Refund under s.11B denied where CENVAT/service-tax credit moved to GST/IGST and unjust enrichment presumption unrebutted

CESTAT Chennai - AT dismissed the appeal and denied refund under s.11B of the Central Excise Act, 1944, finding the unjust enrichment bar unsatisfied. The adjudicating authority's finding that the claimant transferred service-tax credit into the GST/IGST regime and thus no longer held CENVAT credit was upheld. The appellant failed to prove the incidence of duty was not passed on or that credits remained unused until reversal. Absent evidence to overcome the presumption of pass-through, the refund claim was rejected.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether a refund claim for service tax paid on ocean freight in CIF imports can be allowed under Section 11B of the Central Excise Act, 1944 when the levy has been declared ultra vires by courts in other matters.

2. Whether payment of service tax under such circumstances constitutes a payment "under mistake of law" attracting restitution under Section 72 of the Indian Contract Act and the Limitation Act, rather than Section 11B, and whether limitation under Section 11B is therefore inapplicable.

3. Whether the doctrine of unjust enrichment bars the refund where the claimant had availed equivalent input tax credit (IGST) in the GST regime and subsequently (after adjudication) reversed it.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Applicability of Section 11B to refund claims where levy has been held ultra vires in other cases

Legal framework: Section 11B of the Central Excise Act (as amended) prescribes time-bound procedure and conditions for refund of duty, including the one-year limitation and the requirement that the incidence of duty must not have been passed on to another person; Article 265 of the Constitution declares that tax can only be levied by authority of law.

Precedent treatment: The Constitutional Bench decision in Mafatlal Industries Ltd. (majority opinion) categorizes refund claims and holds that where a provision has been declared unconstitutional, refund claims arising outside the statute may be pursued by suit or writ and are not governed by Section 11B; conversely, where the claim arises from misinterpretation or mistake under an enactment, Section 11B applies and statutory limitation governs. The Tribunal relies on Mafatlal as binding authority on the distinction and on the non-applicability of Section 11B to claims founded solely on another party's declaration of unconstitutionality.

Interpretation and reasoning: The Tribunal applies the Mafatlal framework and finds that a refund claim premised on the levy being ultra vires in other proceedings is a claim outside the statutory refund mechanism and, accordingly, cannot be entertained under Section 11B by the statutory forum. The Tribunal further notes that Section 11B and the Central Excise enactments constitute "law" within Article 265 and that, except when the levy itself is declared unconstitutional in the claimant's own proceedings, statutory refund procedure and limitation remain relevant.

Ratio vs. Obiter: Ratio - the Tribunal holds that refunds based on a provision being declared unconstitutional in other cases are not maintainable under Section 11B before the statutory authorities and must be pursued by suit or writ; this follows directly from the majority ratio in Mafatlal. Obiter - observations on broader constitutional principles (Article 265 read with socio-economic goals) follow Mafatlal but are used illustratively.

Conclusion: Section 11B cannot be the vehicle for the appellant's refund claim insofar as the claim relies on declarations in other litigations; the Tribunal is not empowered to grant such refunds under the statute.

Issue 2 - Payment under mistake of law, applicability of Section 72 Contract Act and Limitation Act

Legal framework: Section 72 of the Indian Contract Act (equitable restitution for payment made under mistake), the Limitation Act (calculation of limitation for suits/writs), and statutory refund remedy under Section 11B/Central Excise Act.

Precedent treatment: The appellant relied on High Court decisions granting refunds under mistake of law and invoking Section 72; the Tribunal contrasts these with the Constitutional Bench holding in Mafatlal that Section 72 has no application to claims that fall squarely within the statutory refund regime (except where the provision itself is found unconstitutional), and that a refund based on unconstitutionality may be sought by suit/writ governed by Limitation Act principles.

