Whether CA Certificate sufficient to prove unjust enrichment for SAD refund?

Case:- COMMISSIONER OF CUSTOMS, BANGALORE VERSUS APPLE INIDA PVT. LTD.

Citation:- 2014(301) E.L.T 675 (TRI.-BANG.)

Brief Facts:- M/s. Apple India Pvt. Ltd., filed refund in terms of Notification No. 102/2007-Cus., dated 14-9-2007 (as amended by Notification No. 193/2008-Cus., dated 1-8-2008) for an amount totaling to Rs. 5,22,27,424/- being the 4% of Special Additional Duty (ACD/SAD), paid while importing the goods. The adjudicating authority, viz., the Deputy Commissioner, Customs, ACC, Bangalore, after verifying the correctness of the claim in terms of Notification No. 102/2007-Cus., dated 14-9-2007 (as amended by Notification No. 193/2008-Cus., dated 1-8-2008) read with Board's Circular No. 6/2008, dated 28-4-2008 and 16/2008, dated 13-10-2008 and after due process of adjudication rejected the refund claim on the grounds that the importer/claimant failed to prove that they had not passed on the incidence of duty to the customers or any other person and also they have not furnished the required documents in relation to refund claims. Aggrieved by the Order-in-Original No. 382/2009 (DC, Refunds), dated 27-11-2009 of the lower authority, the claimant preferred Appeal No. 126/2010 Cus. (B) before the Commissioner of Customs (Appeals), Bangalore on the ground that they had furnished all the required documents relating to the refund claims and also furnished the Chartered Accountant's (CA's) certificate as per the conditions laid down in the referred notifications/circulars in order to fulfill the test of unjust enrichment; that the CA's certificate is valid and admissible evidence. The Commissioner of Customs (Appeals), Bangalore has set aside the said order-in-original holding that the claimants are eligible for refund of the ACD/SAD and the same could be granted on the basis of the CA's certificate. Aggrieved by this order, Revenue is in appeal.

Appellant Contentions:- The learned AR submits that the Commissioner (A) has erred in allowing the appeal without considering the fact that the appellants did not produce CA's certificate which is explaining how the unjust enrichment is not attracted. He draws our attention to the circulars issued by the Board referred to above to submit that it was the responsibility of the appellants to show that the amount claimed as refund has not been passed on and it was necessary to show how this conclusion has been arrived at and this obligation has not been fulfilled by the appellant.

Respondent Contentions:- The learned counsel for the respondents on the other hand submits that the CA's certificate clearly explains how they have come to the conclusion that the liability has not been passed on. Further, he also submits that Bangalore is the only place where refund claims have been held up and draws our attention to copies of orders passed by many other Commissionerates allowing the refund. He also submits that if the provisions of Notification No. 102/2007 considered, it becomes clear that the Notification itself does not contemplate evidence to be produced to show that there is no unjust enrichment. This particular verification was introduced by the Board and beyond the terms of the Notification and therefore there was no need for CA's certificate to show that there was no unjust enrichment.

Reasoning of Judgment:- We have considered the submissions made by both the sides. Notification No. 102/2007 provides exemption from special CVD (Special additional customs duty - SAD) to all goods imported for subsequent sale when VAT/Sales Tax is paid by the importer. This exemption is operated in the manner specified in the Notification. The notification requires an importer to discharge the duty liability first, after selling the goods and discharging the liability of VAT/Sales Tax, he is required to file a refund claim with the customs. The Notification requires the following to be done by the importer.

(a) the importer of thesaid goods shall pay all duties, including the said additional duty of customs leviable thereon, as applicable, at the time of importation of the goods;

(b) the importer, while issuing the invoice for sale of the said goods, shall specifically indicate in the invoice that in respect of the goods covered therein, no credit of the additional duly of customs levied under sub-section (5) of Section 3 of the Customs Tariff Act, 1975 shall be admissible;

(c) the importer shall file a claim for refund of the said additional duty of customs paid on the imported goods with the jurisdictional customs officer;

(d) the importer shall pay on sale of the said goods, appropriate sales tax or value added tax, as the case may be;

(e) the importer shall, inter alia, provide copies of the following documents along with the refund claim :

1) document evidencing payment of the said additional duty;

2) invoices of sale of the imported goods in respect of which refund of the said additional duty is claimed;

3) documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods.

