2000 (2) TMI 237 - SC - Customs

Amended Section 27 governs refund claims; unjust enrichment bars refunds for captive-consumed raw materials if duty was passed on

UNION OF INDIA Versus SOLAR PESTICIDE PVT. LTD.

SC allowed the appeal, set aside the HC judgment, and dismissed the writ petition. The Court held that the amended Section 27 of the Customs Act governs ... Payment of the countervailing duty - burden of proof - application for refund of additional customs duty - Imported copper scrap for use as a raw material in the manufacture of copper oxychloride - Interpretation of Sections 27, 28C, and 28D of the Customs Act, 1962, and their amendments - Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product? Held that:- Section 27 of the Act has been re-cast with the amendments made in 1991 and the said section does not necessarily have to be read in conjunction with Sections 27C and D of the Act. If the incidence of duty paid on the imported raw material has not been passed on to any other person, then by virtue of proviso to Section 27 (2) of the Act in the case where application for refund had been made prior to 1991, refund due on the duty paid would be given to the applicant. To claim refund of duty it is immaterial whether the goods imported are used by the importer himself and the duty thereon passed on to the purchaser of the finished product or that the imported goods are sold as such with the incidence of tax being passed on to the buyer. In either case the principle of unjust enrichment will apply and the person responsible for paying the import duty would not be entitled to get the refund because of the plain language of Section 27 of the Act. Having passed on the burden of tax to another person, directly or indirectly, it would clearly be a case of unjust enrichment if the importer/seller is then able to get refund of the duty paid from the Government notwithstanding the incidence of tax having already been passed on to the purchaser. The High Court has not correctly interpreted the relevant provisions of the Customs Act and, in our opinion, the principle of unjust enrichment incorporated in Section 27 of the Act would be applicable in respect of imported raw material and captively consumed in the manufacture of a final product. Whether the incidence of the duty had been passed on to the consumer was not decided by the High Court in Solar Pesticide’s case [1991 (10) TMI 42 - HIGH COURT OF JUDICATURE AT BOMBAY] because in its opinion the principle of unjust enrichment could not apply to the cases of captive consumption. In the case of Solar Pesticide Pvt. Ltd., therefore, we do not go into this question whether the incidence of duty had not been passed on by the respondent. This appeal is, accordingly, allowed and the impugned judgement of the High Court is set aside, the effect of which would be that the writ petition filed by the Solar Pesticide Pvt. Ltd. stands dismissed. Issues Involved:1. Applicability of the doctrine of unjust enrichment in the case of raw materials imported and consumed in the manufacture of a final product.2. Interpretation of Sections 27, 28C, and 28D of the Customs Act, 1962, and their amendments.3. Determination of whether the incidence of duty had been passed on to the consumer in cases of captive consumption.Detailed Analysis:1. Applicability of the Doctrine of Unjust Enrichment:The primary issue was whether the doctrine of unjust enrichment applies to raw materials imported and consumed in the manufacture of a final product. The Court held that the principle of unjust enrichment incorporated in Section 27 of the Customs Act would indeed be applicable in such cases. The Court emphasized that if the incidence of duty paid on the imported raw material has been passed on to any other person, the importer would not be entitled to a refund, as it would result in unjust enrichment.2. Interpretation of Sections 27, 28C, and 28D of the Customs Act:The Court examined the relevant provisions of the Customs Act post-amendment in 1991. Section 27(1) requires the applicant to establish that the amount of duty and interest in relation to which the refund is claimed was collected from, or paid by him, and the incidence of such duty and interest had not been passed on to any other person. Section 28C mandates indicating the amount of duty in the price of goods, and Section 28D presumes that the incidence of duty has been passed on to the buyer unless proven otherwise.The Court clarified that Section 27 is a complete code in itself, dealing with the claim for refund of duty. The words 'incidence of such duty' mean the burden of duty, which includes both direct and indirect passing of the duty to another person. This interpretation implies that even in cases of captive consumption, where the duty paid on raw material is added to the price of the finished goods, the burden of duty is considered passed on to the purchaser of the finished product.3. Determination of Whether the Incidence of Duty Had Been Passed On:The Court noted that the High Court had not decided whether the incidence of duty had been passed on to the consumer in Solar Pesticide's case because it believed the principle of unjust enrichment did not apply to captive consumption. The Supreme Court disagreed, stating that the principle of unjust enrichment applies regardless of whether the imported goods are used by the importer himself or sold as such. The Court emphasized that the importer must prove that the incidence of duty on the raw material has not been passed on to any other person to claim a refund.Separate Judgments:Civil Appeal No. 4381 of 1999:The respondent produced a certificate from a Chartered Accountant to show that the duty had not been passed on to their customers. The Assistant Collector rejected this, but the Collector (Appeals) accepted it and allowed the refund. The Tribunal dismissed the Revenue's appeal based on the Bombay High Court's decision in Solar Pesticides. The Supreme Court set aside the Tribunal's decision and directed it to decide afresh on the applicability of the principle of unjust enrichment.Civil Appeal No. 2711 of 1999:The Supreme Court allowed the appeal, set aside the Tribunal's judgment, and directed it to decide the appeal afresh on the question of unjust enrichment.Civil Appeal No. 6113 of 1999:The Tribunal had allowed the appeal following the Bombay High Court's decision in Solar Pesticides. The Supreme Court set aside this judgment and directed the Tribunal to reconsider whether the incidence of duty had been passed on.Civil Appeal Nos. 5688-89/1995, 16890, 16894, 16885 of 1996, 1565 of 1999, 5407-5409, and 6261 of 1999:In all these cases, the Supreme Court allowed the appeals, set aside the judgments of the lower courts or tribunals, and directed them to reconsider the cases in light of the principle of unjust enrichment as interpreted in this judgment.In conclusion, the Supreme Court firmly established that the doctrine of unjust enrichment applies to cases of captive consumption of imported raw materials, and the burden of proof lies on the importer to show that the incidence of duty has not been passed on to any other person to claim a refund.