BY
K.Vijay Kumar, M.A.,B.Ed., B.L.,
SUPERINTENDENT OF CENTRAL EXCISE
"Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected it from his customers and has no subsisting liability or intention to refund it to them or for any reasons it is impracticable to do so" was the helpless view of the Supreme Court in D.Cowasji & Co. v. State of Mysore. It was to overcome this difficulty that the Central Excise & Customs Laws' (Amendment) Act, 1991 was passed where by an identical sub-section (3) was included in Section 11B of the Central Excises and Salt Act, 1944 and the Customs Act, 1962 which reads.
"Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other law for the time being in force, no refund shall be made except as provided in sub-section (2).
Sub-section (2) says that refund if due shall be credited to the fund. It further says that the refund shall instead of being credited to the fund, be paid to the applicant, if such amount is relatable to:
- in the case of Customs "to the duty paid by the importer if he has not passed on the INCIDENCE of such duty to any other person " (this also has an interest clause, which is beyond the purview of this article);
- in the case of Central Excise " to the duty of Excise paid by the manufacturer if he had not passed on the INCIDENCE of such duty to any other person". It was also provided that an application for refund made prior to the commencement of the Act (20-9-1991), will be deemed to have been made under this Act and will be dealt as per the provisions of sub-section(2)
Two new Sections 28D and 12B were added to the Customs Act and CESA respectively which made a legal presumption that " any person who has paid duty under the Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer:
In a nutshell it means that:
- refund shall be made only if the applicant proves that the incidence of duty has not been passed on to any other person;
- any order of a Tribunal or Court does not alter the above position;
- All pending applications to be dealt with under the new provisions. When this becomes law with effect from 20-9-1991, it was felt that the amendments are draconian and un-constitutional. The writ jurisdiction of the High Courts under Article 226, cannot be curtailed and it was a legal contradiction to say no refund will be given, notwithstanding any order of a Court. It was also believed that litigationi n Customs and Excise cases would come down drastically as no body would be interested in litigation, if there is no refund. Many felt that consultants would be now out of jobs Of course nothing of the sort happened. In fact this amendment itself created a lot of fresh confusion and conflicting judgments.
The following are some of the questions agitating legal brains:
- Is the Act valid?
- Can High Courts pass refund orders under Article 226?
- What about goods captivety consumed and / or distributed as free samples?
- Does the act apply retrospectively?
Let us see the judgments on these and other related topics.
As expected the validity of the 1991 amendment Act has been challenged in various High Courts and Supreme Court. In fact recently the Union of India in a transfer petition sought for the transfer of the Writ Petition No. 3973/91 pending in the Bombay High Court. The Supreme Court declined to transfer the writ petition but stated that "it is open to the petitioner (G.O.I.) to ask for stay of hearing in the High Court pending a decision of this Court on the validity of 1991 Amendment to the Central Excise Act (Relating to unjust enrichment)". 1995 (75) E.L.T. A113.
In anther recent caser the Supreme Court admitted aN S.L.P. on the order of the High Court granting refund while exercising its extra ordinary writ jurisdiction. The SCI order said "Leave granted. List after the judgment of the Nine Judge Bench on the question of unjust enrichment" [1995 (77) E.L.T.A136]. Two other SLPs were admitted against the Bombay High Court's judgments ordering refund if money paid under a mistake of law. 1995 (76) E.L.T.A 166 and 1995(77) E.L.T.A 70. So the issue is yet to be finally decided by the Supreme Court, but in the meanwhile there are conflicting judgments from various High Courts, Tribunal etc.
The Rajasthan High Court in Adarsh Metal Corporation v. Union of India [1993 (67) E.L.T.483 (Raj.)] held:
- that even after20-9-1991, no application was required to be made for a claim arising our of an order passed in appeal or revision;
- Section 11B applied only to cases where an application for refund is required to be filed;
- It is the duty of the State to refund the duty collected unauthorisedly as it is prohibited to collect any tax which is not authorized under Article 265 of the Constitution;
- The presumption under section 12B that duty is deemed to have been passed on is not applicable retrospectively;
- Passing of incidence of an 'illegal duty is not relevant.
But this decision of the High Court has been almost totally reversed by the Supreme Court in "Union of India v. ITC Ltd." [1993 (67) E.L.T.3 (S.C.)]. Before dealing with this case it would be relevant to look at the facts of the case in U.O.I. v. Jain Spinners [1992 (61) E.L.T.321(S.C.)] which are very interesting and worth recalling.
A refund was allowed by the Assistant Collector. Subsequently based on a chemical analysis, the department took the view that refund was erroneously granted. A show cause notice was issued to recover it, and the Assistant Collector confirmed the demand. The assessee challenged the order of the Assistant Collector in a writ petition before the High Court and also filed an appeal before the Collector (Appeals). The High Court issued an interim stay but directed the assessee to deposit the amount in Court (which the Government was subsequently allowed to withdraw on the condition that it would pay interest at Bank rate and refund the amount if the petitioner ultimately succeeded). The Collector (Appeals) passed an order in favour of the assessee with consequential relief. The assessee filed an application for refund with interest and also approached the High Court for a direction to the respondents to pay the amount with interest. On 19.9.1991, the High Court directed the Union of India to refund the amount to the assessee. On 20.9.1991, the amendment act came into force, whereby notwithstanding any order of any Court, refund cannot be made except in accordance with the provisions of sub-section (2) of Section 11B. On 13.4.1992, the Assistant Collector passed an order rejecting the refund as the incidence of duty has been passed on, as per the new Section 11B. The assessee again approached the High Court and High Court ordered the Government to deposit the entire amount of refund with interest. Against this order of the High Court, the Union of India appealed to the Supreme Court where it succeeded. The Supreme Court rules that "Section 11B(3) would apply to all cases which were pending notwithstanding any order or decree or judgment of a Court of Tribunal". So in the Jain Spinners case the question of retrospectivity of Section 11B(3) has been finally settled.
