Row over 'unjust enrichment'
| This is the latest order passed by the Central Board of Excise & Customs on December 12, 2003, in a circular No 765812003-CX. |
| The law of barring unjust enrichment has become controversial and litigation-prone. To appreciate the implication of this law, it is necessary to explain it with some example. |
| If a manufacturer (or importer) pays , say, a 40 per cent duty but claims that 25 per cent is the correct rate, then he files a refund claim. In the meantime he may add the higher burden of the duty on his cost, which he recovers from the consumer. |
| So he is supposed to pass on the burden of higher tax on the buyer. After that if he gets back the refund of the 15 per cent duty then that receipt becomes his windfall gain which the Public Accounts Committee called "unjust enrichment". |
| So a law was made in 1991 by amending Section 11B of the Excise Act and Section 27 of the Customs Act. This law was challenged in the Supreme Court on the ground of its being "unconstitutional, illegal, invalid, a colourable device to deny refund legitimately due". |
| The Supreme Court appointed a nine-judge Bench and in a landmark judgment upheld the law as constitutional in the Mafatlal Industries vs Union of India case, 1997(89) ELT 247 SC. |
| Subsequently in the TVS Suzuki case, 2000 (156)ELT 161 SC, the apex court held that the bar did not apply to cases of provisional assessment by relying on a crucial sentence of paragraph 95 of the Mafatlal order.The judgment in the Sinkhai case, 2002 (143)ELT 17, said the same. |
| But in the Commissioner of Central Excise, Mumbai, vs Allied Photographics India Ltd case, 2003(158) ELT AT74, two judges said the judgment in the Mafatlal case had not been quoted fully and thereby a wrong view had been taken by these judgments. |
| If the paragraph 95 was quoted fully then it would appear that the conclusion was different. |
| The proper conclusion will be that after finalisation of the provisional assessment if any further refund claim is made, then the bar is admissible, but in pursuance of the provisional assessment when the final assessment is made, the bar is not admissible. |
| This conclusion is clear if one reads all the fine prints of all these judgments. Unfortunately, the case has been referred by the Division Bench in the above case to a larger Bench saying judgments in the Suzuki and Sinkhai cases are against the Mafatlal judgment. |
| Until it is decided all refund cases out of the provisional assessment and thereafter are held in cold storage. Litigation goes on and industry suffers cash crunch. |
| The solution lies in the government taking the initiative in amending the law incorporating the proposition that the bar of unjust enrichment will not apply when a refund is granted while finalising a provisional case but it will apply if any further refund claim is filed subsequent to the finalisation of the provisional assessment case. |
| This proposition is neither against the Mafatlal order nor the Suzuki or Sinkhai judgment. So it will not attract any contempt petition. It will satisfy the largest number of manufacturers and importers. On the basis, the law can be amended to resolve the impasse created by the referring it to the larger Bench. smukher2000@yahoo.com The author is a former member (Budget) of CBEC |