After hearing both the sides, there is no dispute that all the conditions in terms of the Notification have been fulfilled excepting the unjust enrichment aspect which has been as submitted by the learned counsel, prescribed by the Board.

Even though the learned counsel argued that there is no need to prove unjust enrichment at all, he did not press the argument. Therefore, we do not propose to discuss this issue at this stage.

In fact, when we go through the relevant paragraph in the appeal memorandum where the main ground has been put forth, the introduction given by the Revenue clearly explain what should be the approach of the department in considering the refund claims. Since this portion in our opinion is relevant and appropriate and should be followed, we reproduce the same.

The conditions laid down in the Notification, viz., endorsing invoices, proof of payment of tax and Chartered Accountant's certificates are just instruments to ensure that the importer/claimant is not unjustly enriched by the refund. If it is conclusively proven that the refund would not unjustly enrich the claimant, even if the procedural requirements are not met, it would be proper to sanction the refund but not otherwise. End should not be sacrificed for the sake of means. Commissioner (Appeals) has confused 'means to the 'end'. The end is to see that the refund would not unjustly enrich the claimant. The means are the verification of payment of sales tax, verification of CENVAT credit and certificate of Chartered Accountant that the burden of duty has not been passed on to anyone."

After making these observations, it has been observed that the worksheet submitted by the importer proves beyond doubt that the burden of additional customs duty has been passed on to the buyer at the time of sale of goods, as additional customs duty has been factored in the sale price. It has also been observed that the CA's certificates are not categorical and did not explain how the unjust enrichment is not attracted.

After considering these submissions, we consider one of the CA certificate produced by the appellants. The relevant portion of the certificate is reproduced as under:

Auditors' Certificate required to claim refund of Special Additional Duty ("SAD")

Certificate from the Statutory Auditor/Chartered Accountants, correlating the payment of ST/VAT on the imported goods (in respect of which refunds is claimed) with the invoices of sale, as is required along with the original tax/duty payment documents as proof of payment of appropriate ST/VAT for the purpose of Para 2(d) & (e) of the Notification No. 102/2007, dated September 14, 2007 and to demonstrate that the principle of unjust enrichment is not applicable to the refund being filed by the company.

With regard to the imports under Bill of Entries and TR-6 Challans Number mentioned in Annexure 1 to the refund application wherein the Additional Duty of Customs (hereinafter referred to as "ACD" or "duty") levied under sub-section 5 of Section 3 of the Customs Tariff Act, 1975 has been paid and the refund under Notification No. 102/2007, dated September 14, 2007 as amended, is sought by M/s. Apple India Private Limited having its registered office at 19th floor, Concorde Towers, UB City, Bangalore - 560 001 and having Import Export Code 0796001839, hereinafter referred to as the "importer".

1. It is certified that we are the Chartered Accountants, who audit the VAT returns under the VAT laws of the importer.

2. The following records (including but not limited to), documents and books of accounts were made available to us for verification by the importer for the purpose of our examination and verified by us :

· List of imports of traded goods made from July 2008 to September 2008.

· Import invoices, Bills of Entry and TR-6 Challans for duty payment.

· Sales register and sales invoices.

· Sales tax deposits challans.

3. On the basis of our examination so carded out and on the basis of the information and explanation given to us, we state that :

· The company has paid salts tax/VAT aggregating to Rs. 33,941,877 on sales of traded goods imported against the bill of entries for Bangalore location, details of which have been listed below :

SI. No.	Period	Sales tax/VAT paid
1	July 2008	6,009,761
2	August 2008	21,121,686
3	September 2008	6,810,430
	Total	33,941,877

· The ACD aggregating to its. 28,672,181 has been paid against the bills of entry has been shown as recoverable from the customs authorities under the heading 'Loans and Advances - Advance recoverable in cash or in kind for vane to be received" in the Trial Balance of the importer.

· On receipt of the aforesaid refund, the amount would be treated as recovery against the above recoverable in the books of accounts of the importer and therefore would have no bearing on the profits of the importer.

