2005 (4) TMI 84 - HC - Central Excise

Refund of cess paid under protest - Unjust enrichment - Constitutional validity of Section 11B brought on the statute by way of the Central Excise and Customs (Amendment) Act, 1991 ( Amendment Act of 1991 ) - HELD THAT - The Apex Court in the case of Barnagore Jute Factory 1991 (12) TMI 142 - SUPREME COURT was concerned with interpretation of Rule 3 of Jute Cess Rules by which provisions of Central Excises and Salt Act, 1944 and Rules framed thereunder including those relating to refund of duty were made applicable. The rule involved in the case on hand which warrants interpretation is Rule 3 of the Cess Rules, 1981 which is identical to Rule 3 of the Jute Cess Rules. The aforesaid judgment of the Apex Court in the case of Sahakari Khand Udyog Mandal Ltd. 2005 (3) TMI 116 - SUPREME COURT , clearest possible term has held that the doctrine of unjust enrichment is based on equity and the same is very much applicable irrespective of application of Section 11B of the Central Excise Act. Such similar provision merely gives recognition to the equitable doctrine of unjust enrichment. Absence of statutory provision does not mean that, a person can claim or retain undue benefit. Before claiming a relief of refund, the person claiming refund must show that he has paid the amount for which relief is sought; that he has not passed on the burden on the consumers and that if such relief is not granted, he would suffer loss. It is not in dispute that the petitioners have recovered the cess from their customers. In view of this undisputed fact, it is an academic debate as to whether or not incorporation of the provisions of the Central Excise Act is a legislation by incorporation or by reference. Irrespective of the applicability of Section 11B of the Central Excise Act, no refund can be allowed unless it stands to the test of doctrine of unjust enrichment. Thus, in our view, the petition is devoid of any substance and the same is thus liable to be dismissed. In the result, petition fails.

Issues Involved:
1. Refund of cess paid under protest.
2. Constitutional validity of Section 11B of the Central Excise Act.
3. Doctrine of unjust enrichment.
4. Legislation by incorporation vs. reference.

Detailed Analysis:

1. Refund of Cess Paid Under Protest:
The petitioners sought a refund of Rs. 10,19,246/- paid as cess under protest from 1st March 1981 to 6th June 1990 under the Paper and Paperboard Cess Rules, 1981. They argued that no cess was payable on products manufactured from cess-paid base paper. Despite the Central Board of Excise and Customs accepting that no cess was payable on such products in 1990, the petitioners' refund applications were initially rejected, prompting them to appeal. The appeals were allowed, and the case was remanded to examine the refund claims based on the doctrine of unjust enrichment.

2. Constitutional Validity of Section 11B of the Central Excise Act:
The petitioners challenged the constitutional validity of Section 11B of the Central Excise Act, 1944, as amended by the Central Excise and Customs (Amendment) Act, 1991. However, this challenge was rendered moot by the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India, which upheld the validity of Section 11B.

3. Doctrine of Unjust Enrichment:
The petitioners contended that the doctrine of unjust enrichment should not apply because the cess was paid under protest and the amendments to Section 11B in 1991 should not be retrospectively applied to the Cess Rules, 1981. They argued that the doctrine of unjust enrichment was not applicable because they had not passed the burden of cess onto their customers. However, the respondents argued that the petitioners had indeed recovered the cess from their customers, and thus, refund claims were not maintainable without proving that the burden had not been passed on.

4. Legislation by Incorporation vs. Reference:
The petitioners argued that the provisions of the Central Excise Act as they stood in 1981 were incorporated into the Cess Rules, 1981, and thus, any amendments made to the Central Excise Act post-1981 should not apply. They distinguished between legislation by incorporation (where subsequent amendments do not apply) and legislation by reference (where subsequent amendments apply). The respondents, however, contended that Rule 3 of the Cess Rules, 1981 incorporated the Central Excise Act by reference, meaning that amendments, including those made in 1991, were applicable.

Consideration and Judgment:
The court noted that the Supreme Court had already interpreted a similar rule in Barnagore Jute Factory Co. v. Inspector of Central Excise, holding that the Central Excise Act was incorporated by reference in the Jute Cess Rules, and thus, subsequent amendments were applicable. The court also cited the Supreme Court's judgment in Sahakari Khand Udyog Mandal Ltd. v. Commissioner of C. Ex. & Cus, which emphasized the application of the doctrine of unjust enrichment irrespective of the statutory provision.

The court concluded that since the petitioners had recovered the cess from their customers, the doctrine of unjust enrichment applied, and no refund could be granted. The court also referenced its own decision in Bussa Overseas and Properties Pvt. Ltd. v. Union of India, which supported the refusal of refunds if it resulted in unjust enrichment.

Conclusion:
The petition was dismissed, and the rule was discharged with no order as to costs. The court upheld the application of the doctrine of unjust enrichment and confirmed that amendments to the Central Excise Act were applicable to the Cess Rules, 1981.

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