TAXAP/638/2006 1/33 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL No. 638 of 2006 With CIVIL APPLICATION No. 190 of 2006 In TAX APPEAL No. 638 of 2006 With TAX APPEAL No. 1713 of 2007 With TAX APPEAL No. 1047 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MS.JUSTICE H.N.DEVANI Sd/- ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ?NO ========================================================= COMMISSIONER OF CUSTOMS - Appellant(s) Versus HINDALCO INDUSTRIES LTD. - Opponent(s) ========================================================= Appearance : Tax Appeal No. 638 of 2006 with Civil Application No. 190 of 2006 MR RJ OZA for Appellant(s) : 1, TAXAP/638/2006 2/33 JUDGMENT MR DV PARIKH for Opponent(s) : 1, Tax Appeal No. 1713 of 2007 Mr.Harin P. Raval for Appellant. Mr.B.L.Narasimhan with Abhishek Anand for Respondents. Tax Appeal No. 1047 of 2008 Mr.P.M.Dave for Appellants ========================================================= CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 24/09/2008 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 In Tax Appeal No. 638 of 2006 the Appellant- Revenue has proposed the following two questions : “(A) Whether in the facts and circumstances of the case, the CESTAT was justified in holding that the refund claim of the respondent importer could not be rejected by applying the principle of unjust enrichment, on the ground that the principle of unjust enrichment is not applicable to the refunds arising on the finalization of the provisional assessment under the Customs Act, 1962? (B) Whether in the facts and circumstances of the case, the doctrine of unjust enrichment under section 27 of the Customs Act, 1962 is applicable to the refunds arising out of finalization of Provisional Assessment under section 18 of the Customs Act, 1962?” 1.1 Tax Appeal No.1713 of 2007 has been admitted and following three questions have been formulated : TAXAP/638/2006 3/33 JUDGMENT (i) Whether in the facts and circumstances of the case, the Tribunal is justified in holding that the principles of unjust enrichment will not apply to the cases of finalization of provisional assessment prior to the amendment to section 18 of the Customs Act, 1962 prescribed in the provisions of Section 27(2) of the Customs Act, 1962. (ii) Whether in the facts and circumstances of the case, the Tribunal is justified in allowing the refund claim on the ground that the finalization was done prior to amendment of Section 18 of the Customs Act, 1962 effective from 13.7.2006 and, therefore, the doctrine of unjust enrichment would not be applicable? (iii) Whether in the facts and circumstances of the case, the Tribunal is justified in allowing the appeal by way of remand despite the admitted position that the respondent had not placed any evidence on record to prove that they had not passed the duty incidence on their customers?” 1.2 In Tax Appeal No. 1047 of 2008 the Appellant Assessee has proposed following three questions : “(a) Whether the refund claims filed by the appellants for total restitution of TAXAP/638/2006 4/33 JUDGMENT Rs.3,49,398/- were hit by the doctrine of unjust enrichment by virtue of amendment of Section 18 of the Customs Act, 1962 w.e.f. 13.7.2006 ? (b) Whether the CESTAT, Ahmedabad has been right in law in not following the judgments of the Hon'ble Supreme Court in cases of Commissioner of Central Excise, Chennai V/s. T.V.S.Suzuki Ltd.- 2003 (156) ELT 161 (SC) and Commissioner of C.Ex., Mumbai-II V/s. Allied Photographics India Ltd.- 2004(166) ELT 3(SC), and instead following the judgment of the Hon'ble Supreme Court in case of Sahkari Khand Udyog Mandal Ltd. v/s. Commissioner of C.Ex.& Cus.- 2005(181)ELT 328 (SC) in the facts of this case? (c) Whether the order of the Appellate Tribunal denying refund of the amounts provisionally deposited by the appellants is legally correct and sustainable in the facts of this case?” 2 Tax Appeal Nos.638 of 2006 and 1047 of 2008 have not yet been formally admitted. The issue in all the three Appeals is common. Hence these two Tax Appeals are admitted and the following common question of law TAXAP/638/2006 5/33 JUDGMENT is formulated in all the three Appeals : “Whether on the facts and in the circumstances of the case the principles of unjust enrichment envisaged by Section 27 of the Customs Act, 1962 can be read into provisions of Section 18 of the Act without considering and applying the amendment of Section 18 of the Act with effect from 13.07.2006 ?” 