TaxTMI 
TaxTMI 
TaxTMI 
The doctrine of unjust enrichment is a fundamental principle in tax jurisprudence, ensuring that a taxpayer does not unduly benefit from a refund at the expense of the exchequer. However, recent judicial pronouncements have clarified its applicability in various scenarios under the Goods and Services Tax (GST), Customs, and Service Tax laws. This article examines key judgments that shed light on when unjust enrichment does—or does not—apply to refund claims.
1. Refund of Electronic Cash Ledger Balance: No Unjust Enrichment
Issue: Whether the principle of unjust enrichment applies to refunds from the electronic cash ledger under Section 49(6) read with Section 54 of the CGST Act?
Ruling: The Andhra Pradesh High Court held that unjust enrichment does not apply to refunds arising from the cash ledger. The court set aside the rejection of a refund claim for leftover TDS accumulated as a credit balance, directing reconsideration.
Key Takeaway: Refunds from the cash ledger (as opposed to input tax credit) are not subject to unjust enrichment scrutiny, as the amount represents the taxpayer’s own money.
2. Refund of GST on Cancelled Contracts: No Supply, No Tax Liability
Issue: Whether GST paid on an advance for a supply that never materialized is refundable, and whether unjust enrichment applies?
Facts: The taxpayer paid an advance (including GST) for goods, but the supplier failed to deliver, leading to contract cancellation. The taxpayer sought a GST refund, which was denied on grounds of unjust enrichment and absence of a credit note.
Ruling: The Karnataka High Court held:
- Since no supply occurred, there was no GST liability.
- Section 54 of the CGST Act cannot deny a refund merely due to the absence of a credit note.
- The revenue must refund the GST, as the tax was never legally payable.
Key Takeaway: If a transaction fails and no supply takes place, GST paid on advances must be refunded without applying unjust enrichment.
3. Refund of Excess Service Tax: Credit Notes as Valid Proof
Issue: Whether refund of excess service tax (due to downward adjustments via credit notes) is barred by unjust enrichment?
Ruling: The CESTAT, Mumbai held:
- Credit notes are legally enforceable commercial documents.
- The Revenue cannot reject refund claims merely by labeling credit notes as 'paper scrips.'
- Unjust enrichment does not apply when the taxpayer demonstrates that the burden was not passed on.
Key Takeaway: Credit notes serve as valid evidence to claim refunds, and unjust enrichment cannot be presumed without proof.
4. Customs Duty Refunds: Receivables in Balance Sheet Defeat Unjust Enrichment Claim
Issue: Whether a refund of excess customs duty is barred by unjust enrichment if the amount is shown as receivables in the balance sheet?
Ruling: The Tribunal held that if the taxpayer has not recovered the duty from customers (evidenced by balance sheet entries), unjust enrichment does not apply.
Key Takeaway: Proper accounting entries (showing duty as recoverable from the government) can rebut unjust enrichment claims.
5. Provisional Duty Refunds: Final Assessment Overrides Unjust Enrichment
M/S FINOLEX INDUSTRIES LTD. VERSUS COMMISSIONER OF CUSTOMS-PUNE - 2023 (5) TMI 306 - CESTAT MUMBAI
Issue: Whether refund of provisionally assessed customs duty (later reduced in final assessment) can be denied on grounds of unjust enrichment?
Ruling: The Tribunal held that rejecting a refund under Section 18(2) of the Customs Act, 1962 (provisional assessment) based on unjust enrichment is incorrect. The matter was remanded for fresh consideration.
Key Takeaway: Provisional duty refunds must be granted if the final assessment is lower, irrespective of unjust enrichment arguments.
Conclusion: Judicial Clarity on Unjust Enrichment
The courts have consistently held that unjust enrichment cannot be mechanically applied in refund cases. Key principles emerging from these rulings include:
- Cash ledger refunds (Section 49(6)) are not subject to unjust enrichment.
- Failed transactions (no supply) warrant GST refunds without credit notes.
- Credit notes and balance sheet entries are valid proof against unjust enrichment.
- Provisional duty refunds must align with final assessments.
Taxpayers must document their claims properly to avoid unjust enrichment disputes. The judiciary has reinforced that refund provisions must be interpreted liberally to prevent undue hardship
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Abhishek Raja Ram
9810638155