4. As required for examination of the principle of unjust enrichment in the case before sanction of refund under Notification No. 102/2007 September 14, 2007, on the basis of the information supplied by the importer to which we applied the appropriate audit tests, it is hereby certified that the burden of 4% ACD has not been passed on by the importer to the buyer either directly or indirectly through the sale invoices raised and that they fulfill the requirement of unjust enrichment. This is also on the basis of the fact that the sales price of the traded goods imported is decided considering the competitive market conditions and not on any cost-based formula and that the ACD has not been inbuilt in the sale price.

This certificate is being issued after complete verification of all the requisite records and documents at the request of the importer.

From the above, it can be seen that the auditors are the regular auditors; they have applied appropriate audit test; they have certified that the burden has not been passed on either directly or indirectly; they have taken into account how the price of traded goods have been arrived at for this purpose. On the other hand, we find that while the appeal memorandum says worksheet clearly shows that the appellants have passed on the ACD and CA's certificate has not categorically explained how ACD has not been passed on, there are no specific observations as to why the worksheet or the CA's certificate cannot be accepted and what are the defects in the certificate/worksheet. On the other hand, we find that several orders have been passed by the officers of the department sanctioning refund in respect of the same appellant. In some of these cases, the very same Chartered Accountants have given the certificates and department has not even taken care to check whether those certificates are different from the present one. When the same appellant is able to get refund on the basis of very same facts, very same certificates and on the very same goods, it is not understandable how this particular case alone has been selected for special treatment. While memorandum as reproduced about sets out what should be the approach, in the very same paragraphs negates its own observation when no defects are pointed out in the worksheet/CA certificate turning observations into empty rhetoric. It is also necessary to consider the Board's circular issued in this regard. Two circulars have been issued by the Board. The first one is No. 6/2008, dated 28-4-2008 and the second one is No. 16/2008-Cus., dated 13-10-2008. Both these circulars have specific paragraphs devoted to unjust enrichment and how the unjust enrichment angle is required to be dealt with by the importers. In the circular issued on 28-4-2008, the Board had said "importers may produce a certificate from the statutory auditor/Chartered Accountant, who certifies the importer's annual financial accounts under the Companies Act or any statute explaining how the burden of 4% CVD has not been passed on by the importer to fulfill the requirement of unjust enrichment in addition to a self-declaration". Subsequently based on the representation made by Trade and Industrial Associations, Board issued further clarifications and also felt the need for relaxation of procedural requirements and therefore, another circular was issued on 13-10-2008. In this circular, the Board observed as under "considering these provisions, it is clarified by the Board that the 'statutory auditor/Chartered Accountant' mentioned in para 6 of the earlier Board's circular refers to 'Chartered Accountant' within the meaning of Section 2(1)(b) of the Chartered Accountants Act, 1949. However, it is clarified that the custom field formations shall accept the certificate given only by such a Chartered Accountant who either certifies the importer's financial records under the Companies Act, 1956 or any ST/VAT Act of the State Government or the Income Tax Act, 1961 in order to fulfill the obligation to show that unjust enrichment is not attracted". The very purpose of requiring a certificate to be produced by a professional Chartered Accountant and insisting on the fact that the Chartered Accountant should be one who is responsible for auditing the companies accounts either statutorily is to ensure that the Chartered Accountant is familiar with the accounts of the company, their practices and also would be knowing and would be in a position to verify the accounts and such certificates shall be accepted.

In our opinion, the CA's certificate produced by the appellant fulfills the requirements and is sufficient to come to the conclusion that appellants are eligible for the refund.

Therefore, we find that the order passed by the Commissioner (A) needs no interference and has to be upheld. At this stage, the learned counsel made a request that besides the fact that a major amount is involved this appeal, all the subsequent refund claims have been kept pending by the officers awaiting decision of the Tribunal in this case. He seeks a direction to the original authority that the refund claims should be settled within a specified time limit. We find that this is a reasonable request. Accordingly, we direct the lower authority that the refund claims should be settled within six months from the date of this order. (A larger period has been indicated keeping in mind the volume of transactions and the number of claims).

Decision:- Appeal rejected.

Comment:- The gist of this case is that CA’s certificate is conclusive evidence to demonstrate that unjust enrichment is fulfilled. Therefore, as CA certified that burden of additional duty was not passed on to the buyer, they were eligible for claiming refund under notification no. 102/2007-Cus.

Prepared by: Hushen Ganodwala

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