2015 (5) TMI 768 - HC - Customs

Denial of refund claim - Finalization of provisional assessment - Whether the doctrine of unjust enrichment inserted by way of Sub-section (5) of Section 18 of the Act with effect from 13.7.2006 was applicable to refund under Section 18 prior to the amendment in view of Section 27(2) of the Act - Held that - Sub-section (2) of Section 27 of the Act provides that any excess duty so paid after such determination shall be credited to the Fund. The proviso may be in exception instead of crediting to the Fund, the said amount is payable to the assessee, if the said amount does not fall within any of the categories mentioned in (a) to (f) of the said proviso. One such instance where the assessee was not entitled to refund was where he had already passed on the burden of duty on the customer. That is, if it is refunded to him, it would be a case of unjust enrichment. Such a provision was conspicuously missing in Section 18 of the Act. It is by way of amendment which came into effect from 13-7-2006 the said provisions contained Sub-section (2) of Section 27 of the Act was added to Section 18 by way of Sub-section (5). If for a claim under Section 18 of the Act, if an assessee has to put forth a claim under Section 27 of the Act, there was no necessity for the parliament to introduce Sub-section (2) of Section 27 of the Act by way of Sub-Section (5) of Section 18 of the Act. It only demonstrates Sections 18 and 27 are merely exclusive. To claim refund under Section 18 of the Act, the assessee was not expected to invoke Section 27 of the Act. Refund under Section 18 of the Act is independent of refund under Section 27 of the Act. It is for this reason when the Parliament wanted to prevent unjust enrichment, they amended Section 18 of the Act and introduced by way of Sub-section (5) what is contained in Sub-section (2) of Section 27 which includes unjust enrichment. Therefore, it follows prior to the amendment, this doctrine of unjust enrichment was not attracted to refund claim under Section 18 of the Act. - Decided in favour of assessee.

Summary

Issues:
Application of doctrine of unjust enrichment in refund claims under Section 18 of the Customs Act.

Analysis:
The appellant, an Oil Refinery, imported crude oil through a canalizing agency designated by the Central Government. Disputes arose regarding the quantity indicated in Bills of Entry, leading to provisional assessments and excess duty payments. The appellant sought refunds under Section 18 of the Customs Act, which were initially rejected by the Assistant Commissioner of Customs, citing unjust enrichment. The appellate authorities upheld the rejection, leading to the appellant's appeal to the Tribunal.

The Tribunal, relying on the Bombay High Court judgment in Bussa Overseas and Properties (P.) Ltd. v. Union of India, dismissed the appeal, stating that the doctrine of unjust enrichment did not apply. The main legal question before the Karnataka High Court was whether the doctrine of unjust enrichment, introduced in Section 18 of the Act in 2006, was applicable to refund claims under Section 18 before the amendment.

Section 18 of the Act deals with provisional assessment of duty, providing for adjustment of excess duty paid against duty finally assessed. The Court noted that Section 27 of the Act governs refund claims not falling under provisional assessment, and contains provisions to prevent unjust enrichment. The Court emphasized that prior to the 2006 amendment, the doctrine of unjust enrichment did not apply to refund claims under Section 18.

Referring to the judgment in CCE v. ITC Ltd., the Court held that refund claims post finalization of provisional assessment do not attract unjust enrichment. Citing the Gujarat High Court's decision in Commissioner of Customs v. Hindalco Industries Ltd., the Court criticized the authorities for incorrectly applying the doctrine of unjust enrichment. The Court set aside the orders, directing refund of excess duty recovered based on provisional assessment.

In conclusion, the High Court allowed the appeals, set aside the impugned orders, and directed the authorities to refund the excess duty collected based on provisional assessments. The Court highlighted that refund claims under Section 18 of the Act are independent of Section 27, and the doctrine of unjust enrichment does not apply to such claims.