Whether the amount of Rs 1, 30, 55,000 could be credited to the consumer welfare fund as it not belong to the consumer.

PJ/Case Laws/2011-12/1208

Case: - Arviva Industries (India) Limited Vs. Union of India

Citation:- 2011(267) E.L.T. 599 (BOM.)

Issue: -Whether the amount of Rs 1, 30, 55,000 could be credited to the consumer welfare fund as it not belong to the consumer.

Brief Facts: -During 1994, petitioners had obtained Advance licenses from the Licensing Authorities for duty free import of the raw material specified therein. The advance licenses being freely transferable, petitioner had sold the same to third parties for valuable consideration. The third parties to whom licenses were sold had imported goods duty free under those advance licenses.

Thereafter a show cause notice was issued to the petitioner on 8.12.1997 alleging that they had obtained advance license fraudulently and by misrepresentation, Duty was demanded on the imports made under the advance licenses by the license holder. Prior to issuance of show cause notice, the Managing Director of the Petitioner No 1-company was arrested and was made to pay various amounts in all amounting to Rs 1,30,55,000 /- to secure the duty demand that may be raised on the completion of investigation.

Meanwhile, a scheme was introduced in the 1998-1999 Budget known as Karvivadh Samadhan Scheme (KVSS) under which disputed tax arrear could be settled by paying 50% of tax arrears. Petitioner made application under KVSS for settlement of dispute. Their application was rejected on the ground that the duty demand does not survive as the duty has already been paid. The petitioner filled Writ Petition to challenge the rejection of KVSS application. The said writ petition was disposed on 23.04.2009 by holding that the amount of Rs 1,30,55,000/- paid by the petitioner was a deposit and not payment of Custom Duty and till the show cause notice is adjudicated, it cannot be said that the liability has ceased. The High Court further directed the Commissioner to consider KVSS application filed by petitioner and pass appropriate order thereon.

SLP filed against the said order of High Court by the Revenue was dismissed by the Apex Court on 16.12.2009. Thereupon, the Commissioner by his order dated 14.01.2010 allowed KVSS application of petitioner. Accordingly, petitioner paid 50% of the duty demanded under the show cause notice dated 8.12.1997.

Thereafter, petitioner filed refund claims seeking refund of the amount of Rs. 1,30,55,000/- which was collected from the petitioner prior to issuance of impugned show cause notice. The said application was returned on the ground that all documents are not annexed to the refund Application. The petitioner resubmitted the claim and also pointed that there was no question of any unjust enrichment.

However, Department issued show cause notice dated 18.08.2010 to the petitioner proposing to reject their refund claim. Hence, Petitioner filed writ petition before the High Court. During the pendency of the writ petition, the Adjudicating Authority passed order in original dated 24.01.2011 and sanctioned refund of Rs. 1,30,55,000/- but directed that out of said amount Rs 1,10,55,000/- be credited to the Consumer Welfare Fund of India and only Rs. 20, 00, 000/- be paid to the petitioners. The writ petiton was suitably amended challenging the diversion of refund amount to Consumer Welfare Fund.

Petitioner’s Contention: -Petitioners submitted that once the High Court by order dated 23.04.1999 passed in the earlier Writ petition No. 1074/1999 has held that the amount of Rs. 1,30,55,000/- paid during the investigation is a deposit and the demand raised after investigation is stood settled by the order passed under KVSS, the petitioner are entitled to refund of entire amount of Rs. 1,30,55,000/- deposited during the course of Investigation. It was further contended that when the amount was deposited by the petitioner No. 1 company and the same is evidenced by the payment challans, it is not open to the respondents cannot deny refund of Rs. 1,10,55,000/- merely because the said amount was deposited by M/s Naraindas Dayaram a Proprietary concern of Mr. Raaju Amarnani who was also a managing director of petitioner No. 1 company.

Respondent’s Contention: -Revenue submitted that in the present case, the books of account maintained by the petitioner show only Rs 20,00,000/- as recoverable from the custom authorities. That there is nothing on record to suggest that balance amount of Rs. 1, 10, 55, 000 is recoverable from customs authorities. It was submitted that the fact that in the accounts maintained by the M/s Naraindas Dayaram Rs 1,10,55,000/- is shown as recoverable from the Custom cannot be ground for the petitioner to claim the amount. Relying on decision of the Apex Court in Shahakari Khand Udhyog Mandal Ltd v. Commissioner of Central Excise [2005 (181) E.L.T. 328 (S.C.)], it was submitted that the doctrine of ‘unjust enrichment’ can be invoked to deny the benefit to which a person is not otherwise entitled to.

Reasoning of judgment:-The High Court found that the amount of Rs 1,30,55,000/- was recovered as deposit toward the liability of that may arise from the advance licenses obtained by the predecessor of the petitioner No1 Company who was also the proprietor of M/s Naraindas Dayaram, a sum of Rs 1,10,55,000/- was paid from the Proprietary concern. However it was not in dispute that the challan show that the amounts were deposited for and on behalf of the company. Moreover M/s Naraindas Dayaram has also issued a no objection certificate to the effect that the amount of Rs 1,10,55,000/- can be paid to the petitioner No 1 Company. In these circumstances, having found that the entire amount of Rs., 1, 30, 55, 000/- is refundable, the officer could not have declined to release the said amount merely because the said amount is not shown in the books as recoverable when in fact the said amount was paid by M/s Naraindas Dayaram for and on behalf of the company and M/s Naraindas Dayaram has no objection if customs pay that amount to the petitioner No 1.

The High Court further held that there is no question of applying the principles of unjust enrichment because the company has not imported the goods under the advance licenses. The goods were imported duty free by the persons to whom Advance licenses were sold. Since the predecessor company had not imported the goods duty free, the question of passing on the duty element to the customers did not arise at all. However, alleging that the company has obtained Advance license fraudulently, action was initiated and the Managing Director of the erstwhile company who was also the proprietor of the M/s Naraindas Dayaram was arrested. Pending investigation, Rs 1,30,55,000/- was paid for and on behalf of the company to secure the interest of the revenue. Show cause notice was issued after completion of investigation. The amount claimed under the show cause notice has been settled and paid under KVSS. Thus the amount of Rs. 1,30,55,000/- deposited during the investigation has become refundable. Accordingly refund has been sanctioned, but Rs. 1,10,55,000/- has been directed to be credited to the Consumer Welfare Fund, not because the said amount is recovered from the customer but because the said amount is not shown in the books of petitioner no 1 as recoverable from customer. Since the amount in question did not belong to the consumer the said amount could not be directed to be credited to the Consumer Welfare fund. In the present case the petitioner No 1 is otherwise entitled to refund and granting refund of amount deposited does not unjustly enrich the petitioner No.1. Therefore, decision of the Apex Court in Shahakari Khand Udhyog Mandal Ltd v. Commissioner does not support the case of Revenue. Impugned order dated 24.01.2011quashed and set aside to the extent it holds that the refund amount of Rs. 1, 10, 55, 000/- be credited to Consumer Welfare Fund. Respondent directed to refund the entire amount of Rs 1,30,55,000 to the petitioner no 1 with interest 6% per annum from the date of deposit till payment within 3 weeks.

Decision: -Petition allowed.
Comment:- this is landmark judgement on the issue of unjustenrichment. The department normally says that when the amount is not shown as receivable from the department in the Balance Sheet then it implies that it is recovered from the customers. But this is not the case in all situations. This is clearly shown in this decision also.

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PJ/Case Laws/2011-12/1208

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