The concept of unjustentichment is applicable on finalization of provisional assessment. The amendment in Section 18 does not have retrospective effect.

Case:- COMMISSIONER OF CUSTOMS V/S INDIAN OIL CORPORATION

Citation: - 2012 (282) E.L.T. 368 (Del.)

Issue:- The concept of unjustentichment is applicable on finalization of provisional assessment. The amendment in Section 18 does not have retrospective effect.
Brief Facts: - The respondent-assessee imported petroleum crude oil by two bill of entries dated 24-8-1998 and 2-2-1999. The said bill of entries were provisionally assessed under the Customs Act, 1962 as the documents regarding FOB value and the freight payable for the crude oil were not available. At the time of provisional assessment, the respondent-assessee had deposited Rs. 6,42,02,664 /- and Rs. 10,23,71,807/-.
These two bill of entries were finally assessed on 21-6-1999 and 15-6-1999 by the Appellate Commissioner of Customs at Vadinar Port. Final duty assessed was Rs. 5,71,84,514/- and Rs. 10,12,97,546/- respectively, which entitled the respondent-assessee to refund of Rs. 70,18,150/- and Rs. 10,74,261/- (total Rs. 80,92,411/-). On 21-1-2004, the respondent-assessee filed an application seeking refund of Rs. 80,92,411/-. The application was rejected by the Assistant Commissioner (Refunds) vide order dated 18-3-2004 on the ground that it had been made after four years and seven months and was clearly beyond period of 6 months stipulated under Section 27(1)(b) of the Act. The contention of the respondent-assessee that they had not received the final assessment orders and therefore, they could not file an application for refund was rejected by the Assistant Commissioner (Refund). The first appeal filed by the respondent-assessee was dismissed.
The first appellate authority relied upon decision of the Bombay High Court in Bussa Overseas and Properties Pvt. Ltd. v. Union of India - 2003 (158) E.L.T. 135 (Bom.). The respondent-assessee preferred an appeal before the Tribunal and the said appeal has been allowed by the impugned order dated 16-3-2011 [2011 (269) E.L.T. 405 (Tri.-Del.)].
Appellant’s Contention: - The appellant-revenue contended that the limitation period in case duty is paid provisionally is to be computed from the date of adjustment of duty after the final assessment thereafter. The said Explanation was inserted w.e.f 1-8-1998 by Section 100 of Finance (No. 2) Act, 1998. In the case of Bussa Overseas and Properties Pvt. Ltd. (supra), it has been observed that the contention of the Petitioners that once the refund is due under Section 18(2), then the Customs authorities are under an obligation to refund the amount is also without any merit because, from a bare perusal of Section 18 of the Customs Act it is seen that no such obligation is cast upon the Customs authorities. Section 18 merely entitles the assessee to get refund if the duty finally determined in less than the duty paid provisionally. Moreover, Section 18 cannot be read in isolation. It has to be read with Section 27 of the Customs Act. Explanation II to Section 27 of the Customs Act (Explanation 1 prior to 1-8-1998) provides that to obtain refund of any duty paid provisionally under Section 18, an application for refund must be made within the period of limitation prescribed therein. The limitation prescribed under Section 27 of the Customs Act requiring filing of an application for refund of duty arising on finalisation of the provisional assessment in the case of import made by any individual for his personal use or by Government or by any educational research or charitable institution or hospital, is, before the expiry of one year and in any other case before the expiry of six months from the date of adjustment of duty after the final assessment. In other words, the refund of duty arising on finalisation of the provisional assessment is governed by the limitation prescribed under Section 27 of the Customs Act. Therefore, even though the Petitioners are entitled to the refund on finalisation of the assessment under Section 18, to obtain that refund, the Petitioners are required to make an application within the period of limitation prescribed under Section 27 of the Customs Act. That is the scheme of the Customs Act. If the Customs authorities were under an obligation to refund the amount due under Section 18 of the Act then the Explanation II to Section 27 becomes redundant or nugatory. Therefore, the construction put forth by the Petitioners which runs counter to the express provision of the statute cannot be accepted. In fact, the Apex Court in the case of Mafatlal Industries Ltd. (supra) at Para 99 of its judgment has held that all refund claims except in the case of unconstitutional levy must be filed and adjudicated under Section 27 of the Customs Act. Later on it is held by the Apex Court that even the unconstitutional levy is governed by the principles of unjust enrichment. Therefore, the contention of the Petitioners that Section 27 does not apply to refund due under Section 18 and the Customs authorities are obliged to refund the amount due under Section 18 without the application of Section 27 cannot be accepted.
