2023 (3) TMI 844 - HC - Customs

Applicability of doctrine of unjust enrichment to claims of refund made prior to the introduction of Section 11 B of the Central Excise Act, 1944 and Section 27 (1A) of the Customs Act, 1962 - applicability of the doctrine to capital goods, raw material/ test material. HELD THAT - The view of the Tribunal that in the absence of an express provision the doctrine of unjust enrichment cannot be applied is contrary to the judgment of the Hon ble Supreme Court in the case of SAHAKARI KHAND UDYOG MANDAL LTD. VERSUS COMMISSIONER OF C. EX. CUS. 2005 (3) TMI 116 - SUPREME COURT , wherein it was held that the doctrine of unjust enrichment is based on equity and has been accepted and applied in several cases. In our opinion, therefore, irrespective of applicability of Section 11-B of the Act, the doctrine can be invoked to deny the benefit to which a person is not otherwise entitled. Section 11-B of the Act or similar provision merely gives legislative recognition to this doctrine. That, however, does not mean that in the absence of statutory provision, a person can claim or retain undue benefit. Before claiming a relief of refund, it is necessary for the petitioner-appellant to show that he has paid the amount for which relief is sought, he has not passed on the burden on consumers and if such relief is not granted, he would suffer loss. The Hon ble Supreme Court in the case of COMMNR. OF CENTRAL EXCISE, CHENNAI-III VERSUS GRASIM INDUSTRIES 2015 (4) TMI 389 - SUPREME COURT had held that the unjust enrichment will also apply to the capital goods, inputs and raw materials and any claim for refund ought to be tested by examining whether the higher duty paid has led to higher costing/price of the final product which should be demonstrated by the assessee to be in the negative to claim the benefit of refund. It thus appears that the order of the Tribunal insofar as it holds that the doctrine of unjust enrichment is not applicable to the facts is erroneous. In view of the same, the matter is remanded back to the original authority to decide the claim of the Respondent/Assessee to refund applying the doctrine of unjust enrichment after giving the Respondent/Assessee a reasonable opportunity. Appeal allowed by way of remand.

Summary

Issues:
1. Applicability of doctrine of unjust enrichment to refund claims made before the introduction of specific statutory provisions.
2. Applicability of unjust enrichment to capital goods, raw material, and test material.

Issue 1: Applicability of doctrine of unjust enrichment to pre-statutory refund claims:
The case involved a dispute regarding the application of the doctrine of unjust enrichment to refund claims made before the introduction of Section 11 B of the Central Excise Act, 1944, and Section 27 (1A) of the Customs Act, 1962. The Respondent imported HR Stainless Steel Coil in 1982 and sought a project concession for the imports. Despite initial rejection of their claim, subsequent appeals to higher authorities favored the Respondent. The Tribunal allowed the refund claim, emphasizing that the doctrine of unjust enrichment was not legislatively incorporated at the time of imports. The Respondents demonstrated that the duty was not passed on, supported by an affidavit and an audit report by the Comptroller and Auditor General of India. The Revenue challenged the Tribunal's decision, arguing that the doctrine of unjust enrichment should apply even without an express provision, citing precedents where the Supreme Court upheld the doctrine's application irrespective of specific statutory provisions. The High Court, concurring with the Revenue's argument, remanded the matter back to the original authority to decide the refund claim considering the doctrine of unjust enrichment.

Issue 2: Applicability of unjust enrichment to capital goods, raw material, and test material:
Another aspect of the case involved the question of whether the doctrine of unjust enrichment extended to capital goods, raw material, and test material. The High Court referred to a Supreme Court judgment that clarified the principle's applicability to goods used for captive consumption, including raw materials. The Court highlighted that the doctrine could also be extended to capital goods used in the manufacturing process, emphasizing that the cost of production includes both fixed costs (capital goods) and variable costs (raw materials). The Tribunal's view that unjust enrichment did not apply to the facts was deemed erroneous by the High Court, leading to a remand of the matter for a fresh decision considering the doctrine's application to capital goods, raw material, and test material. The Court directed the original authority to reevaluate the refund claim within a specified time frame, ensuring the Respondent had a fair opportunity to present their case.

In conclusion, the judgment addressed the issues of the applicability of the doctrine of unjust enrichment to pre-statutory refund claims and its extension to capital goods, raw material, and test material. The High Court's decision emphasized the importance of considering unjust enrichment principles in evaluating refund claims, even in the absence of specific statutory provisions, and directed a reevaluation of the refund claim in light of these principles.