UNJUST ENRICHMENT STALLS REFUND

[Dr. Sanjiv Agarwal]

Refund of Service Tax

Section 11B of the Central Excise Act, 1944 deals with refund of tax. The refund applications in prescribed Form ‘R’ in duplicate are required to be filed within one year from the relevant date up to the enactment of the Finance Act, 2000 i.e., 12th May, 2000 (earlier six months). Explanation to Section 11B defines the relevant date to mean the date of payment of duty except under specific circumstances. Section 101 of the Finance Act, 2000 has substituted ‘six months’ under Section 11B with the words one year. Refund applications can therefore, be filed with the Department within a period of one year from the relevant date. If the tax ordered to be refunded is not refunded to the assessee within or period of three months of the refund application, the Department shall be liable to pay simple interest @ 6 per cent per annum. Any person or assessee aggrieved by denial of refund or short refund can appeal under section 85 to the Commissioner of Central Excise (Appeals) within a period of three months from the date of receipt of order.

Refund Claim

Form R of Central Excise Rules, 1944 is used for claiming refund under Rule 173S of Central Excise Rules, 1944. It should be submitted to the Assistant or Deputy Commissioner of Central Excise, as the case may be. The assessee should prove that the incidence of duty has not been passed on to the buyer or any other person. This restriction of ‘unjust enrichment’ is applicable to Service Tax also. Assessees should comply with the following requirements -

(a) Claim for refund must be in prescribed Form-R of Central Excise Rules in duplicate.

(b) It should be signed and pre-receipted with a revenue stamp.

(c) It should be filed within the limitation period of one year from the date of payment of tax.

(d) Proof should be submitted that refund will not result in unjust enrichment.

(e) Appeal can be preferred against order denying the refund.

The refund claim should be backed by adequate documentary evidence(s) of payment of Service Tax, excess payment, refund due etc.

The claim should be filed along with all requisite papers and documents and if the same is incomplete, it may not be taken as filed properly. The refund can be granted only if the incidence of tax has not been passed on to any other person because being an indirect tax, it is assumed that the assessee who has paid the tax on a service has passed it on to the recipient of service. The onus of proof that the burden of tax was not passed to any other person lies on the claimant of such refund. All the refunds are issued by cheques are delivered to the claimant or his representative either personally against a proper acknowledgement or dispatched by registered post acknowledgement due.

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.

CBEC Circular No. 572/9/2001-CEX., dated 22-2-2001 states that Central Excise and Customs refund/rebate claims in all types of cases, processing of refund starts from the point of view of unjust enrichment provisions and accordingly claimant should be asked to submit the evidence to establish his claim that incidence of duties whose refund is claimed has been borne by him and that the same has not been passed on to the buyer, where the claimant is unable to furnish this In PMT Machines Ltd. v. CCE, Pune-I 2010 (8) TMI 495 - CESTAT, MUMBAI, it was held that refund claim was to be allowed where CA certificate clearly showed that the duty incidence had not been passed on the buyer.

Select judicial pronouncements on unjust enrichment

In Indian Oil Tanking Ltd. v. CST, Mumbai 2011 (5) TMI 692 - CESTAT, MUMBAI, where refund was filed after the prescribed time limit and in absence of original TR-6 challan, and where no evidence was advanced before the original authorities and Appellate Authorities as well as Tribunal that Service Tax had not been collected from clients, it was held that certificate of chartered accountant produced before the Tribunal was not acceptable. Mere indication that amount of Service Tax was outstanding in books of accounts of the assessee, was not sufficient.

In CCE, Mangalore-3 v. Solaris Chemtech Ltd. 2010 (7) TMI 751 - KARNATAKA HIGH COURT, where duty was paid at higher rate by assessee and credit notes for the same issued to buyers, who had not claimed Cenvat credit, it was held that duty was not passed on to customers. Therefore, assessee was entitled to refund of excess amount paid by them.

In Western Coalfields Ltd. v. Cestat, New Delhi 2013 (6) TMI 140 - BOMBAY HIGH COURT, there was a presumption that expenditures incurred by assessee have been recovered by him while selling their product. It was held that because of normal business practice, not passing of burden of taxes to consumer was considered to be an exception. Therefore, Section 11B(1) required person claiming refund to produce documentary or other evidence showing that incidence of such duty had not been passed by him to any other person.

In CCE, Chennai-I v. Superintending Engineer, TNEB 2011 (3) TMI 1500 - Madras High Court, it was held that question of unjust enrichment would arise only if there were material facts which disturb the finding of fact that the duty of liability had been passed on to the other persons.

In CCE, Chandigarh-II v. Goetze India Ltd. 2011 (3) TMI 306 - PUNJAB AND HARYANA HIGH COURT, where excess payment made by assessee during the provisional assessment and subsequently allowed discount which entitled it to pay lesser duty, it was held that there was no question of unjust enrichment, therefore, on finalization of the assessment, assessee was entitled to refund.

In International Conveyors Ltd. v. CCE and C 2014 (3) TMI 41 - SUPREME COURT , where due efforts were made to find out whether amount of duty had been passed over to purchasers being government controlled enterprises and even purchasers had admitted the fact that amount of duty had not been recovered from them and said finding was not challenged/disturbed, it was held that refund could not be denied on ground of unjust enrichment.

In CCE, Belgaum v. Gokak Mills 2013 (11) TMI 485 - KARNATAKA HIGH COURT, where goods were removed under CT-3 certificate where no payment of duty was required and credit Note issued to the extent of said duty, it was held in view of Sudhir Papers Ltd 2011 (3) TMI 1443 - KARNATAKA HIGH COURT that if credit notes were raised and benefit was not passed on to the customer, therefore, the assessee was entitled to refund.

In CCE and C v. Dhariwal Industries Ltd. 2014 (6) TMI 308 - GUJARAT HIGH COURT , where evidence has been produced that price before and after levy/increase of duty remained same only because burden of duty was absorbed by him, it was held that refund could not be denied on ground of unjust enrichment.