Pradeep Jain - Chartered Accountant

PJ/CASE STUDY/2009-10/007

24 August 2009

CASE STUDY

By: - CA. Pradeep Jain

Sukhvinder Kaur, B.A., LLB

INTRODUCTION

The principle of unjust enrichment provides that a person should not be benefited twice for a single incidence. Thus, if an assessee seeks refund of duty from the Government, then it is to be seen that he has not passed on the duty component to his customers. It would be unjust enrichment if the assessee gets refund of the amount which has been borne by the assessee but by his customers. However, it cannot be presumed that there will be unjust enrichment in every refund claim. It is required to be proved that there was unjust enrichment or not.

In the case we are studying hereunder the same issue has been raised.

M/s Pragati Fabrics Pvt Ltd v/s CCE, Jaipur-II

BRIEF FACTS OF THE CASE

- Appellants are engaged in manufacture of Man-made Fabrics falling under Chapter heading 55 of the Central Excise Tariff.

- The Government introduced duty based on annual capacity from 16.12.98. The appellant filed the declaration of length of Hot air stentering machine and determined their annual capacity. The manufacturer has not included the length of unutilized portion of gallery in the same.

- But the Board clarified that the length of galleries are to be included in determining the length of hot air stentering machine. Consequently, the annual capacity is to be determined and duty will also increase.

- The commissioner has determined the capacity without giving personal hearing to the appellant. The appellant have dismantled this portion of unutilized portion of gallery and paid the duty under protest for past period.

- The manufacturer has filed the appeal before CESTAT and it was remanded back to commissioner for giving the personal hearing to the manufacturer. After the hearing, the commissioner passed the same order and manufacturer once again went into appeal before CESTAT.

- The Highest Tribunal in cases of customs and Excise passed the order in favour of assessee. The department went before the Apex Court. The Supreme Court of India also opined in favour of assessee.

- Accordingly, appellants filed refund claim for recovery of excess duty paid by them under protest. The Department sanctioned the refund claim.

- Thereafter, the Commissioner (A) reviewed the order and held that provisions of unjust enrichment applied to the case of appellants, therefore cash refund could not have been granted and the refund was ordered to be deposited with the Consumer Welfare Fund.

- Aggrieved by this order appellant filed appeal before the Tribunal.

APPELLANT’S CONTENTIONS

- The appellants contended that no show cause notice was issued to them alleging unjust enrichment or they would have submitted evidence to show that there was no unjust enrichment and that duty incidence was not passed on by them to their customers. It was contended that there are several evidences in the nature of invoices and ledger accounts to show that duty incidence has not passed on to the customers.

- Appellant has placed reliance on the decision of the Tribunal in the case of Technological Institute of Textile & Sciences v/s CCE, Delhi-III [2007 (79) RLT 339 (CESTAT-Del.).

- Appellants contended that the principle of unjust enrichment was not applicable in their case as they had paid duty after the clearance of goods and therefore, the question of passing duty component to their customers did not arise.

- Appellants contended that they have charged composite price in the bill and duty was not shown separately. Appellants have relied upon the judgment given in the cases of Metro Tyres Ltd [1995 (80) ELT 410] in which it was held that when composite price is shown then concept of unjust enrichment is not applicable.

- Appellant contended that refund has been granted in case of M/s Umed Textile Mills Pvt. Ltd, Jodhpur and Dhanlaxmi Textiles Mill, Pali on the same matter.

- Appellants contended that appellant had paid duty on the galleries in lump sum for the period from 16.12.98 to 31.05.99 in June 99. The concept of unjust enrichment was not applicable when lump sum payment is made after the clearance of goods. The Appellants have relied upon the decision given in the case of Bhilwara Processors Ltd v/s CCE, Jaipur [2004 (170) ELT 472] in this respect.

- Appellants have also cited the case of CCE, Jaipur-II v/s A.K. Spintex [2004 (165) ELT – 170] which contained the same issue and was related to length of gallery and refund was granted in that case by the Tribunal.

RESPONDENT’S CONTENTIONS

- Respondents have reiterated the findings given in the order of the Commissioner (A). It was contended that there is no evidence to the effect that ultimate buyer of such fabric has not borne out the duty incidence.

- It was held by the Commissioner (A) that the appellants had failed to establish that duty incidence was not passed on to the customers.

QUESTION FOR CONSIDERATION

The question for consideration before the Tribunal was whether it has been established that duty component has been passed on to the customers by the Appellant and therefore, the principle of unjust enrichment was applicable in the case of appellant.

JUDGMENT OF TRIBUNAL

v The Tribunal has relied upon the case of Technological Institute of Textile & Sciences v/s CCE, Delhi-III in which it was held that in case duty is paid subsequent to removal of goods, it cannot be presumed that duty incidence has been passed on to the buyers. The said case was remanded to the adjudicating authority to verify the evidences.

v Accordingly, the Tribunal has remanded the matter back to the adjudicating authority to examine the evidences placed by the appellants and to pass a de-novo order in accordance with law after affording an opportunity of personal hearing to the appellants.

v The appellant once again filed the consequential refund and it was allowed to them.

DECISION OF TRIBUNAL

Appeals were allowed by way of remand.

COMMENTS & CONCLUSION

The Tribunal correctly concluded that it cannot be presumed that there was unjust enrichment in the case of appellant. An opportunity was required to be given to the appellant to prove that there was no unjust enrichment by passing on the duty component to his customers. When the duty is paid posterior to the clearances of duty then the question of unjust enrichment does not arise. It was clear that at the time of clearances, the appellant was not knowing that such additional duty was payable. It was paid after a lapse of considerable time and as such it cannot be contended that duty incidence has been passed on to the buyers.

Before parting

First of all, the assessee got the refund back in 2009 where as he has paid the duty in 1999. The three times appeals were filed to the CESTAT for getting the refund claim. The litigation has its cost. Who will bear this cost? So long litigation period, frustrate the assessee and sometimes they think to pay the duty and smile and not to go in litigation. Even this gives rise to corruption because the department officers are not responsible for anything. They can just issue the show cause notice and assessee has to go through this long process of justice. It is rightly said “Justice delayed is Justice denied.”

The situation does not end here. There are ten more assessees for the same kind of refund and there are still pleading before the tribunal and matter is still pending. They are still waiting.

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PJ/CASE STUDY/2009-10/007
24 August 2009

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