3 For sake of convenience Tax Appeal No. 638 of 2006 is treated as the lead matter. The brief facts are that the Appellant had purchased copper concentrate from M/s. Marc Rich Company Investment A.G., Switzerland. The goods were shipped on 17.02.2004 and the Appellant filed advance Bill of Entry No.F.96/2003-2004 dated 20.02.2004. The said Bill of Entry was provisionally assessed and a duty of Rs.1,53,19,612/- was paid by TR-6 challan No.1224/03-04 dated 21.02.2004. The provisional assessment was done on the basis of provisional invoice No. CC81223 dated 17.02.2004. In the metal trade, it is common knowledge that the final price of the concentrate is calculated by calculating the metal content and the prevalent price of such metal TAXAP/638/2006 6/33 JUDGMENT in the LME (London Metal Exchange). The Appellant in this case had contracted with the supplier on these terms which are listed in paragraph Nos.5 and 6 of the contract dated 19.01.2004. 4 After verifying the LME price at the relevant time, the final invoice No.CC8133 dated 23.04.2004 was submitted by the Appellant and the final Bill of Entry No. F-180/2003-2004 dated 22.02.2004 was submitted. On the basis of the aforesaid final invoice, the total duty payable was only Rs.1,37,13,076/-. Thus an amount of Rs.16,06,536/- became refundable to the Appellant. However, the Appellant had already availed CENVAT credit for the amount of Rs.12,38,065/- paid as additional duty of Customs (CVD) and therefore, only Rs.3,68,471/- was refundable. 5 The Adjudicating Authority vide Order-In- Original No. SRT/CUS/REF/12/2005 dated 5/5/2005 held that the respondent-assessee was entitled to refund and the refund was sanctioned, but the assessee had not discharged the burden of showing that the TAXAP/638/2006 7/33 JUDGMENT incidence of duty had not been passed on to the customers and therefore, the presumption of unjust enrichment stood unrebutted. The Adjudicating Authority therefore credited the sum of Rs.3,68,471/- to the Consumer Welfare Fund. 6 The matter was carried in Appeal before Commissioner (Appeals) who vide Appellate Order held that the doctrine of unjust enrichment will not be applicable and the order of the Adjudicating Authority to credit the amount of refund to the Consumer Welfare Fund could not be sustained. This order has been confirmed by the Tribunal vide impugned order dated 3.2.2006 observing as under : “4. I find that the lower appellate authority has passed a very detailed order while allowing the refund. As regards the decision in the case of Sahakari Khand Udyog Mandal Ltd. (cited supra), its ratio no doubt runs counter to the ratio of the decision in the case of Allied Photographics (cited supra). However, since the decision in the case of Allied Photographics is specific to refund arising out of finalization of provisional assessment and since the same has also been passed by a three Judges Bench TAXAP/638/2006 8/33 JUDGMENT of the Hon'ble Supreme Court at an earlier point of time and has not been overruled by a Larger bench of the said Court, I am of the view that the ratio of the said decision is required to be followed in this case in preference to the ratio of the decision in the case of Sahakari Khand (cited supra). Accordingly, I hold that the bar of unjust enrichment cannot be applied in respect of refund arising out of finalization of provisional assessment under the Customs Law in the absence of any specific amendment to the law as has been done in the case of refunds arising out of finalization of provisional assessment under the excise law. Consequently, the Revenue appeal is rejected.” 7 The learned Counsel for Appellant Revenue assailed the impugned order of Tribunal by pointing out that Section 27 of the Customs Act, 1962 (the Act) refers to refund of duty paid pursuant to an order of assessment. The term “assessment” as defined by Section 2(2) of the Act includes provisional assessment and therefore any refund of duty, including refund of duty paid by an importer under provisional assessment, is governed by Section 27 of the Act. That provisional assessment is to be made by the Adjudicating Authority if any of the TAXAP/638/2006 9/33 JUDGMENT eventualities stated in Section 18(1) of the Act are shown to be existing. That an importer has no vested right to claim refund of duty paid under provisional assessment and unless and until the importer shows that the excess amount of duty paid by the importer under the provisional assessment has not been passed over to any other person no prejudice can be said to have been caused to the importer if such amount of refund is credited to the Consumer Welfare Fund under section 27(2) of the Act. That doctrine of unjust enrichment is a just and salutary doctrine and no person is entitled to collect duty from the purchaser at one end and also seek refund of the same duty from the Revenue on the ground that such duty has been collected contrary to law. That the Court should not exercise its powers for unjustly benefiting a person. The decision in case of CCE Vs. Allied Photographic India Ltd.