1991 (10) TMI 42 - HC - Customs

Refund allowed under Section 27(2) as unjust enrichment bar not applicable to duty on consumed copper scrap

HC held that the doctrine of unjust enrichment under proviso (c) to Section 27(2) of the Customs Act does not apply where imported goods (copper scrap) ... Entitlement to claim refund - additional duty of customs is levied on raw material - applicability of the Unjust enrichment - Precedents - Departmental Circulars - HELD THAT:- Since the petitioners have consumed the scrap in the process of manufacturing Copper Oxychloride, they have not passed on the incidence of duty to anybody in the manner envisaged in the scheme. Because the scheme envisages a direct transfer of the burden of duty along with the sale of the same goods which were imported, to the buyer. Undoubtedly, the import duty paid on copper scrap may become a part of the cost of manufacture of Copper Oxychloride. But when Copper Oxychloride is sold in the market, it is difficult to ascertain how much of the original import duty on copper scrap is passed on to the buyer of Copper Oxychloride and in what proportion. Nor can there be in such a case the kind of documentation required under the scheme. So that the buyer of Copper Oxychloride cannot claim a refund of any part of the duty on Copper scrap. Where there is no sale of the goods which were imported and no direct transfer of the burden of duty to the buyer of the imported goods, the case falls under clause (a) or (b) of the proviso to Section 27(2). This doctrine of unjust enrichment, which is the genesis of the amendment, has no application in cases where the imported goods are either consumed by the importer or are used by him in the manufacture of other products. In the case of the imported product Customs duty paid on it becomes a part of the cost of manufacture of the new item or items in which the imported component is an ingredient. In such cases the doctrine of unjust enrichment is not invoked. The additional duty of customs is levied on raw material which is being imported. It is not an additional duty on any finished product which is going to be sold to the consumer and to whom the incidence of the additional duty of customs can be passed on directly. Since the additional duty of customs has not been directly passed on by the petitioners to any third party by selling the imported goods, they are entitled to claim refund of this amount under proviso (a) to Section 27(2) of the amended Section 27. It was also submitted before us that in any case since this is a claim for recovery of monies paid under a mistake of law in a petition under Article 226 of the Constitution, the provisions of the Central Excises and Customs Laws (Amendment) Act, 1991 cannot apply in any event. In view of our earlier findings, it is not necessary for us to examine this aspect of the submission which is made before us. In the premises, rule is made absolute in terms of prayer (a). The respondents are directed to grant the applications of the petitioners for refund of the additional duty of Customs paid by them as per their refund applications set out in Exhibit 'O' to the petition and after ascertaining the correctness of the petitioners' claim, to pay the same to the petitioners, giving them the benefit of proviso (a) to Section 27(2) of the amended Customs Act pursuant to the Central Excise and Customs Laws (Amendment) Act, 1991. The same to be determined and paid as expeditiously as possible. The petitioners, by an amendment, have claimed interest on their refund claims. Looking to the circumstances of the present case and in view of the fact that it was only after learning about the letter of the Central Board of Excise and Customs dated 27-7-1987 that the present petition has been filed on the basis of discovery of a mistake of law, in our view, this is not a fit case where any interest should be granted to the petitioners. The claim of interest of the petitioners is therefore rejected. Issues Involved:1. Recovery of countervailing duty (Additional Customs Duty) on imported copper scrap.2. Compliance with exemption notifications and procedural requirements.3. Rejection of refund applications.4. Application of the Central Excise and Customs Laws (Amendment) Act, 1991.5. Doctrine of unjust enrichment.6. Claim for interest on refund.Summary:1. Recovery of Countervailing Duty:The dispute centers on the recovery of countervailing duty (Additional Customs Duty) on copper scrap imported by the petitioners for manufacturing Copper Oxychloride. The relevant heading for this duty is Heading 7404.00 under the Central Excise Tariff from 1st March 1986, previously under Tariff item 26A.2. Compliance with Exemption Notifications:The petitioners complied with the first condition of Notification No. 35/81-C.E., dated 1-3-1981, proving the copper scrap was used for manufacturing chemicals. However, they could not comply with the second condition requiring adherence to Chapter X of the Central Excise Rules, 1944, as they were importers, not manufacturers of copper scrap in India. This procedural requirement was deemed impossible for importers to fulfill.3. Rejection of Refund Applications:The petitioners' refund applications for the additional duty of Customs were rejected. The petitioners argued that the exemption notifications provided complete exemption from excise duty for copper scrap used in chemical manufacturing, and thus, additional Customs duty should not be levied. The court found merit in this argument, noting that procedural requirements should not deprive importers of exemption benefits.4. Application of the Central Excise and Customs Laws (Amendment) Act, 1991:The respondents argued that the petitioners' refund claims must be considered under the amended Section 27 of the Customs Act, 1962, which requires proof that the duty incidence was not passed on to any other person. The court examined the amended provisions, including Sections 27(2), 28C, and 28D, which generally direct refunds to the Consumer Welfare Fund unless the importer proves they did not pass on the duty burden.5. Doctrine of Unjust Enrichment:The court held that the doctrine of unjust enrichment does not apply when imported goods are consumed or used in manufacturing other products. The petitioners used the copper scrap in manufacturing Copper Oxychloride and did not sell the scrap, thus not passing on the duty burden. Therefore, they are entitled to a refund under proviso (a) to Section 27(2) of the amended Customs Act.6. Claim for Interest on Refund:The petitioners' claim for interest on the refund was rejected. The court noted that the petition was filed based on the discovery of a mistake of law after learning about the Central Board of Excise and Customs' letter dated 27-7-1987, and thus, interest was not warranted.Conclusion:The court ruled in favor of the petitioners, directing the respondents to grant the refund applications and pay the amounts after verifying the claims, giving the benefit of proviso (a) to Section 27(2) of the amended Customs Act. The rule was made absolute with no order as to costs.