THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR CENTRAL EXCISE APPEAL Nos.156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170 AND 186 of 2011 % 30.12.2011 # M/s.Asia Pacific Commodities Ltd., ... Appellant VERSUS $ The Assistant Commissioner of Customs, Division-I, ...Respondent < GIST: > HEAD NOTE: ! Counsel for Appellant: Sri Lakshmi Kumar and C.R.Sridharan ^Counsel for Respondent: Sri A.Rajasekhar Reddy ? Cases referred 1. (1993) 204 ITR 166 (AP) 2. (1962) 1 SCR 788 3. 2008 (221) ELT 336 (Delhi) 4. (2000) 2 SCC 705 5. (2005) 3 SCC 738 6. (2010) 4 SCC 256 7. (1997) 5 SCC 536 8. (2000) 120 ELT 285 (SC) : (2000) 6 SCC 650 9. 2002 (143) ELT 482 (SC) : (2002) 9 SCC 571 10. 2004 (172) ELT 145 (SC) : (2005) 10 SCC 433 11. 1998 (99) ELT 200 (SC) : (1997) 7 SCC 489 12. 2006 (198) ELT 482 (SC) : (2006) 9 SCC 443 13. (2003) 9 SCC 606 14. (1884) 12 QBD 564 15. (1913) 1 KB 279 at p.164 16. (1967) 63 ITR 232 (SC) : AIR 1967 SC 455 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR CENTRAL EXCISE APPEAL Nos.156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170 AND 186 of 2011 December 30, 2011 Between: M/s.Asia Pacific Commodities Ltd., C/o.Foods Fats & Fertilizers Ltd., Tanuku Road, Tadepalligudem, West Godavari District, Andhra Pradesh … Appellant AND The Assistant Commissioner of Customs, Division-I, Customs House, Port Area, Kakinada … Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE SANJAY KUMAR CENTRAL EXCISE APPEAL Nos.156, 157, 158, 159, 160, 161, 162, 163, 164, 165, 166, 167, 168, 169, 170 AND 186 of 2011 COMMON JUDGMENT: This batch of central excise appeals under Section 130 of the Customs Act, 1962 (the Act) – except three appeals; is filed by the ITC Limited (Agro Business Division), Secunderabad. The Commissioner for Central Excise, Customs & Service Tax (Appeals) (hereafter, the CCE(A)) as well as the Customs, Excise & Service Tax Appellate Tribunal, Bengaluru Bench (CESTAT) disposed of the matters by common order and, therefore, it is appropriate to dispose of all these appeals by common judgment. Brief background It would be suffice to notice the factual background in CEA No.158 of 2011 filed by ITC Limited. The appellants are in the business of selling and exporting agricultural produce. As per Section 3 of the Agricultural and Processed Food Products (Export Cess) Act, 1985 (the Cess Act), there shall be levy and collection of cess and duty of customs not exceeding 3% ad valorem value of exported scheduled products. The appellants entered into export sale FOB contracts with buyers in Austria, Geneva and Switzerland. After obtaining necessary export documents/licences/permits and paying all export duties and levies, they paid cess under the Cess Act at 0.5% ad valorem. In the invoices relevant to all the shipping bills the value of the export at one composite figure was indicated. These exports were effected in June and July, 2006. The Cess Act was repealed with effect from 01.6.2006 vide the Cess Loss (Repealing & Amendment) Act, 2006. Despite this, the Customs Officials from Kakinada Port insisted for payment of cess and all the appellants paid the cess against the shipping bills after the repeal of the Cess Act. The levy and collection, indisputably was not authorized by law. The appellants filed claims under Section 27 of the Act for refund of cess of export of rice consequent on its abolition. By a speaking order dated 30.10.2006, the Assistant Commissioner of Customs, Division-I, Kakinada having come to the conclusion that “the bar of unjust enrichment clause is not applicable in the instant case since the incidence of duty has been borne by the agents on behalf of the exporters and had not been passed on to any other person” refunded the entire cess amount paid against the shipping bills. In purported exercise of powers under Section 129D of the Act, the CCE, Visakhapatnam called for the records relating to the speaking order of the Assistant Commissioner. On examining, he authorized the Assistant Commissioner to file appeals against the speaking orders in all the matters where refund claims were allowed. The CCE observed that the adjudicating authority erred in holding that the incidence of duty had not been passed on to any other person in as much as in the shipping bills FOB value is inclusive of the cess; FOB value had been realized by exporters as per the Bank certificates, which disentitled them for refund under Section 27 of the Act. In obedience to the orders of the CCE, appeals were filed before the CCE (A), Visakhapatnam-IV. It was mainly contended that FOB value of the shipping bills is inclusive of the cess and the FOB value was realized by the exporters as certified by the Banks and that when the incidence of duty had been passed on to the buyers the principle of unjust enrichment is attracted. The appellants relied on the shipping bills and Incoterms, 2000 which are International Commercial terms pre-defined by the International Chamber of Commerce and urged that the FOB value is not inclusive of a cess paid under the Cess Act. They also submitted that the exporters themselves incurred the expenditure towards cess and the burden had not been passed on to the buyers. The CCE (A) after referring to the Incoterms, inferred that FOB value in the shipping bills is inclusive of cess as the same is mentioned