2009 (8) TMI 462 - HC - Central Excise

High Court overturns Tribunal order on duty refund due to lack of unjust enrichment consideration.

COMMISSIONER OF CUSTOMS, MANGALORE Versus AGROTECH FOODS LTD.

The High Court set aside the Tribunal's order directing a duty refund without applying the doctrine of unjust enrichment. The Court found the Tribunal's ... Refund-Unjust enrichment- The Revenue is in appeal, questioning the order of the CESTAT, whereunder the Tribunal has allowed the appeal filed by the respondent herein and remanded the matter to the original authority to reconsider the refund and grant the same without applying the provisions of unjust enrichment on the ground that in the facts and circumstances of the case, the said provisions are not applicable and has further directed that refund due to the respondent herein should be granted and for the said purpose the matter has been remanded. Held that- we are of the view that the arguments of the doctrine of ‘unjust enrichment’ being not attracted to the case of adjustment can be accepted only up to the stage when the imported goods are actually not physically removed from the customs charge, in the sense that the goods were not available to the assessee for being transacted as a trading proposition or a business proposition and if it had actually been cleared out of customs charge and was available to the assessee for being transacted, then even in a case of adjustment, the doctrine of ‘unjust enrichment’ cannot be kept out, but has to be verified on facts as to the possibility of the duties being passed on to the consumers or absorbed by the assessee. When the Original authority examines this question, it will have to necessarily bear in mind all these legal aspects including the question of limitation and for this purpose, it is clarified that if it was a case of an application under Section 27, the starting point for running of limitation is date of finalisation of the assessment order and not the order of provisional assessment. With this clarification, the judgment is retained. Issues Involved:1. Refund of duty without application of the doctrine of unjust enrichment.2. Tribunal's decision based on the presumption of finalization of provisional assessment.3. Applicability of the Doctrine of unjust enrichment irrespective of Section 11B of the Central Excise Act/Section 27 of the Customs Act.4. Sustainability of the Tribunal's order in light of the Apex Court decision in Sahakari Khand Udyog Mandal Ltd. v. Commissioner of C.Ex. and Cus.5. Applicability of Section 27 of the Customs Act to provisional assessment under Section 18 of the Customs Act, 1962.Issue-wise Detailed Analysis:1. Refund of Duty Without Application of the Doctrine of Unjust Enrichment:The High Court examined whether the Tribunal was correct in directing the refund of duty without applying the doctrine of unjust enrichment. The court noted that the Tribunal had accepted the importer's plea that the goods were sold at a price lower than the landed cost, concluding by preponderance that the incidence of duty was not passed on to customers. However, the High Court found that the Tribunal did not thoroughly examine the records to ascertain the actual cost and whether the importer had indeed absorbed the duty burden. The court emphasized that the test for refund under Section 27(2) of the Customs Act requires proving that the duty incidence was not passed to buyers, which the Tribunal failed to conclusively determine.2. Tribunal's Decision Based on the Presumption of Finalization of Provisional Assessment:The High Court scrutinized the Tribunal's presumption that the refund arose from the finalization of provisional assessment. The court highlighted that the adjudicating authority and the first appellate authority had treated the duty paid as provisional. The High Court pointed out that Section 27 of the Customs Act allows for refund claims even if the duty was provisionally paid, subject to the limitation period starting from the date of final assessment. The Tribunal's reliance on previous judgments without a detailed factual examination was deemed insufficient.3. Applicability of the Doctrine of Unjust Enrichment Irrespective of Section 11B of the Central Excise Act/Section 27 of the Customs Act:The High Court referred to the Supreme Court's decision in Sahakari Khand Udyog Mandal Ltd., which established that the doctrine of unjust enrichment is based on equity and can be invoked irrespective of statutory provisions. The High Court agreed that the doctrine could deny benefits to those not entitled, emphasizing that the importer must prove that the duty burden was not passed to consumers to claim a refund.4. Sustainability of the Tribunal's Order in Light of the Apex Court Decision:The High Court found that the Tribunal's order was not sustainable as it failed to consider the Supreme Court's principles on unjust enrichment. The Tribunal's acceptance of the importer's claims without thorough verification of facts and records was deemed erroneous. The High Court remanded the matter to the adjudicating authority for a fresh examination of whether the importer had passed on the duty burden to consumers.5. Applicability of Section 27 of the Customs Act to Provisional Assessment Under Section 18 of the Customs Act, 1962:The High Court noted that Section 27 allows for refund claims even for duties paid provisionally under Section 18, with the limitation period starting from the date of final assessment. The court clarified that the adjudicating authority must determine whether the refund claim was within the limitation period and whether the duty was provisionally assessed or finalized. The court remanded the matter for a detailed examination of these aspects, emphasizing the need to ascertain the stage of assessment and the applicability of the doctrine of unjust enrichment.Order:The High Court set aside the Tribunal's order and remanded the matter to the adjudicating authority for fresh adjudication based on available records. The authority was directed to examine whether the refund application was within the limitation period and whether the importer had passed on the duty burden to consumers. The court kept the fifth question open, pending a factual determination by the adjudicating authority.