UNJUST ENRICHMENT FOR REFUND

[Dr. Sanjiv Agarwal]

The refund is sanctioned only when the person claiming the refund is able to establish that the sanction of refund shall not result in unjust enrichment to the claimant.

Unjust Enrichment

Talking about unjust enrichment, a presumption is always drawn that the businessman will shift the incidence of tax to the final consumer. This is because GST is an indirect tax whose incidence is to be borne by the consumer. It is for this reason that every claim of refund (barring specified exceptions) needs to pass the test of unjust enrichment. And every such claim if sanctioned is first transferred to the Consumer Welfare Fund. The GST law makes this test inapplicable in case of refund of accumulated ITC, refund on account of exports, refund of payment of wrong tax (integrated tax instead of central tax plus state tax and vice versa), refund of tax paid on a supply, which is not provided or when refund voucher is issued or if the applicant shows that he has not passed on the incidence of tax to any other person. In all other cases, the test of unjust enrichment needs to be satisfied for the claim to be paid to the applicant. For crossing the bar of unjust enrichment, if the refund claim is less than Rs.2 Lakhs, then a self-declaration of the applicant to the effect that the incidence of tax has not been passed to any other person will suffice to process the refund claim. For refund claims exceeding Rs. 2 Lakhs, a certificate from a Chartered Accountant/Cost Accountant will have to be given.

What is Doctrine of unjust enrichment ?

‘Unjust enrichment’ occurs when a person retains money or benefits which belong to someone else in justice, equity and good conscience.

The doctrine of unjust enrichment implies that no one should avail double benefit by chance or mistake of a decision, In other words, no one can be allowed to enrich inequitably at the expense of another.

The application of the doctrine of unjust enrichment is an important aspect and should be taken into consideration by the judicial as well as quasi judicial authorities, while passing final order. The principles of unjust enrichment stating that burden of duty should not be passed on to the buyer/customer or there is no scope of availing double benefit of duty by the claimant.

As per Advanced Law Lexicon by P. Ramanatha Aiyer, the “doctrine of unjust enrichment” has been examined in the following pronouncements:

• Unjust enrichment - The circumstances which give rise to the obligation of restitution, that is, the receiving and retention of property, money, or benefits which in justice and equity belong to another. Herrmann v. Gleason, (CA6 Mich) 126 F2d 936; Straube v. Bowling Green Gas Co., 360 Mo 132, 227 SW2d 666, 18 ALR2d 1335. (Ballentine's Law Dictionary)

• The concept of 'unjust enrichment' as undeserved profit was introduced under S. II-B of the Act by amending Act (40 of 1991) to deny the refunds in cases of 'unjust enrichment'. - COMMISSIONER OF C. EX., MUMBAI-II VERSUS ALLIED PHOTOGRAPHICS INDIA LTD. - 2004 (3) TMI 63 - SUPREME COURT

• 'Unjust enrichment' means retention of a benefit by a person that is unjust or inequitable. It occurs when a person retains money or benefits which in justice, equity and good conscience belong to someone else. The doctrine of 'unjust enrichment' is that no person can be allowed to enrich inequitably at the expense of another. A right of recovery under this doctrine arises where retention of a benefit is considered contrary to justice or against equity. SAHAKARI KHAND UDYOG MANDAL LTD. VERSUS COMMISSIONER OF C. EX. & CUS. - 2005 (3) TMI 116 - SUPREME COURT

• The tendency of persons to profit themselves at the expense of others, to deny reparation to those who have helped them to appropriate the fruits of the acts of others is not favoured in Courts and the doctrine of unjust enrichment is often invoked to promote the ends of justice. Gaviya v. Lingiah, MLJ : QD (1956-1960) Vol. II C991 : ILR (1957) Mys I : (S.) AIR 1957 Mys 65. [Contract Act (9 of 1872), S. 69]

• Where the land was not used by the company for which it was acquired by the State Government for the company, no question of any unjust enrichment to the company arises in such a case as State Government may initiate proceedings for resumption of the land. NORTHERN INDIAN GLASS INDUSTRIES VERSUS JASWANT SINGH AND ORS. - 2002 (10) TMI 792 - SUPREME COURT