in the shipping bills. The appeals filed by the department were accordingly allowed. In their appeals before the CESTAT, the appellants relied on Incoterms and the agreement they entered into with foreign buyers in support of their plea that the cess paid was not passed on to the buyers and that there was no unjust enrichment. On considering this plea, the CESTAT concluded as under. We find that from the above definition it is not possible to arrive at a definite conclusion that the FOB value includes the cess paid on export of rice especially in cases where the contract with the foreign buyer specifically provided that the export duty/taxes etc., were to the account of the seller. In all the cases except in the case of M/s.Al Gyas Exports Pvt. Ltd., the appellants have furnished copies of the relevant contracts containing the above clause. Unless the Department is satisfied on examination of the documents showing remittance received by the appellants, the finding in the impugned order that the FOB value recovered included the impugned cess cannot be sustained. As it is, there is no reliable finding in the impugned order to conclude that the disputed cess amounts had been recovered as part of the FOB value. (emphasis supplied) It appears that in their written arguments departmental representative raised a plea that when the assessee has not challenged the assessment order, claim for refund would not lie. Countenancing this plea the CESTAT rejected the appeals observing as under. As regards the claim that a refund claim for excess duty paid can be validly made without challenging assessment under the Act relying on the judgment of the Apex Court in the case of Karnataka Power Corporation Ltd v CC (Appeals), (2002) 143 ELT 482 (SC), we note that a Larger Bench of the Tribunal had considered the ratio of the above decision and the decisions of the Apex Court in Flock India case and Priya Blue Industries case and held that a refund claim was not maintainable unless the assessment order in pursuance of which duty paid was challenged and modified/set aside. In the case of Maharashtra Cylinders Pvt. Ltd. v CESTAT, Mumbai & Ors., reported as 2011 (183) ECR 0059 (Bom.), the Hon’ble High Court of Bombay has observed as follows:- “8. … … The Apex Court in the case of Priya Blue Industries Ltd v Commissioner of Customs (Preventive), AIR 2004 SC 5115 : 2004 (172) ELT 145 (SC) has held that validity of an assessment cannot be considered while dealing with the refund claim. The said ratio would apply to the self assessment as well.” In view of these binding authorities, we reject the arguments of the appellants relying on the judgment of the Apex Court in the case of Karnataka Power Corporation Ltd (supra). Submissions M/s.C.R.Sridharan and Raghavan Ramabhadran appearing in support of the appellants made the following submissions. The CESTAT having recorded a finding that there is no unjust enrichment and that the incidence of duty had not been recovered as part of FOB from the foreign buyer was in error in rejecting the appeals only on the ground that the claim for refund without challenging the assessment order would not be permissible. Whether the refund claims may be made without challenging the assessment order is not a question which would arise in the appeals. Placing reliance on Section 129D (2) of the Act the Counsel would urge that when the reviewing Commissioner directs an authority to file appeal to the CCE (A) for determination of such points that arise out of the decision or order as may be specified by the reviewing Commissioner, an appeal could not have been filed on the ground which was urged before the CESTAT. According to them the reviewing Commissioner directed the Assistant Commissioner to file appeal against the speaking order only on the question of unjust enrichment and not on any other ground. Even before the CCE (A) the plea which was raised before the CCE (A) was not authorized and the appellate authority decided the matter only with reference to the question whether the appellants are disentitled for refund under Section 27 of the Act on the ground that FOB value is inclusive of the cess. The Counsel would further rely on Section 129B(1) of the Act and Rule 10 of the Customs, Excise and Service Tax Appellate Tribunal (Procedure) Rules, 1982 and would submit that having regard to these provisions the CESTAT could not have decided the question whether appellants were disentitled to claim refund without filing appeals against the assessment order as the same is not a question which was set out in the memorandum of grounds of appeals of the department. Relying on the decision of the Full Bench of this Court in CIT v Late Begum Noor Bano Alladin[1] they would contend that unless the subject matter is one which necessarily arises out of determination made by the first appellate authority, the CESTAT could not have gone into such questions. In support of their submissions, the Counsel also relied on CIT v Scindia Steam Navigation Co. Ltd[2]. The Counsel for the appellants submits that the speaking order passed by the original authority allowed refund of claims; refund was made and therefore question of filing appeal against the speaking order passed by the Assistant Commissioner under Section 28(2) of the Act does not arise. Even where an assessment