(2004) 4 SCC 34 cannot be made applicable as the same was rendered in context of provisions of Central Excise Act, 1944 and the Rules framed thereunder and therefore, the Tribunal had wrongly placed reliance on the said decision. That Mumbai High Court in case of Bussa Overseas & Properties Pvt. TAXAP/638/2006 10/33 JUDGMENT Ltd. Vs. UOI, 2003 (158) ELT 135 (Bom) is the direct decision on the point under the Act and is applicable to the issue raised in the present Appeals. That the said judgment of Mumbai High Court has been affirmed by Supreme Court as reported in 2004(164) ELT-A 177(SC). The learned Counsel has also placed reliance on the following decisions : [1] Union of India Vs. Solar Pesticide Pvt. Ltd. 2000 (116) ELT 401 (SC). [2] CCE Vs. Standard Drums & Barrel Mfg. Co. 2006-TIOL- 39-HC-MUM-CX. [3] Mafatlal Industries Ltd. Vs. Union of India, 1997 (89) ELT 247 (SC) (HN). [4] Sahakari Khand Udyog Mandal Ltd.Vs. Commissioner of Central Excise and Customs, 2005(181) ELT 328 (SC). 8 As against that the learned Advocate for respondent-assessee submitted that the Tribunal was justified in holding that when goods are assessed provisionally under section 18 of the Act, any refund of duty upon finalization of such assessment had to be granted without any application being required under section 27 of the Act and therefore principles of unjust enrichment envisaged by Section TAXAP/638/2006 11/33 JUDGMENT 27(2) cannot be made applicable. That this finding of the Tribunal is supported by paragraph Nos. 1 and 2 and paragraph No.95 of the Supreme Court judgment in the case of Mafatlal Industries Ltd.(supra). The issue stands directly covered by the decision in the case of Allied Photographic India (supra). That there is a difference between claiming of a refund and making of a refund under Section 11B of the Central Excise Act and Rule 9B of the Central Excise Rules respectively when a provisional assessment is finalized. That just as Section 11B of the Central Excise Act and Rule 9B of the Central Excise Rules operate in different fields Sections 27 and 18 of the Act operate in the different fields. That similar view has been taken by Supreme Court in the case of Oriental Exports Vs. Commissioner of Customs, 2001 (127) ELT 578(T) as affirmed in 2006(200) ELT A138(SC). It was further contended that though Section 11B of the Central Excise Act and Section 27 of the Act were amended together on 1.8.1998, Rule 9B of the Central Excise Rules was amended only on 25.6.1999, but correspondingly Section 18 of the Act was not amended, therefore, the law expounded right from the TAXAP/638/2006 12/33 JUDGMENT judgment of Mafatlal Industries (supra) was continuing to hold the field in cases of refund under the Act in relation to provisional assessments. This aspect has been clarified once again by the Apex Court in the case of CCE Vs. TVS Suzuki Ltd., 2003 (156) ELT 161 (SC). That on a conjoint reading of the two decisions of the Apex Court in case of Allied Photographic (supra) and TVS Suzuki (supra) it was apparent that despite 1998 amendment and the 1999 amendment under the Act, refund arising from provisional assessment cannot be withheld on the ground of principle of unjust enrichment being applicable. That Section 18 of the Act incorporates principle of unjust enrichment only with effect from amendment of 13.7.2006. That the Mumbai High Court judgments referred to by revenue cannot be considered as the same are opposed to the principles laid down by the Apex Court. 9 The learned Advocate appearing for respondent assessee in Tax Appeal No. 1713 of 2007 apart from reiterating the submissions made by the learned Advocate for the assessee, as recorded hereinbefore, TAXAP/638/2006 13/33 JUDGMENT submitted that Section 18 of the Act was a complete self contained code and had an overriding effect. considering the opening portion of the said section wherein it is stated : “Notwithstanding anything contained in this Act”. 