By TIOL News Service

MUMBAI, APR 06, 2015: THE Commissioner (Appeals) rejected the refund claim which had been allowed by the Adjudicating Authority.

So, the assessee is in appeal before the CESTAT.

The facts go thus - The appellant is an importer of bulk quantity of iron ore pellets, coke and other raw material through the Dharamtar port. Due to inadequate draft at times, the mother vessel is unable to reach the jetty and has to discharge cargo at Bombay Floating Light, from where daughter vessel carried the cargo upto the jetty at Dharamtar. Therefore a dispute arose on the issue whether the expenses incurred for carrying the goods discharged at Bombay Floating Light to Dharamtar jetty through barge/daughter vessel were includible in the assessable value for the purpose of calculating customs duty, being cost of transportation.

The Tribunal on 25.05.2004 held that the said Barge charges are not includible in the assessable value of the imported goods. The said order was challenged by the revenue before the Hon'ble Apex Court. During the pendency of these appeals, the appellant was compelled to pay duty component on Barge charges, which appellant paid under protest. On 29.09.2006 - 2006-TIOL-127-SC-CUS, the Apex Court held that the Barge charges were not includible in the assessable value of imported goods. Thereafter the Hon'ble Apex Court ordered as under:-

"Any amounts collected by the Revenue as duty on Barge charges shall be refunded forthwith to the assessee with statutory interest from the date of payment to the date of refund, which must be within three months from today. No costs."

The Revenue filed a review petition which was dismissed on 11.10.2007 and also filed a curative petition which was also dismissed on 26.11.2008.

Pursuant to the decision of the Apex Court, on 01.12.2006, the appellant filed a claim of Rs.4,32,03,516/- and Rs.2,86,47,254/- seeking refund of amounts paid towards customs duty on barge and stevedoring charges.

The same was sought to be denied and in reply to the SCN the appellant submitted that as this refund claim pertains to the period from 1994-95 to 2005-06 therefore, the provisions of bar of unjust enrichment are not applicable for the period prior to 13.07.2006.

The Asst. Commissioner sanctioned the refund claims along with interest.

The Revenue appeals were allowed by the Commissioner(A) and, therefore, as mentioned the importer is before the CESTAT.

The Member (J) observed -

+ For entertaining the refund claim, a show-cause notice was issued to the appellant to dispute the quantum of refund claim and why the refund claim not be rejected on the ground of unjust enrichment. Therefore, as per the show-cause notice, the quantum of refund claim was disputed and the issue of bar of unjust enrichment was raised. The appellant has not disputed the quantum of refund claim; therefore the said issue rests there itself. On the issue of unjust enrichment, the appellant has submitted that as the selling price was market driven, therefore the same was not in their control and in the case of Hindustan Copper Ltd. (1998 (9) SCC 708) the Hon'ble Apex Court has held that in case of selling price being market driven, the bar of unjust enrichment is not applicable. We further find that the appellant has contended that they are operating in losses i.e. the selling price is less than the cost of production to that effect they have produced certificate issued by the Chartered Accountant as well as Cost Accountant. In that circumstances, bar of unjust enrichment have been passed by the appellant as held by the Hon'ble Apex Court in the case of Living Media Industries Ltd. - 2002-TIOL-80-SC-CUS.

The Member (J), therefore, held that the appellant has passed the bar of unjust enrichment.

It was also held that the show-cause notice has not raised the issues which was raised in the review and it is well determined principle that nobody can go beyond the scope of the dispute in proceedings before the Adjudicating Authority. Inasmuch as the revenue is not entitled to raise new issues at appellate stage and, therefore, the impugned order is limited to the issue of unjust enrichment.

Noting that since the selling price was less than the cost of production therefore passing of duty on the buyer does not arise, it was held that the appellant had passed the bar of unjust enrichment. The orders of the Commissioner(A) were set aside and the appeals were allowed with consequential relief.

The Member (Technical) had a differing view.

In a detailed order running into two dozen paragraphs, each of the conclusions reached by the Member (Judicial) were held to be incorrect and so also the case laws relied upon . Suffice to say that the Member (J) concluded that the changes made in Section18 of the Customs Act, 1962 with effect from 13.07.2006 have no application in the facts of the case and in view of the apex court decisions in Mafatlal Industries Ltd. - 2002-TIOL-54-SC-CX, Sahakar Khand Udyog Mandal Ltd. 2005-TIOL-48-SC-CX-LB and the Bombay High Court decision in the case of Bussa Overseas & Properties P. Ltd. - 2003-TIOL-08-HC-MUM-CUS would be applicable viz. appellant will have to pass the bar of unjust enrichment.

