii) that the amended provisions of Sec. 11B read with Section 12B of the Act enjoins upon every person who has paid the excise duty to rebut the presumption that the incidence of excise duty has been passed on to the ultimate buyers, before refund of excise duty could be considered in favour of that person.
(iii) that only the Assistant Collectors of Central Excise, it empowered under Sec. 11 B of the Central Excise and Salt Act, 1944 to sanction the refund to any person, after examining the unjust enrichment aspect.
The Hon'ble Supreme Court in the case of Oswal Agro Mills Ltd., Ludhiana Vs. Ors in SLP (c) No. 18175/93 took a different view and has held that this court having once decided the appeal on merits in favour of the petitioners, the bank guarantees of their own should expire and lapse and the emended provisions of Sec. 11B of the Central Excises and Salt Act, 1944 pertaining to refund are not applicable to these bank guarantees furnished pursuant to interim orders of this court.
The question, whether it can be said that the furnishing of a bank guarantee for all or part of the disputed excise duty amount pursuant to an order of the court is equivalent to payment of the amount of excise duty came up for argument before the Hon'ble Supreme Court again in the review petition filed by the department in the case of Oswal Agro Mills Ltd. Vs. Asstt. Collector of Central Excise, Ludhiana reported as 1994 (70) ELT48 (SC). The Hon'bel Supreme Court held that in their view the answer is in the negative Section 11B applies when an essessee claims refund of excise duty. A claim for refund is claim for repayment. It presupposes that the amount of the excise duty has been paid over to the department. It is then the department would be required to repay or refund that excise duty. The Hon'ble Supreme Court thus held that the amount of disputed tax or duty that is secured by a bank guarantee cannot, therefore, be held to be paid to the revenue. There is no question of its refund, and Section 11B is not attracted. In the aforesaid judgment, the Supreme Court distinguished the judgment in the case Jain Spinners (Supra), and held that it applies to a case where excise duty has been deposited in a Court pursuant to an interim order and has been withdrawn by the excise authorities. In such a case, clearly the assessee has to make an application for refund and to such a case, therefore, the provisions of Sec. 11B squarely apply.
In view of the review judgment of the Hon'ble Supreme Court in the case of Oswal Agro Mills Ltd. Vs. A.C.C.E., Ludhiana (Supra), it appears:
(i) that the bank guarantees furnished pursuant to interim orders of the Court, to secure the amount of the Central Excise Duty with the department have been accorded a status different than that of duty paid by the assessee by way of each deposits either with the court or with the department.
(ii) that mode of securing the payment of Central Excise duty is relevant to decide the question of refund than to determine as to whether incidence of duty has been passed on before sanction of refund by the proper officer to the claimant.
(iii) that Courts have to examine the issue of unjust enrichment at the time of the deciding stay application and to give their finding as to whether payment of duty is to be secured by cash deposits or bank guarantees, because the former will an later will not be governed by the amended provisions of the Act.
An obligation has been created on the assesses in terms of Section 11D of the Central Excises and Salt Act, 1944 that they should pay the amount of Central Excise duty collected by them from their buyers to the Government before their making a claim for refund of the either the cash deposits or the release of bank guarantees. Section 12B of the Act creates a rebuttable presumption that every person who has paid excise duty has passed on the burden of the same to the buyers of such goods. The burden of proof is on the person claiming the refund to establish that he had paid the duty but not passed on the duty to the buyer of such. In view of this, it appears the assesses are required to rebut the presumption even for their claim for release of the bank guarantees, as these have been furnished to secure the Central Excise duty, because of the Court orders, otherwise the assesses were required to pay the disputed amount of duty to the department.
It is accordingly suggested that the term refund of duty as defined in Section 11B of the Act should be amended so as to include return of cash deposits or release of bank guarantees furnished pursuant to interim orders of an appellate authority, in the event of an assessee's succeeding in an appeal.
Keywords: Doctrine of unjust enrichment, Refunds, Central Excise Law, India
JEL Classification: K34
Suggested Citation: Suggested Citation