9.1 Referring to Explanation II to Section 27 of the Act it was submitted that the same would apply to a case where after the final assessment and the adjustment, if still the assessee is not satisfied with the adjustment and claims excess amount as refund. Explanation II will have no application in cases where admittedly after final adjustment, refund is due to the assessee. This is explained with the following illustration : Duty paid provisionally Rs.100 Duty finally assessed Rs. 60 Duty to be refunded Rs. 40 In this case Explanation II will have no application since no claim for refund is made and Rs.40 is to be refunded since the same is admittedly due. Duty paid provisionally Rs.100 TAXAP/638/2006 14/33 JUDGMENT Duty finally assessed Rs. 70 According to assessee correct duty payable Rs. 60 In this case, admitted amount of refund of Rs.30 would be returned and if the assessee seeks to claim Rs.10 also (Rs.70-Rs.60) as refund, then Explanation II would apply and the said claim is to be preferred within six months from the date of adjustment of duty. This position is precisely dealt with and explained in the second portion of paragraph No.104 of judgment in case of Mafatlal Industries (supra). 9.2 It was further submitted that the distinction sought to be made by Mumbai High Court in Bussa Overseas & Properties Pvt. Ltd. (supra) was incorrect and contrary to the Apex Court judgment in case of Mafatlal Industries (supra). That Madhya Pradesh High Court in the case of CCE Vs. Kinetic Motors Co. Ltd. in MCC No. 84 of 2001 vide order dated 23.2.2006 had also taken the same view following TVS Suzuki decision (supra). It was therefore urged that no case was made out for taking any different view of the matter and the Tribunal's order was required to be upheld. TAXAP/638/2006 15/33 JUDGMENT 10 The only issue involved in all these Appeals is whether provisions of Section 27 of the Act can be made applicable to refunds arising on finalization of provisional assessments made under Section 18 of the Act prior to 13.7.2006, because it is an admitted position that by virtue of amendment made effective from 13.7.2006 to Section 18 of the Act by the Taxation Laws (Amendment) Act, 2006 provisions of Section 27 of the Act apply to provisional assessments also. Though directly the question as to the nature of amendment made to Section 18 of the Act vide Taxation Laws (Amendment) Act, 2006 does not arise yet for the purpose of appreciating the controversy between the parties the said issue would incidentally have to be considered : As to whether the said amendment is substantive in nature or is merely procedural, and would thus apply to pending proceedings? 11 There is no dispute on facts in any of the Appeals. In the case of Mafatlal Industries (supra) the Apex Court has observed: TAXAP/638/2006 16/33 JUDGMENT “B.P.JEEVAN REDDY (for J.S.Verma, S.C.Agrawal, himself and A.S.Anand and B.N.Kirpal, JJ).- Significant questions concerning the refund of excise and customs duties collected contrary to law – in all its shades - arise for consideration in these appeals and writ petitions. They involve the correctness of certain earlier decisions of this Court, concept of unjust enrichment, interpretation of Article 265 of the Constitution of India and of the provisions of the Central Excises and Salt Act, 1944 and the Customs Act et al. As far back as 14-8-1984, Civil Appeal No. 1794 of 1984 and the connected special leave petitions were referred to a Bench of seven Judges by a Bench of two learned Judges, since the referring Bench doubted the correctness of the five-Judge Bench decision in STO v. Kanhaiya Lal Mukundlal Saraf. When the matter came up before a seven-Judge Bench has followed the decision in Kanhaiya Lal in State of Kerala v. Aluminium Industries Ltd.. Accordingly, the matters were directed to be posted before a nine-Judge Bench. Meanwhile, several matters raising identical or connected issues got tagged on. Leave granted in special leave petitions. TAXAP/638/2006 17/33 JUDGMENT 11. In the year 1991, Parliament enacted the Central Excises and Customs Law (Amendment) Act, 1991 (being Act 40 of 1991) substantially amending the provisions relating to refund in both the Central Excises and Salt Act and the Customs Act, besides introducing several new provisions therein. Writ petitions challenging the validity of the said amendment are also posted before us. Apart from the validity, the meaning and purport of the amended provisions also falls for consideration. For the sake of convenience, we would refer to the relevant provisions in the Central Excise and Salt Act inasmuch as the relevant provisions in both the enactments are identical”. xxx xxx xxx xxx “104. Rule 9-B provides for provisional assessment in situations specified in clauses (a), (b) and (c) of sub-rule (1). The goods provisionally assessed under sub-rule (1) may be cleared for home consumption or export in the same manner as the goods which are finally assessed. Sub-rule (5) provides that 'when the duty leviable on the goods TAXAP/638/2006 18/33 JUDGMENT is assessed finally in accordance with the provisions of these Rules, the duty provisionally assessed shall be adjusted against the duty finally assessed, and if the duty