According to the aforesaid observations and ratio it has been held by the revenue that if after final assessment it is found that excess payment has been paid by importer, an application must be made under Section 27 of the Act. Compliance with the conditions and requirement of Section 27 of the Act is mandatory. It is stipulated in Explanation II that when duty has been paid provisionally then the period of one year or 6 months, as the case may be, shall be computed from the date of adjustment of duty after the final assessment thereof.
Gujarat High Court in the case of Hindalco Industries Ltd. (supra) on the other hand has referred to and considered the amendment to Section 18 of the Act whereby sub-sections (3), (4) and (5) have been inserted from 13-7-2006 and, inter alia, held that on a plain reading it becomes apparent that sub-sections (3) and (4) relate to liability to pay interest or entitlement to claim interest consequent upon final assessment Order. However, sub-section (5) is the material amendment which indicates that the Proviso appearing below sub-section (2) of Section 27 of the Act has now been incorporated as a part of Section 18 of the Act. On a plain reading the distinction between section 18 as it stood prior to amendment, i.e., upto 12th July, 2006 and subsequent to the amendment, i.e., with effect from 13th July, 2006 becomes apparent. The difference is stark and revealing and it is not possible to agree with the contention of Revenue that such amendment has to be understood as clarificatory in nature. This is more so, when one reads the amendments made in 1998 and the amendment made in Rule 9B of the Central Excise Rules in 1999 considering the pronouncement of the Apex Court as to the distinction between making of a refund and claiming of a refund; the amendment cannot be considered to be retrospective in nature; and cannot be made applicable to pending proceedings. This can be considered from a slightly different angle. While introducing the Taxation Laws (Amendment) Bill, 2005 (Bill No. 74 of 2005) the Notes on Clauses in relation to Section 18 of the Act indicate that Sub-sections (3), (4) and (5) to Section 18 of the Act, have been inserted to provide for a mechanism to regularise the payments of duty short levied and interest thereon and duties that are to be refunded on finalization of provisional assessment and in this context in the report of the Standing Committee on Finance it has specifically been noted that this amendment became necessary because Section 18 of the Act which provides for provisional assessment of duty presently (i.e. upto 12th July, 2006) does not provide for various issues arising from the finalization of provisional assessment. Thus it becomes apparent that the amendment in question is substantive in nature when one finds that various provisions have been inserted which were not forming part of the original Section 18 of the Act as it stood upto 12th July, 2006. It is not possible to state that the provisions for payment of interest on duty short levied or entitlement to interest on duty paid in excess of the finally assessed duty can be considered to be clarificatory provisions and in the same streak the newly inserted sub-section (5) deserves consideration. Thus in effect upto 12th July, 2006 no provision existed in Section 18 of the Act which would permit to invoke principles of unjust enrichment in relation to duty paid in excess, found to be so, upon finalization of provisional assessment under Section 18 of the Act.
Hence, the reference to provisions of Section 27 of the Act which generally deals with claim for refund of duty cannot be of any assistance to them. Similarly the definition of the term assessment under Section 2(2) of the Act also cannot help the Revenue in light of the specific provisions of Section 18 of the Act which override all other provisions of the Act. The contention that the Court should not permit a person to derive unjust benefit also does not merit acceptance. The Court can only read the provisions and the statute as they stand, and if necessary, interpret the same but the Court cannot legislate. This is a salutary principle of interpretation. Furthermore, as noticed hereinbefore, the Apex Court has in no uncertain terms drawn the distinction between making of refund and claiming of refund. The High Court cannot equate the two in light of the authoritative pronouncement of law by the Apex Court. Therefore, on both counts, in light of the authorities referred to hereinbefore, and on interpretation of provisions of Section 18 of the Act, on finalisation of assessment if any excess duty is found to have been paid at the time of provisional assessment Revenue is bound in law to make the refund without any claim being required to be made by an Assessee. This would be the position in law upto 12th July, 2006 and not thereafter.
