Finalisation of Provisional Assessments

Bar of Unjust Enrichment not Applicable?

 

By

 

K. VIJAY KUAMR

MA,BL,MBA,B.Ed.

 

 

In Star Paper Mills Limited v Commissioner of Central Excise, Meerut, the Hon'ble Tribunal held that refunds arising from finalisation of Provisional Assessments are not hit by the provision relating to unjust enrichment. 2000(122) ELT 114(Trib). It appears that the Tribunal had taken this view in some other cases as well.

The reporting of this case might cause a little confusion in the minds of officers and assessees. This article is a humble effort in clearing the cobwebs of confusion.

The whole concept of unjust enrichment being not applicable to refunds arising out of finalisation of provisional assessment cases, cropped up from the observation of the Hon'ble Supreme Court in para 95 of the much quoted and misquoted Mafatlal Case. In that para the court made an obiter dictum that " Any recoveries or refunds consequent upon the adjustment under sub rule (5) of Rule 9B will not be governed by Section 11A or Section 11B, as the case may be…"

 

As we are on the question of refund, let us see what Section 11B says,

 

 

Section 11B explanation B (eb) reads relevant date means

1. ……….
   
2. ……
   

 

 

 

(eb) in case where duty of excise is paid provisionally under this Act or the rules made
thereunder, the date of adjustment of duty after the final assessment thereof;

 

This was actually inserted into the section by the Finance Act of 1998, with effect from 1.8.98 that is after the famous Mafatlal case was delivered in 1997. So whatever damage caused by the judgement if any (actually there was none) was undone by the Finance Act of 1998. This should have made the position very clear as whatever said in Mafatlal regarding Section 11B being not applicable to refunds arising out of finalisation of Provisional Assessments would not be applicable after the amendment to Section 11B. But the ingenuity of the legal brains in this country knows no bounds. The amendment was conveniently forgotten and para 95 of the Mafatlal judgement was out of context quoted and a view that Section 11B and thereby concept of unjust enrichment was not applicable to Provisional assessment cases was propagated.

 

Strictly speaking even without this amendment and in spite of para 95 of Mafatlal, refunds were to be considered only under section 11B. Because 11B(3) read

 

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2). And sub section (2) read

 

2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:

 

Provided that the amount of duty of excise as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to—

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant's account current maintained with the Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person;

(e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person;

(f) the duty of excise borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.

 

 

So any refund (including those arising out of Provisional assessment Finalisation) had to be under sub section (2) which very emphatically requires that refund is not payable to the person unless he has absorbed the incidence of tax. This was perhaps not brought to the notice of the Hon'ble Supreme Court in the Mafatlal case. But in any case in spite of a court order, refund can not be given if there is unjust enrichment. Had the worthy pleaders of this theory bothered to read the next para ie para 96 of the Mafatlal order, may be, this confusion could have been avoided. In para 96, the Hon'ble Supreme Court observed "
….. (make) every refund claim subject to proof of not passing on the burden of duty to others. Even if a suit is filed, the very same condition operates. Similarly the High Court while examining its jurisdiction under Article 226 and this court while acting under Article 32 would insist upon the said condition being satisfied before ordering refund. Unless the claimant for refund establishes that he has not passed on the burden of duty to another, he would not be entitled to refund, whatever be the proceedings and whichever be the forum."

Even though the court had loudly declared that no refund whatsoever should be given unless the assessee passes the test of unjust enrichment, the cacophony raised by interested parties based on that para 95 drowned the loud and clear voice in other paras.

 

To remove any doubts regarding this litigation created by the fertile imagination of our legal community, the Government amended Rule 9B(5) where a new proviso was added by Notification No.45/99 – CE (NT) dated 25.6.1999 which reads

5) When the duty leviable on the goods is assessed finally in accordance with the provisions of these rules, the duty provisionally assessed shall be adjusted against the duty finally assessed, and if the duty provisionally assessed falls short of, or is in excess of the duty finally assessed, the assessee shall pay the deficiency or be entitled to a refund, as the case may be.

" provided that if an assessee is entitled to a refund, such refund shall not be made to him except in accordance with the procedure established under sub section (2) of section 11 B of the Act.

 

So the position is summarised as

 

1. At the time of Mafatlal judgement, Section 11B did not contain the explanation B (eb) about the relevant date for refunds arising out of Provisional assessment finalisation. Even then as per Section 11B(3) strongly upheld by the Supreme Court, no refund could be granted except as provided under Section 11B(2) which required the test of unjust enrichment.
   
2. Even assuming it was not so, after amendment to Section, para 95 in Mafatlal would and should have passed on to history as a judicial observation which is no more relevant as the relevant law has been amended.
   
3. Even if there was a little ambiguity in Rule 9B, to be more clear and careful, the Government amended Rule 9B also which very clearly stipulated that refund arising in such cases should be claimed under Section 11B(2).
   

 

But no, though the Government is often blamed for drafting faulty laws, the one time it rectifies any (un apparent) faults, even when there are none, to make the issue clear, our litigation lovers have obtained a favourable order from the Hon'ble CEGAT quoting para 95 of Mafatlal!

 

CBEC in circular No. 518/2000 {2000(117)ELT T3} referred to a decision given by the Southern Bench of the CEGAT in the case of TVS Suzuki and explained " Board had, in fact, examined this issue very carefully in early part of last year in consultation with Law Ministry. It was advised that there could be doubts about the true purport of observations of Hon'ble Court in its decision in Mafatlal Industries case (in para 95) of the order, vis-à-vis categorical findings for applications of unjust enrichment provision before granting any refunds in other paras (like para 99) and clear provision of Section 11B. To remove all doubts, Rule 9B was simplified by adding a proviso to sub-rule 9B was simplified by adding a proviso to sub-rule 9B(5) by Notification No. 45/99-CE (NT) dated 25.6.1999. However, as even for the past period, it was felt that non-applicability of unjust enrichment provisions was seriously debatable and could never have been the intention of the Hon'ble Apex Court while making certain observations in para 95 as aforesaid, the question of filing an appeal against the aforementioned CEGAT judgment was referred to Law Ministry. On their advice, as approved by the Attorney General, a civil appeal has already been filed in the Apex Court. A copy of the advice given by the Law Ministry/A.G; in this regard, is also enclosed for ready reference.

You are requested to bring this to the notice of the field formations for necessary action."

 

So the matter is now pending in Supreme Court that too strictly with reference to the position prior to amendment of Rule 9B i.e. 25.6.99.

 

In this situation, I was shocked to see the order of the CEGAT mentioned at the beginning of this article in the 15^th November issue of ELT. Perhaps the full facts were not brought to the notice of the Hon'ble Tribunal. From the order, what one can decipher is that the learned DR harped only on the same para 95 of the Mafatlal judgement and argued about refunds arising out of appellate orders and the Tribunal held that it was not a case of refund out of appellate orders but arising out of finalisation of Provisional Assessment. It should have been brought to the notice of the Tribunal that the department's appeal is pending with the Supreme Court and in view of the amended provisions of law, para 95 of Mafatlal is no more applicable even assuming they were once. Perhaps a Rectification of Mistake application should be filed immediately.

 

To my colleagues in the department, with all respects to the Tribunal, I would suggest that in spite of the CEGAT order, as per Section 11B(3), we can not give refund unless the assessee passes the test of unjust enrichment.

Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).,

 

TAILSPARK:- Under Rule 9B, the assessee is required to execute a bond binding himself for payment of difference between the amount of duty as provisionally assessed and as finally assessed. Then where is the question of refund? That is a different subject altogether.

 

 

 

EXCISE LAW TIMES – 01.04. 2001 – A 15