This has been reiterated by the Hon'ble Supreme Court in the ITC case. This was a case decided by the High Court in 1982 and the case came up for hearing in appeal before the Supreme Court in 1993, when Union of India raised the point of unjust enrichment and Section 11B(3) for the first time. The respondent objected that since plea of unjust enrichment was not made before the High Court or in the Special Leave Petition or by way of an additional ground before the Supreme Court, they should not be allowed to revise it at the belated stage of hearing. The Court held that a statutory provision which comes into existence during the pendency of an appeal can always be permitted to be raised during the hearing.
While the Supreme Court had settled one part of the issue, there are other left open and there have been a plethora of judgments of the High Courts and Tribunal.
In Orissa Cement Ltd v. Collector , 1995 (75) ELT 486 (Ori.)., the Orissa High Court recently ordered that the Assistant Collector had no power to invoke the principle of unjust enrichment. Perhaps this is a decision before the amendment, reported now.
The Bombay High Court in an order dated 25.6.1993 [1993 (66) ELT 614 (Bom.) refused to vary or modify its order dated 9th July, 1991 granting refund even thought he Amendment Act came into force on 20th September, 1991. It was perhaps not necessary for the department to approach the Court to modify its order, as anyway notwithstanding any order of any court, refund would not have been granted except under Sec.11B(2). On the same day in another order [1993 (66) E.L.T. 601 (Bom)] the Bombay High Court directed the Assistant Collector to pay refund within a week and also fined the Assistant Collector for contempt of Court. Here the Court observed that after the amendment, the Union of India have not taken out any proceedings in the court seeking any variation of its earlier order granting refund. The Court did not accept the claim that writ issued by the court stands cancelled after amendment. (Notwithstanding any order of any Court etc).
Is pre-deposit of disputed amount before filing appeal to be treated as duty an will the restrictions on refunds apply to such deposits?
'No' said the High Court of Calcutta in "Super Cassettes Industries v. Collector of Customs" [1993 (66) E.L.T. 557 (Cal.)]. The Court held that Section 27 (of the customs Act) is not applicable to refund of amount deposited under Section 129E, when the assessee succeeds at the Appellate stage.
Take another case.
An Assistant Collector passed an order in March, 1991 granting refund to an assessee. Even the cheque was got ready, but before the cheque could be issued, the Collector reviewed the order and directed the Assistant Collector to appeal to Collector (Appeals). Because the matter was in appeal, the cheque was not given to the assessee. The Collector (Appeals) and later CEGAT upheld the order of the Assistant Collector. By this time, 1991 Amendment act has been passed and the Asst. Collector now says, no refund can be given except under section 11B(2). Is he right ?
In Gange-Shavar Ltd v. Union of India [1995 (76) E.L.T. 515 (All)], the Allahabad High Court held that refund claim is not rejectable for bar of unjust enrichment when there are specific directions from the High Court.
What about imported goods not sold but captively consumed?
Even on this issue there are conflicting views. The Calcutta High Court in "Assistant Collector of Customs v. East Anglia Plastic (India) Ltd." [1994 (74) E.L.T. 29 (Cal.)] held that the bar inserted by Customs Laws (Amendment) Act, 1991, with effect from 10.9.1991 is not applicable to cases where imported goods are either consumed by the importer or are used by him in the manufacture of other products, where there is nothing on record to show that assessee had passé don incidence of duty to other persons.
The Punjab and Haryana Court in "Indian Woollen Textile Mill s(P) Ltd v. C.C.E, Chandigarh" placed reliance on the Jain Spinners case and held that refund is not allowable if the applicant failed to plead that he has not passed on the burden of duty to others.
In "Vardhman Spg. & General Mills v. Collector of Customs [1993 (68) E.L.T. 919 (Tri.)] CEGAT ordered that when goods are not sold, no question of passing incidence of duty arises and therefore bar of unjust enrichment is inapplicable.
In a recent case [1995 (78) E.L.T. 636 (Coll. Appl.)], the collector of Custom s(Appeals), Madras took a different view. He stated that "the onus in terms of Section 28D lies squarely on the appellant to establish beyond doubt that incidence of duty in respect of the imported goods in question has not been passed on". In this case also the importer had captively used the imported goods and had not sold them. The Collector (Appeals) rejected their appeal as they failed to prove that the incidence of duty has not been passed on.
So where do we stand ? It is difficult to arrive at any conclusion from this maze of conflicting decisions. Perhaps, we will have to wait till the Hon'ble Supreme Court gives a final and conclusive verdict.
In conclusion, the words of the Collector(Appeals) referred to above, are worth recalling.
"The underlying spirit of the concept of unjust enrichment is that the one who has passed on the incidence of duty to another person should not be allowed to be enriched by way of refund of the amount so passed on".
That is what unjust enrichment is all about or is it all?
EXCISE LAW TIMES – 01.02. 1995 – A 168
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