Reasoning of Judgment: - The Hon’ble High Court held that the appellant has not disputed that they did not communicate the two final orders dated 21-6-1999 and 15-6-1999 and therefore, it is not denied that the application if made under Section 27 would not be barred by limitation. The contention of the appellant is that the respondent-assessee must therefore satisfy the conditions stipulated in sub-section (2) to Section 27 of the Act and accordingly, if it satisfies the requirements and can establish that the incidence of duty was not passed on, they would be entitled to refund under the said Section. Otherwise, the amount of duty refundable has to be transferred to the Consumer Welfare Fund. The question of unjust enrichment and the constitutional validity of the amendments made in 1991 including insertion of sub-section (2) to Section 27 were made subject matter of challenge in the Supreme Court and were decided in the case of Mafatlal Industries Ltd. v. UOI - (1997) 5 SCC 536 = 1997 (89) E.L.T. 247 (S.C.). Explaining analogous provisions in the Central Excise Act/Rules, it was held that Rule 9-B provides for provisional assessment in situations specified in Clauses (a), (b) and (c) of sub-rule (1). The goods provisionally assessed under sub-rule (1) may be cleared for home consumption or export in the same manner as the goods which are finally assessed. Sub-rule (5) provides that "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". Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of Rule 9-B will not be governed by Section 11- A or Section 11-B, as the case may be. However, if the final orders passed under sub-rule (5) are appealed against - or questioned in a writ petition or suit, as the case may be, assuming that such a writ or suit is entertained and is allowed/decreed - then any refund claim arising as a consequence of the decision in such appeal or such other proceedings, as the case may be, would be governed by Section 11-B. It is also made clear that if an independent refund claim is filed after the final decision under Rule 9-B(5) re- agitating the issues already decided under Rule 9-B -assuming that such a refund claim lies - and is allowed, it would obviously be governed by Section 11-B. It follows logically that position would be the same in the converse situation. For the sake of clarity it may be noted that Section 11B and Rule 9B referred to in para 104 are from the Central Excise Act, 1944 and the rules framed under the said Act. The aforesaid Rule and the Section are almost similar to Section 18 and Section 27(2) of the Act.
The Supreme Court in Commissioner of Central Excise, Chennai v. TVS Suzuki Ltd. - 2003 (156) E.L.T. 161 (S.C.) has held that in order to get over the situation arising under Mafatlal Industries Ltd (Supra) vide Notification No. 45/99-C.E. (N.T.), dated 25-6-1999, an amendment was made in sub-rule (5) of Rule 9B by adding a proviso thereto. The effect of the proviso is that even after finalization of the provisional assessment under Rule 9B(5), if it is found that an assessee is entitled to refund, such refund shall not be made to him except in accordance with the procedure established under sub-section (2) of Section 11B of the Act.
Hence the Supreme Court had drawn a distinction between provisional assessment and refund due thereafter to the assessee on final assessment and in cases in which refund becomes due for other reasons like an appellate order or an order of a court. Refund can also become due on a subsequent order passed by the Assessing Officer in the form of rectification, modification etc. In the first category of cases, it was held that Section 11A/11B of the Act would not be applicable and refund provisions would be covered by Rule 9B and therefore, the provisions of unjust enrichment would not apply. In the second category of cases, the provisions relating to unjust enrichment would apply.
This aspect was again examined by the Supreme Court in the case of CCE v. Allied Photographic India Ltd. - (2004) 4 SCC 34 = 2004 (166) E.L.T. 3 (S.C.) and it has been held that Para 104 of the judgment in the case Mafatlal Industries Ltd. (supra) states that if refund arises upon finalisation of provisional assessment, Section 11B will not apply. Para 104 of the said judgment does not deal with payment under protest. In the light of what is stated herein, they consider the judgment of this Court in the case Sinkhai Synthetics & Chemicals Pvt. Ltd. (supra). In that matter, the assessee was a manufacturer. The assessee claimed exemption which was denied by the Department. The assessee went in appeal to CEGAT. Pending appeal, assessee paid excise duty under protest. The assessee succeeded before the CEGAT and claimed refund on 17-1-1991. Refund was denied by the Department. Therefore, it was a case of payment of duty under protest. However, in the said decision, this Court applied Para 104 of the judgment of the Constitution Bench in the case of Mafatlal Industries Ltd. (supra), which with respect, had no application. As stated above, Para 104 of the judgment in the case of Mafatlal Industries Ltd. (supra) dealt with refund consequent upon finalisation of