provisionally assessed falls short of or is in excess of the duty finally assessed, the assessee shall pay the deficiency or be entitled to a refund, as the case may be'. Any recoveries or refunds consequent upon the adjustment under sub-rule (5) of Rule 9-B will not be governed by Section 11-A or Section 11-B, as the case may be. However, if the final orders passed under sub-rule (5) are appealed against – or questioned in a writ petition or suit, as the case may be, assuming that such a writ or suit is entertained and is allowed/decreed- then any refund claim arising as a consequence of the decision in such appeal or such other proceedings, as the case may be, would be governed by Section 11-B. It is also made clear that if an independent refund claim is filed after the final decision under Rule 9-B(5) reagitating the issues already decided under Rule 9-B – assuming that such a refund claim lies-and is allowed, it would obviously be governed by Section 11-B. It follows logically that position TAXAP/638/2006 19/33 JUDGMENT would be the same in the converse situation”. 12 In the case of Allied Photographic the Apex Court was required to answer the question : “Whether a claim for refund after final assessment is governed by Section 11-B of the Central Excise Act, 1944?” upon a reference having been made to a Larger Bench by a two Judges Bench of the Apex Court. The points at issue have been set out in the opening part of paragraph No.6 of the judgment. For the present only the first issue is relevant, viz., whether the refund of duty paid under provisional assessment is similar to duty paid under protest as both are “on account” payments adjustable on finalization of assessment or vacating of protest. After setting out the provisions of Section 11B of the Central Excise Act, it is stated that there is a difference between making of refund and claiming of refund. Thereafter, provisions of Section 11B of the Central Excise Act and Rule 9B of the Central Excise Rules have been analysed. Upon analysis of paragraph No. 104 of the judgment in case of Mafatlal Industries Ltd. (supra) TAXAP/638/2006 20/33 JUDGMENT it is recorded that the said paragraph only states that if refund arises upon finalization of provisional assessment, Section 11B will not apply. In paragraph No.14 the Apex Court held that : “The judgment of this Court in the case of TVS Suzuki Ltd. therefore, supports the the view which we have taken hereinabove that refund consequent upon finalization of provisional assessment did not attract the bar of unjust enrichment”. 13 In the case of TVS Suzuki Ltd. (supra) the Apex Court recorded : “Shri Verma fairly concedes that the proviso introduced in sub- rule (5) of Rule 9B cannot be said to be retrospective in operation. He, however, contends that on the date on which the proviso was brought into force, i.e. 25-6-1999, the refund claim was still pending with the departmental authorities and, therefore, it had to be adjudicated in accordance with the law as it became enforceable from 25-6-1999. In our view, this contention cannot be TAXAP/638/2006 21/33 JUDGMENT accepted. Merely because the departmental authorities took a long time to process the application for refund, the right of the appellant does not get defeated by the subsequent amendment made in sub-rule (5) of Rule 9B. The Commissioner of Central Excise and the CEGAT were, therefore, justified in holding that the claim for refund made by the appellant had to be decided according to the law laid down by this Court in Mafatlal Industries Ltd.(supra) and would not be governed by the proviso to sub-rule (5) of Rule 9B”. 14 In light of the law laid down in the aforesaid decisions by the Apex Court, the judgment in case of Bussa Overseas & Properties Pvt. Ltd.(supra) rendered by Mumbai High Court cannot be considered to be correct exposition of law, more particularly when the judgment in case of Allied Photographic India Ltd. (supra) which has been rendered subsequently was not considered. It is equally well settled that mere rejection of a petition for Special Leave to Appeal TAXAP/638/2006 22/33 JUDGMENT cannot be treated as authoritative pronouncement of law by the Apex Court and therefore reliance placed by the revenue on the note appearing in 2004(164) ELTA 177 cannot assist the revenue. 15 Section 18 of the Act as is relevant for the present reads as under : “SECTION 18. Provisional assessment of duty. - (1) Notwithstanding anything contained in this Act but without prejudice to the provisions contained in section 46- (a) where the proper officer is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as the case may be; or (b) where the proper officer deems it necessary