Interpretation and reasoning: The Tribunal acknowledges that taxes collected without lawful authority may, in principle, be restitutionary under Article 265 and Section 72, but reiterates Mafatlal's qualification: such restitutionary remedies are available only where the levy provision has itself been held unconstitutional or the claim lies outside the Act. Where the claim is one contemplated by the enactment (i.e., an illegal levy or mistake amenable to statutory correction), the claimant must proceed under Section 11B and its limitation. The Tribunal therefore rejects the submission that Section 72/Limitation Act displaces Section 11B for refund claims before the statutory authority when the matter is governed by the statute.

Ratio vs. Obiter: Ratio - statutory refund procedure governs claims arising under the enactment; Section 72 applies only in cases where the levy is held unconstitutional and the claim lies outside the statute. Obiter - discussion of equitable considerations in summary form, as drawn from Mafatlal.

Conclusion: The appellant cannot bypass Section 11B by invoking Section 72 or Limitation Act for a refund claim before the statutory authority unless the claim is properly a constitutional challenge to the levy in the claimant's own case and pursued by suit or writ.

Issue 3 - Doctrine of unjust enrichment where equivalent input tax credit was availed and later reversed

Legal framework: The amended Section 11B conditions refund on proof that the incidence of duty was borne by the claimant and not passed on; statutory presumption (Section 12B Central Excise Act) that incidence of duty is passed on to the buyer unless contrary proved; equitable doctrine of unjust enrichment; Mafatlal's requirement that claimant must establish non-passing-on of burden.

Precedent treatment: Mafatlal and subsequent Supreme Court authority emphasize that refund/restitution will be allowed only if the claimant proves that the burden of tax was not passed on; the burden of proof lies on the claimant who has exclusive knowledge of passing-on. The Tribunal relies on the adjudicating authority's factual finding that the appellant availed IGST credit equivalent to the service tax and utilized it, thereby replenishing itself, and that no satisfactory evidence was produced to displace the statutory presumption of passing-on.

Interpretation and reasoning: The Tribunal accepts the adjudicating authority's detailed findings that (a) the appellant had taken IGST credit equal to the service tax paid and used it for outward tax liabilities, (b) the appellant's contemporaneous refund application offered only an undertaking to reverse IGST upon sanction, and (c) the actual reversal of credit occurred only after the adjudicating order and was not demonstrated to have been unutilized at all relevant times. The Tribunal emphasizes that mere post-hoc reversal, without continuous documentary proof that the transferred credit was never utilized (illustrated by the daily-balance evidentiary test), does not discharge the claimant's burden. The Tribunal concludes that the claimant has not rebutted the presumption of passing-on and has therefore been unjustly enriched if refunded.

Ratio vs. Obiter: Ratio - where a claimant has availed and utilized equivalent input tax credit, and fails to rebut the statutory presumption that the tax burden was passed on (including by cogent contemporaneous evidence), refund is barred by the doctrine of unjust enrichment. Obiter - illustrative numerical exposition of the type/quantum of evidence required to prove non-utilization of a specific credited amount.

Conclusion: The appellant failed to prove non-passing-on of the tax burden; the adjudicating authority's finding of unjust enrichment stands and independently warrants rejection of the refund claim.

Interrelationship and final determination

Legal framework and reasoning cross-reference: The Tribunal integrates Mafatlal's multi-part test: (i) classification of the nature of refund claim (constitutional invalidity vs statutory error), (ii) procedural route (suit/writ vs statutory refund), and (iii) substantive precondition of non-passing-on of burden. The Tribunal finds the present claim cannot be entertained under Section 11B to the extent it rests on other courts' decisions, and in any event fails the unjust enrichment prerequisite since the claimant availed and utilized equivalent IGST credit and did not prove continuous non-utilization before reversal.

Final conclusion: The appeal is rejected - the statutory authority cannot grant the refund under Section 11B on the appellant's pleaded basis, and the appellant has not discharged the burden to negate unjust enrichment; both grounds independently justify dismissal of the refund claim.

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