QUESTION

In a case the assessee had availed benefit of notifications under FTA agreement and no custom duty was paid however SAD was paid at the time of import during 2011-12 & 12-13.
In December,12 DRI visited the unit and on the instructions of the DRI the unit had given two cheques on account of custom duty, however when the order was passed, it was in favour of appellant and the order has been accepted by the department.
Accordingly the unit applied for refund and the same was given to the unit. However the OIO was reviewed by the commissioner and it was alleged that since the unit has shown the amount deposited as expenditure in balance sheet it had formed part of manufacturing expense and had been recovered from buyers, hence unjust enrichment is applicable, and department went into the Appeal, the Commissioner Appeal directed for denovo proceedings, the unit had gone to CESTAT against the said order, and also requested to adjudicating authority not to decide the same as the issue is pending with CESTAT, however again the order was passed by ordering to recover the erroneusly refunded amount with interest under Section 28 (8) of customs Act, 1962.
Whether the appellant is required to pre deposit the amount @ 7.5 percent at the time of filing appeal.
Secondly is unjust enrichment clause applicable.
As in the order initially passed no duty was found applicable and proceedings were dropped and then only refund was sanctioned, once there is no duty, how the order/demand could be issued under Section 28 (8) of customs Act.

ANSWER

FACT OF THE CASE:

1. SAD was not paid at the time of import.
2. Later on SAD was paid under protest after the notice of DRI.
3. CESTAT passed an order in favor of the importer pronouncing that SAD is not applicable on import.
4. Refund filed by the importer.
5. Refund claimed rejected on the ground of unjust enrichment because the amount paid was debited to P&L account.
6. In the subsequent year after the case is decided in the favor of the importer, the expense is neutralized by credit entry in the P & L account and the amount of refund is booked as income in the financial record.

LAW APPLICABLE:

1. Circular No. 539/35/2000-CX, dated 24-7-2000:

2. Circular No. 523/19/2000-CX., dated 6-4-2000

[From F. No 268/15/2000-CX.8]

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Direct taxes

Subject : Applicability of unjust enrichment provision - Hon'ble Supreme Court Judgment in Solar Pesticides pvt. Ltd. Vs. UOI - Regarding.

I am directed to refer to the Hon'ble Supreme Court Order dated 4-2-2000 (Civil Appeal No. 921 of 1992) in the case of U.O.I. and Others v. Solar Pesticides Pvt. Ltd. reported in 2000(02)LCX0147 Eq 2000 (116) ELT 0401 (S.C.). The issue of applicability of unjust enrichment provision before granting refund under Section 27 of the Customs Act, 1962 was decided by the Hon'ble Bombay High Court in the case of M/s. Solar Pesticides Pvt. Ltd. stating that the said provision would not apply for goods imported and consumed captively. The Department filed civil appeal in the Apex Court against the impugned order of the Hon'ble Bombay High Court.

2. The Apex Court, in its judgment reported above has held that the principle of unjust enrichment would be applicable in respect of cases of refund of duty paid on imported raw materials even if captively consumed in the manufacture of a final product. The Hon'ble Supreme Court has held that even for captive consumption of goods if certain duties have been paid, whose refund is claimed, the claimant will have to establish that the incidence of duty has not been passed on, directly or indirectly, to any other person.

3. The provisions of refund in the Central Excise Act are similar to those of the Customs Act, a number of Civil Appeals were being filed by the Department against Tribunal Judgments relying on the case of M/s. Solar Pesticides Pvt. Ltd. of the Bombay High Court. The Hon'ble Supreme Court has favourably disposed off one such Civil Appeal No. 7189 of 1999 in the case of Collector of Central Excise, Meerut v. M/s. Star Paper Mills Ltd. relying on its own order issued on 4-2-2000 as mentioned above.

4. The above mentioned judgment is brought to your notice for taking appropriate action in the cases pending or decided where certain refunds were given subject to bonds/undertakings by various parties including importers and manufacturers.

3. Customs Manual 2018 Chapter 14:

4. Processing of refund claim:

4.1 The application for refund is required to be filed with documentary or other evidence including documents relating to assessment, sales invoice and other like documents to support the claim that the duty and interest was paid in excess, incidence of duty or interest has not been passed on by him to any other person, and the refund has not been obtained already.

4.2 Where on scrutiny, the application is found to be complete in all respects the Customs issues an acknowledgement in the prescribed Form. However, in case the application is found to be incomplete, the Customs will return the same to the applicant, pointing out the deficiency. The applicant has to then re-submit the application after making good the deficiency.

4.3 The application of refund found to be complete in all respects by Customs, is processed to see if the whole or any part of the duty and interest paid by the applicant is refundable. In case, the whole or any part of the duty and interest is found to be refundable, an order for refund is passed. However, in view of the provisions of unjust enrichment enshrined in the Customs Act, the amount found refundable has to be transferred to the Consumer Welfare Fund except in the following situations when it is to be paid to the applicant:

INTERPRETATION:

Circular No. 523/19/2000-CX., dated 6-4-2000 is debatable. This circular gives authority to the revenue to invoke the provision of unjust enrichment even when the cost of captively consumed goods is passed on the customer indirectly.

But in the given case there is no need of any debate because the cost component of SAD is neutralized in the subsequent year when the amount of refund is booked as income.

If the revenue officer is considering expense as a recovery of cost then the income should be considered as a returning of that revenue.

Apart from the above discussions, we are of the opinion that if the taxes are not charged on the invoice and more debit note on account of taxes is issued to the customer then the provision of unjust enrichment cannot be invoked on the basis of expenses booked in financial record.

Expenses would be in the financial record have impact on profit and loss of the business entity and subjected to provision of income tax laws.

CONCLUSION:

The refund cannot be rejected on ground of unjust enrichment. You should proceed for appeal against the rejection. (Reply dt. 13/06/2022)