order under Section 17(5) of the Act is passed and the same is in favour of the assessee the question of filing appeal does not arise and if need arises the application for refund of customs duty can be made under Section 27 of the Act. They would rely on the decision in Hind Agro Industries Limited v CCE[3]. It is nextly contended that the refund claims by the appellants are not barred by unjust enrichment, though for the purpose of complying with the Cess Act it was mentioned in the shipping bills that the cess was paid. The FOB value did not include the cess as per the agreement between the appellants and the buyer. They would urge that the CCE (A) erred in not construing the agreement as sale contract and Incoterms in proper perspective. They would rely on the decisions in Union of India v Solar Pesticides Pvt.Ltd.[4], Sahakari Khand Udyog Mandal Ltd v CCE[5], Contship Container Lines Ltd v D.K.Lall[6] and Hind Agro Industries Limited. The Senior Standing Counsel for Customs and Central Excise would submit that the FOB value of the contract as shown in the shipping bills is inclusive of the cess paid under the Cess Act and the incidence of duty/cess paid by the appellants had been passed on to the buyer and, therefore, refund claims are barred by unjust enrichment. Under Section 28D of the Act the burden of proving that the incidence of duty had not been passed on to the buyer is on the assessee and the appellants have not discharged the burden by producing necessary material. He relies on Mafatlal Industries Ltd v Union of India[7]. Placing reliance on Section 130(9) of the Act, he would submit that the provisions of the Code of Civil Procedure, 1908 (CPC) relating to appeals to High Court would apply to the Act and, therefore, finding recorded by the CESTAT in favour of the appellants that the refund claims were not barred by unjust enrichment can be challenged by the respondent as per Order XLI Rule 22 of CPC. It is nextly contended that refund claims are not maintainable when no appeal is filed against the speaking/ assessment order of the adjudicating authority. The attention of this Court is invited to CCE v Flock (India) (P) Ltd[8], CIT v Karnataka Power Corporation Limited[9] and Priya Blue Industries Ltd v Commissioner of Customs (Preventive) [10]. Placing reliance on NTPC v CIT [11] and Davangere Cotton Mills Ltd v CCE[12] the Senior Standing Counsel would submit that under Section 129B(1) read with Rule 10 of the CESTAT Rules, the Tribunal has all powers of the original authority and when the ground was specifically taken by the Revenue in the written arguments that the FOB value includes cess, the Tribunal cannot be said to be in error in deciding the issue of bar of refund claim for not availing appellate remedy. Lastly he would submit that an appeal to High Court under Section 131 of the Act would lie when the case involves substantial question of law and these appeals would not involve any substantial question of law and, therefore, they are not maintainable. Points for consideration The two broad issues that would fall for consideration are bar of refund claims by unjust enrichment and consequences of bar of not filing appeals against the speaking orders. Bar of refund claims An application for refund of any duty paid by a person in pursuance of an assessment or borne by him shall be made to the jurisdictional Assistant/Deputy Commissioner of Customs. Every such application shall ordinarily be made before the expiry of one year/six months from the date of payment of duty and interest if any paid on such duty, as the case may be. Further every such application for refund shall be accompanied by documentary or other evidence including the documents referred to in Section 28C of the Act to establish that the amount of duty in relation to which refund claim is made was paid by the person and the incidence of duty had not been passed by him to any other person. Section 28D of the Act contains fiction to the effect that every person who has paid the duty on any goods under the Act shall be deemed to have passed on the full incidence of the duty to the buyer of the goods. This presumption is rebuttable by the person who claims refund of the duties. Therefore every person claiming refund under Section 27 of the Act has to demonstrate by relevant evidence that he is not benefited by unjust enrichment as visualized by Section 72 of the Contract Act, 1872. If the incidence of duty paid is borne by another person the law bars refund claim. In Mafatlal Industries Limited the Supreme Court considered the effect of various in pari materia provisions in Central Excise Act, 1944 and the Customs Act, 1962 as they stood amended by the Central Excise and Customs Law (Amendment) Act, 1991 (Central Act No.40 of 1991). The leading majority opinion delivered by Jeevan Reddy,J (as his lordship then was) contains as many as twelve propositions. The Senior Standing Counsel relies on proposition Nos.