So, the difference of opinion was referred to the third Member.This order was pronounced on 01.09.2014.

The third Member (Technical) on reference passed an order recently.

It was inter alia observed -

+ The CBEC in its circular No. 21/90-CX8 dated 4-4-90 and 19/93-CX6 dated 29-12-93 has clarified that show cause notice has to be issued by the department if it intends rejecting refund claims found to be incomplete or not supported by required documents or on the ground of unjust enrichment. In the present case, it is not in dispute that the only ground urged in the show cause notice issued was unjust enrichment. If that be so, Revenue cannot take recourse to Section 35E/129 (D) and urge additional grounds for rejection of refund claim or recovery of erroneous refund. Thus, the reference is answered in favour of the appellant and against the Revenue.

+ The Member (Judicial) has held that the principle of unjust enrichment will not apply in the facts of the present case and the appellant is entitled for the refund relying on the decision of the apex court in the case of Living Media India Ltd.. However, he has overlooked a very important aspect, namely, that in the said case the duty refund arose on account of a settlement between the Union of India and the petitioner.

+ The said decision based on a settlement reached between the parties involved does not and cannot lay down any principle that can be applied universally in all cases, including a purely commercial transaction as is obtaining in the present case. In other words, the said decision cannot be considered as a binding precedent. It is a settled position in law that the ratio of a decision can be applied only when the fact situation obtaining is identical. [CCE v. Alnoori Tobacco Products - 2004-TIOL-85-SC-CX refers.]

+ It is clear that the provisions of unjust enrichment would apply even in cases of refunds arising out of finalisation of provisional assessments. [United Spirits Ltd. 2009-TIOL-316-HC-MUM-CUS, Mafatlal Industries Ltd. - 2002-TIOL-54-SC-CX, Binani Cement Ltd. [2013 (288) ELT 193 (Guj.) refers]

+ In the present case, the imported goods were not sold as such but were captively consumed in the manufacture of iron and steel products which were sold by the appellant. The principles of unjust enrichment applies to captive consumption situation also as held by the Apex Court in the case of Solar Pesticides Pvt. Ltd. - 2002-TIOL-57-SC-CX

+ The issue whether duty incidence has been passed on or not is a question of fact and such fact has to be established based on the records maintained as per the accounting standards and the details given therein. If the duty incidence had not been passed on, the same should have been recorded as amounts due from the customs department in the receivables account. It is an admitted position that the records maintained did not reflect the duty paid on the raw materials as the amount due/receivable from the department. In the absence of such an evidence, an inference drawn by the Cost Accountant cannot be said to be reasonable rebuttal of the statutory presumption of passing on of the duty incidence.

+ I am of the considered view that the appellant has not discharged the statutory obligation cast on him of rebutting the presumption of unjust enrichment in any satisfactory manner acceptable to law.

So, the third Member on reference concluded -

++ I agree with the Member (Judicial) that in a review proceedings, the Commissioner cannot go beyond the show cause notice issued to the appellant and the review proceedings are not a substitute for a notice for recovery of erroneous refund.

++ I agree with Member (Technical) that the appellant has not crossed the bar of unjust enrichment and therefore, not eligible for the refund.

This order was pronounced on 20.01.2015.

Interestingly, the Member (Technical) from the Division Bench made the following observations on the opinion given by the third Member (T) on reference.

+ It appears that the first point has been understood differently. The issue referred is not relating to issuance of show cause notice under Section 28 of the Customs Act but under Section 27 of the Customs Act. In this case, it is not the appellant's contention that show cause notice for erroneous refund under Section 28 was not issued to them or the said notice did not include the points mentioned in the review order issued under Section 129D(2) of the Customs Act or the said show cause notice was not issued within the time limit prescribed under Section 28. The issue was while processing the claim under Section 27, the Deputy/ Assistant Commissioner in order to observe principles of natural justice, issued a show cause notice dated 12.5.2009 incorporating certain points for rejecting the claim. In the review, the Commissioner has taken up the points which were not part of the said show cause notice. Copy of Review Order was provided to the appellant to rebut these allegations before decision by the Commissioner (Appeals). Thus the Commissioner (Appeals) decided the matter after hearing the appellant on the additional points taken in review. None of the case laws quoted or the discussion in the opinion of Third Member is on this issue.

+ It is felt that the first point referred to the Third Member is not answered. However, in view of the opinion of Third Member on second point, the first point has become only academic in nature as far as the present case is concerned.

Nonetheless, by a Majority Order the appeals filed by the appellant were dismissed.

Tailspark: More about the case in the days to come…

(See 2015-TIOL-614-CESTAT-MUM)