DOCTRINE OF UNJUST ENRICHMENT

[Mr. M. GOVINDARAJAN]

The provisions of service tax does not provide for the refund of service tax.  Excess paid amount can be, without getting refund, adjusted against the dues to be payable in the subsequent period. To get refund of service tax the provisions of Sec.11B and 11BB of the Central Excise Act, 1944 are applicable by virtue of Sec. 83 of the Finance Act, 1944.

Sec.11B of the Central Excise Act provides that refund application may be made within one year from the relevant date in such form and in such manner as may be prescribed and accompanied by documentary evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax, in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any paid on such duty had not been passed on by him to any other person.

The doctrine of unjust enrichment is applicable for purpose of grant of refund. The assessee having passed on the incidence of duty/tax to his customers has no locus standii to claim refund of duty having wrongly paid. It is now settled that passing of credit notes does not mean that bar of unjust enrichment does not apply.

If the invoice has been issued, it is sufficient to presume that incidence of tax has been passed on and as such the plea of non receipt of tax cannot be a ground to claim refund of service tax. The amount refundable will be transferred to the consumer welfare fund in case of unjust enrichment of the claimant.

The refund of excess tax paid shall not be allowed in case evidence thereof was passed on to any other person. Therefore any refund is subject to the principle of unjust enrichment.

Even when service tax is paid under a mistake where it was not to be paid at all, the principle of unjust enrichment is applicable. 

The onus to prove that the incidence was not actually passed on to any other person lies on the claimant.

Here five case laws are given dealing with the unjust enrichment in various aspects:

1. Commissioner of Central Excise, Jhalandhar V. Sharma Travel - [2008 -TMI - 31922 - CESTAT NEW DELHI]

The respondent, an air travel agent, filed service tax returns and adjusted the amount of service tax against cancelled tickets and paid the differential amount of service tax. The Adjudicating Authority disallowed the adjustment of service tax which was upheld by the Commissioner (Appeals). The tribunal set aside the order and remanded the matter back. The Commissioner (Appeals) in remand set aside the demand against which the Revenue filed this appeal. The Revenue submitted that although the amount of service tax involve din this case has been refunded to the clients by the respondent, but the doctrine of principle of unjust enrichment is attracted.

The tribunal held that there is no dispute that the respondent had refunded the amounts to their customers on cancellation of their tickets. Thus it is established that the respondent had not passed the incidence of tax to any other person. The Commissioner (Appeals) rightly set aside the demand of duty.

2. Commissioner of Central Excise, Ludhiana V. Bharat Box Factory Limited - [2008 -TMI - 2664 - HIGH COURT, PUNJAB AND HARYANA]

The question of law as claimed by the Revenue is whether post clearance adjustment like issuance of credit notes by the assessee who is claiming refund, the buyers of the goods, taking back the burden of duty on the goods would help the assessee to get over the bar of unjust enrichment under Sec. 11B of the Central Excise Act, 1944.

The High Court held that there were categorical findings recorded by the tribunal that the question of unjust enrichment would not arise from the facts of the case. The tribunal found that the assessee did not receive a higher duty amount of price from the buyers and no amount of duty was passed on to the customers. Therefore no question of unjust enrichment within the meaning of Sec. 11B of the Act would arise.

3. Commissioner of Central Excise & Service Tax V. Janta Travels (P) Ltd., - [2009 -TMI - 32638 - PUNJAB AND HARYANA HIGH COURT]

The dispute in the present case arose on account of the fact noticed by the Revenue that the assessee had taken suo motu refund of service tax of Rs.3,17,661/- on account of service tax already paid in respect of tickets which were cancelled. The contention raised by the assessee before the tribunal was based on circular dt. 26.6.1997 of the Board. The circular provides that cancellation or modification of tickets is a common phenomenon and frequent feature in air travel. Details of cancelled or modified tickets are provided by a travel agent in the fortnightly returns filed and adjustment of commission is made subject to final approval of the air lines. The commission is ultimately paid by the airlines on the net commission received by a travel agent. Accordingly, no question arises for separate claim of refund of service tax.

The Revenue contended before the High Court that the respondent assessee should have made an application for claiming the refund. The High Court held that the contention of the Revenue is not acceptable. The case was of unjust enrichment is also misconceived for the reason that there is no material on record to show that the amount of service tax was charged from any customer. In fact, such an argument could not possible be raised for the reason that once the ticket booked by a passenger is cancelled, there was no question of payment of even the fare, what to talk of service tax thereon. The finding recorded by the tribunal is on conformity with the law.

4. Lilasons Breweries Limited V. Commissioner of Central Excise, Bhopal - [2008 -TMI - 31840 - CESTAT, NEW DELHI]

The appellant raised bills to their franchisees wherein franchise and service tax was separately mentioned and according to the appellant, against those bills only the franchise fee plus service tax was received from franchisees. The appellant, however, claim that by mistake paid service tax on the gross amount inclusive of the service tax and when they realized their mistake they filed refund claim. The same was rejected by the Dy. Commissioner on the ground that no excess amount of service tax has been paid warranting any refund. The Commissioner (Appeals) upheld the order.

Before the tribunal the appellant contended that the appellant by mistake paid service tax on the gross amount collected, while the tax was payable only on the portion representing the franchise fee, as a result of which the service tax actually paid by the appellant is more than the amount of service tax shown in the debit notes and according to them the excess amount is refundable to them. He also pleaded that the excess amount is not hit by the principle of unjust enrichment. No notice mentioning the ground for rejecting the refund claim was issued to the appellant.

The tribunal observed that the findings of the Deputy Commissioner, it appears that the service tax has been calculated and paid on the gross amount, received without deducting the service tax. However the Deputy Commissioner in spite of this finding concluded that no excess amount of service tax has been paid. As per the provisions of Sec. 67(2) of the Finance Act, 1994 where the gross amount charged by a service provider, for the service provided in inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.   In this case from the impugned order, it is not clear as to whether this aspect has been examined. The impugned order, therefore, is set aside and the matter is remanded to Deputy Commissioner for de novo adjudication of the refund claim.

5. KMS Coach Builders V. Commissioner of Central Excise, Bangalore - [2008 -TMI - 30614 - CESTAT BANGLORE]

The appellant had collected service tax. However the same was not required to be paid by them and hence they filed refund claim. The appellants could not be able to produce any evidence of duty passed on the service receiver. The Revenue submitted that amount collected was required to be reimbursed to the Government as it was collected tax in terms of Sec. 11D of the Act. Even otherwise the refund is hit by provisions of unjust enrichment.

The tribunal held that the appellant has not produced any evidence to discharge the burden of unjust enrichment. The amount collected ought to have been deposited to the Government under Sec. 11 of the Act in the cases where amounts were collected representing service tax.