provisional assessment. Para 104 does not deal with refund of duty paid under protest. As stated above, there is a difference under the Act between payment of duty under protest on one hand and refund consequent upon finalisation of provisional assessment on the other hand. This distinction is missed out, with respect, by the judgment of this Court in the case of Mafatlal Industries Ltd. (supra). It was also point out that the judgment in the case of Sinkhai Synthetics & Chemicals Pvt. Ltd. (supra) is based on the concession made by the Department. The respondent herein placed reliance on the judgment of this Court in the case of TVS Suzuki Ltd. (supra). In that case, application for refund was filed. This was on completion of final assessment. On 9-7-1996, the Department issued a show cause notice as to why the refund claim should not be rejected for non-compliance of Section 11B. By order dated 17-7-1996, the refund claim was rejected on the ground that it was beyond limitation. On appeal, the Commissioner (Appeals) observed that the bar of unjust enrichment was not applicable as the assessee claimed refund consequent upon final assessment. He allowed the refund claim. CEGAT agreed with the view of Commissioner (Appeals). Before this Court, the Department conceded rightly that in view of Para 104 of the judgment of this Court in Mafatlal Industries Ltd. (supra), bar of unjust enrichment was not applicable in cases of refund consequent upon adjustment under Rule 9B(5). The judgment of this Court in the case of TVS Suzuki Ltd. (supra)/therefore, supports the view which have taken herein above that refund consequent upon finalisation of provisional assessment did not attract the bar of unjust enrichment.
In a similar matter, the Commissioner of Customs had filed an appeal before the Supreme Court against the decision of the tribunal in the case of Oriental Exports, which is reported in Oriental Exports v. CC- 2001 (127) E.L.T. 578 (T - Del.). The Supreme Court by their order dated 27-4-2006 dismissed the Civil Appeal No. 4231/2001 [2006 (200) E.L.T. A138 (S.C.)] after referring to the judgment of the Supreme Court in Mafatlal Industries Ltd. (supra), TVS Suzuki Ltd. and Allied Photographic India Ltd. (supra).
It may be noted that Gujarat High Court in the case of Hindalco Industries (supra) has specifically referred to decision in the case of Allied Photographic India Ltd. (supra) but the said case has not been noticed by the Bombay High Court in the case of Bussa Overseas and Properties Pvt. Ltd. (supra). The decision of the Gujarat High Court in the case of Hindalco Industries Ltd. (supra) has been followed by Orissa High Court in CCE C.& ST, Bhubaneshwar-I v. Paradeep Phosphates Ltd. - 2010 (252) E.L.T. 502 (Ori.). Further they considered Explanation II to Section 27(1) and whether in view of the said Explanation, the respondent assessee was required to move an application under Section 27 of the Act and accordingly, the conditions stipulated in sub-section (2) of the Act are applicable.
The two situations are relevant and important referred by Gujarat High Court in case of Hindalco Industries (Supra). In the first situation the assessee has paid provisional duty which gets reduced on final assessment. The assessee, therefore, becomes entitled to refund which is payable in terms of Rule 9B of the Excise Act [(sic) Rules], 1944 or Section 18 of the Act. For refund on this account, no application is required to be filed under Section 27 of the Act and therefore, sub-section (2) is not applicable. In the second situation, the assessee becomes entitled to additional refund on account of appellate orders or orders passed by a court. In this situation, the assessee is under an obligation to file an application under Section 27 of the Act, the limitation period accordingly applies and doctrine of unjust enrichment is also applicable. Explanation II to Section 27 of the Act deals with the 3rd category of situations. Such situations may occur after the passing of the final assessment, on account of rectification under Section 154 of the Act or because of any other reason, as a result of which the final order suffers an amendment or a change and some-amount becomes refundable. As far as Section 18 of the Act is concerned, when an amount becomes refundable after a final order is passed, the same has to be refunded immediately and for this purpose the assessee is not required to move an application under Section 27 and accordingly sub-section (2) to Section 27 would not apply. It is in this situation that the legislature has intervened and has now inserted sub-sections (3), (4) and (5) to Section 18 w.e.f. 13-7-2006. These insertions obviously are not applicable to the case in hand as they do not have retrospective effect. It was so held in TVS Suzuki Ltd. (supra) when similar amendments were made in Rule 9B of the Rules passed under the Central Excise Act w.e.f. 25-6- 1999. However, in 1999, the legislature did not make corresponding amendment in Section 18 of the Customs Act. These amendments were made w.e.f. 13-7-2006.
Decision: - Appeal was disposed off.

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