Whether principle of unjust enrichment applies on refund of redemption fine and penalty?

PJ/Case Law/2013-14/2000

Case:- VEEKAY PRODUCT PVT. LTD. VERSUS COMMISSIONER OF CUS. (EXPORT), MUMBAI

Citation:-2013(296) E.L.T. 363 (Tri.-Mumbai)

Brief Facts:-The appeal is directed against Order-in-Appeal No. 936/MCH/AC Gr.V11B/2012, dated 23-11- 2012 passed by the Commissioner of Customs (Appeals), New Customs House, Mumbai.

In a case relating to imports under DEEC scheme, the appellant M/s. Veekay Products Ltd. had made a pre-deposit of Rs. 7.5 lakhs in cash and Rs. 40 lakhs as bank guarantee, as a transferee of the DEEC licence by M/s. Betul Oil & Flours Ltd. (BOFL in short). The said amount was appropriated by the department towards redemption fine and penalty vide Order No. CAO/45/2003/CAC/JC/SK, dated 30-6-2003. The said decision was appealed against before this Tribunal and this Tribunal Vide Order No. A/166- 82/07/CII/CSTB, dated 12-3-2007 set aside the said order and allowed the appeal. The department did not prefer any appeal against the order of the Tribunal which became the final. Consequently, the appellant became eligible for refund of Rs. 47.5 lakhs which was appropriated earlier. The appellant preferred a refund claim for Rs. 47.5 lakhs which was allowed by the adjudicating authority but credited to the Consumer Welfare Fund on the ground that the appellant allegedly did not fulfil the condition of unjust enrichment. The appellant preferred an appeal which was rejected vide the impugned order and hence the appellant is before the Tribunal.

Appellant Contentions:-The ld. Counsel for the appellant made the following submissions. The amount of Rs. 7.5 laths in cash and bank guarantee for Rs. 40 lakhs was only a pre-deposit and the same was appropriated towards fine and penalty. The principle of unjust enrichment applies only to duty and interest paid and not to fine and penalty. Secondly, the amount was remitted as pre-deposit. Therefore, the principle of unjust enrichment will not apply. He relies on the following decisions in support of his contention - (1) Offshore Hook-Up & Cons. Services (I) Ltd. [2009 (244) E.L.T. 135 (Tri.)]; (2) Umax Enterprises [2009 (95) RLT 833 (Tri.) = 2010 (262) E.L.T. 518 (Tri.)] and United Spirits Ltd. v. CC, Mumbai [2009 (240) E.L.T. 513 (Bom.)]. He also submits that the transferor of the licence BOFL has been allowed to withdraw the pre-deposit of Rs. One crore made by them as per the directions of the Hon'ble High Court of Bombay. Therefore, the transferee should also be entitled for similar relief.

Respondent Contentions:-The ld. Asst. Commissioner (AR) appearing for the Revenue submits that as per the decision of the Hon'ble Apex Court in the case of Sahakari Khand Udyog Mandal Ltd. [2005 (181) R.L.T. 328 (SC), the principle of unjust enrichment would apply to all kinds of refund and in the present case the appellant has not submitted evidence to the effect that they have not passed on the burden of fine and penalty to their customers and therefore, they are not eligible for the refund. Accordingly he pleads for upholding the impugned order.

Reasoning of Judgment:-We have carefully considered the rival submissions. Section 28D of the Customs Act deals with the presumption that incidence of duty has been passed on to the buyer and reads as follows :-
"28D. Every person who has paid the duty on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of the goods."
Thus the section talks of refund of duty. In the present case what we are concerned with are refund of pre-deposit made by the appellant which was appropriated towards fine and penalty. Thus the provisions of the said section has no application.
As regards the decision in the Sahakari Khand Udyog Mandal relied upon by the Revenue, the facts obtaining in the said are completely different. M/s. Sahakari Khand Udyog Mandal Ltd. was engaged in manufacturing sugar falling under item No. 1 of the First Schedule to the Central Excise and Salt Act, 1944. The appellant - Mandal vide letter dated 14th August, 1978 claimed rebate of Rs. 6,92,779.59, on the basis of Notification No. 257/76, dated September 30, 1976. The said notification, inter alia, provided for exemption from payment of excise duty leviable thereon in excess of average production of sugar of the corresponding period of preceding three years. The notification also provided that such exemption would be on sale of sugar as specified in columns 3 and 4 as levy sugar and free sale sugar. The rebate was claimed for the year 1976-77 during which the production was 2,09,982 quintals based on the average production for the preceding 3 years, namely, 1973-74, 74-75 and 75-76 which worked out 1,54,846.33 quintals. The Mandal was entitled to benefit of exemption from excise duty for excess production of 55,135.67 quintals. The appellant, therefore, submitted its claim for Rs. 6,92,779.59. It was in the facts of that case, the Hon'ble Apex Court passed the judgment. In that case at the time of clearance of the goods, excise duty liability was paid at the normal rates and later on rebate claim was filed for lower rate. In the present case, the facts are quite distinct and distinguishable. In the present case the appellant made a pre-deposit which was later on appropriated towards fine and penalty. Later on when the fine and penalty were set aside, the appellant became eligible for refund. Therefore, we are of the considered view that the ratio of the decision of the Hon'ble Apex Court has no relevance to the facts in the present case.

The Hon'ble High Court of Bombay in the case of United Spirits Ltd. held as follows :-

"28. In the instant case on the Appellants party succeeding in their appeal, on paying the fine as reduced, would have been entitled to release of the goods. The question, therefore, of adjusting the balance amount of the original fine from the amount deposited would not have arisen. The principles of unjust enrichment, therefore, would not arise in a case of redemption fine. No authority has been brought to our attention by either side where the principles of unjust enrichment have been applied insofar as the fine or penalty is concerned. In our opinion both on general principles and considering that the Act itself imposes restriction only on refund of duty under section 28, it would not be possible to attract the principles of 'unjust enrichment' insofar as the redemption fine is concerned."

In our considered view the ratio of the above decision applies to the facts of the present case. Accordingly we hold that the appellant is entitled for refund of Rs. 47.5 lakhs (adjusted towards fine and penalty which were subsequently set aside) along with interest thereon in accordance with law.

Thus we allow the appeal with consequential relief.

Decision:-Appeal allowed.

Comment:-The essence of this case is that the principle of unjust enrichment is not applied on redemption of fine and penalty in view of the Bombay High Court ruling in the case of United Spirits Ltd. Accordingly, the amount paid as pre-deposit of redemption fine and penalty was refundable without passing the test of unjust enrichment.

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