(iii) and (iv) which we extract hereunder. (iii) A claim for refund, whether made under the provisions of the Act as contemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. The doctrine of unjust enrichment is a just and salutary doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched. (iv) It is not open to any person to make a refund claim on the basis of a decision of a court or tribunal rendered in the case of another person. He cannot also claim that the decision of the court/tribunal in another person's case has led him to discover the mistake of law under which he has paid the tax nor can he claim that he is entitled to prefer a writ petition or to institute a suit within three years of such alleged discovery of mistake of law. A person, whether a manufacturer or importer, must fight his own battle and must succeed or fail in such proceedings. Once the assessment or levy has become final in his case, he cannot seek to reopen it nor can he claim refund without reopening such assessment/order on the ground of a decision in another person's case. Any proposition to the contrary not only results in substantial prejudice to public interest but is offensive to several well-established principles of law. It also leads to grave public mischief. Section 72 of the Contract Act, or for that matter Section 17(1)(c) of the Limitation Act, 1963, has no application to such a claim for refund. Before us the applicability of the above propositions is not disputed. The CESTAT in paragraph 8.1 of its order held that the finding of the appellate Commissioner that FOB value recovered included the impugned cess is unsustainable. The appellants, therefore, would contend that in view of the finding of fact and in the absence of a cross-appeal or appeal by the Revenue the question cannot be reagitated in the appeal under Section 130 of the Act. As noticed supra the Senior Standing Counsel for the department relies on Section 130(9) of the Act and Order XLI Rule 22 of CPC and would submit that the finding of the CESTAT against the department can be challenged by the department. Order XLI Rule 22 of CPC as it stands after 1976 CPC Amendment enables the respondent to challenge any adverse finding even if the decree is in his favour, with or without filing cross-objections to the judgment in appeal. In Banarsi v Ram Phal [13] the Supreme Court considered the scope of Order XLI Rule 22 of CPC as it existed before and after CPC Amendment, 1976 and held that, “to the extent to which the decree is against the respondent and he wishes to get rid of it he should have either filed an appeal on his own or taken cross-objection failing which the decree to that extent cannot be insisted on by the respondent for being interfered, set aside or modified to his advantage”. Excerpting the relevant placetum from Banarsi may be beneficial. The CPC amendment of 1976 has not materially or substantially altered the law except for a marginal difference. Even under the amended Order 41 Rule 22 sub-rule (1) a party in whose favour the decree stands in its entirety is neither entitled nor obliged to prefer any cross-objection. However, the insertion made in the text of sub-rule (1) makes it permissible to file a cross-objection against a finding. The difference which has resulted we will shortly state. A respondent may defend himself without filing any cross-objection to the extent to which decree is in his favour; however, if he proposes to attack any part of the decree he must take cross-objection. The amendment inserted by the 1976 amendment is clarificatory and also enabling and this may be made precise by analysing the provision. There may be three situations: (i) The impugned decree is partly in favour of the appellant and partly in favour of the respondent. (ii) The decree is entirely in favour of the respondent though an issue has been decided against the respondent. (iii) The decree is entirely in favour of the respondent and all the issues have also been answered in favour of the respondent but there is a finding in the judgment which goes against the respondent. 11. In the type of case (i) it was necessary for the respondent to file an appeal or take cross-objection against that part of the decree which is against him if he seeks to get rid of the same though that part of the decree which is in his favour he is entitled to support without taking any cross-objection. The law remains so post-amendment too. In the type of cases (ii) and (iii) pre-amendment CPC did not entitle nor permit the respondent to take any cross-objection as he was not the person aggrieved by the decree. Under the amended CPC, read in the light of the explanation, though it is still not necessary for the respondent to take any cross-objection laying challenge to any finding adverse to him as the decree is entirely in his favour and he may support the decree without cross-objection; the amendment made in the text of sub-rule (1), read with the explanation newly inserted, gives him a right to take cross-objection to a finding recorded against him either while answering an issue or while dealing with an issue. In view of the finding of the CESTAT on the question of unjust enrichment is concerned, we are afraid, the department cannot reagitate in these appeals without filing separate appeals under Section 130 (1) of the Act or without filing cross-objections. Nevertheless as the parties before us debated on the issue for a considerable time we may briefly deal with this aspect as it involves the question of interpreting the sale contract between the appellant and the foreign buyer. The appellants exported long grain rice under various shipping bills. The cess paid for each consignment is