2014 (12) TMI 530 - HC - Customs

Denial of refund claim - Whether the respondent/importer is automatically entitled to refund claim solely on the ground that provision for unjust enrichment was incorporated under Section 18 of the Customs Act, 1962 with effect from 14-7-2006 and in the instant case, the provisional assessment having been finalised prior to the date of insertion of the said provision - Held that - In the case of provisional assessments made and thereafterwards, it results in a refund, even in the absence of a provision of refund, if an assessee has to claim as refund, under equity, he must prove that there is no unjust enrichment and that the liability had not been passed on to the customer. That being the case, refund is not automatic one merely on the score of provisional assessment being followed by final assessment and unless and until the assessee substantiates the claim backed by the proof that the liability has not been passed on to the customer, such a refund claim may be termed as unjust and the claim cannot be granted as a mere consequence for refund arising on final assessment. When the assessee admits that provisional assessment was followed by a finalisation of assessment being finalised, under Section 27 of the Customs Act - any refund question arising thereon must be subject to proof of not passing on the burden of duty to others. Thus, in the absence of equity i.e., unless the assessee establishes that he has not passed on the burden of duty to another, he would not be entitled to refund as pointed out by the decision in the case of Mafatlal Industries Ltd., (1996 (12) TMI 50 - SUPREME COURT OF INDIA). Even in equity, the assessee is bound to substantiate its claim by showing bona fide that the payment of duty and claim not backed by unjust enrichment and the duty has not passed on to the customer, but it was borne out by the assessee only. - Matter remanded back - Decided in favour of Revenue.

Summary

Issues:
1. Interpretation of Section 18 of the Customs Act, 1962 regarding unjust enrichment.
2. Application of unjust enrichment in the case of provisional assessment and subsequent final assessment.
3. Refund claim eligibility based on passing on the burden of duty to others.
4. Consideration of equity and proof of unjust enrichment in refund claims.

Analysis:
1. The main issue in this case revolves around the interpretation of Section 18 of the Customs Act, 1962 concerning unjust enrichment. The question raised was whether the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) can disregard the provision of unjust enrichment and hold that it does not apply to the subject case.

2. The case involved an importer who claimed exemption under Notification No. 36/96-Customs for importing Microwave passive items. The Department initially denied the exemption, leading to provisional assessment. However, upon appeal to the Tribunal, the exemption was granted, resulting in a refund claim. The issue arose when the Revenue contested the applicability of unjust enrichment to the refund claim.

3. The argument presented by the Customs Department focused on the timeline of finalization of assessment and the insertion of unjust enrichment provisions. The Senior Counsel contended that refund claims, including deposits, are subject to unjust enrichment unless proven otherwise. Reference was made to relevant Supreme Court decisions to support this stance.

4. On the other hand, the importer's counsel supported the Tribunal's decision, emphasizing that the provisional assessment had been finalized, leading to a refund claim. The Tribunal's order was backed by a decision involving a similar scenario, where excess amounts were to be refunded without the need for a claim submission.

5. The High Court examined the arguments presented by both parties and referred to the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India. The Court highlighted the requirement for refund claims to prove non-passing of duty burden to others, even in cases of provisional assessments leading to refunds.

6. Ultimately, the Court ruled in favor of the Revenue, setting aside the Tribunal's order. The Assessing Officer was directed to reconsider the case, taking into account the aspect of unjust enrichment. The burden of proof regarding the non-passing of duty liability to others was placed on the importer, emphasizing the need for substantiating refund claims without unjust enrichment.

7. The judgment emphasized the importance of adhering to the principles of equity and ensuring that refund claims are supported by evidence of no unjust enrichment. The decision highlighted the necessity for importers to demonstrate that the duty paid was not passed on to customers, ultimately ensuring fairness and justice in refund processes.