P. Karthikeyan, Member (T)

1. These five appeals filed by M/s. Mangalore Refineries & Petrochemicals Ltd., Mangalore (MRPL for short) seek to vacate the order of the Commissioner (Appeals) No. 91/2008 dt. 31-7-2008. The impugned order sustained the orders-in-original which had denied claim for refund of a total amount of Rs. 25,42,726/- on the ground that the appellant had not established that the excess customs duty paid on import of crude petroleum by MRPL had not been passed on to its customers. The facts of the case are that MRPL is a refinery engaged in manufacture and clearance of petroleum products from crude oil. Requirement of crude oil is mostly met by imports. The quantity relevant and value relevant for assessment of consignments of crude oil imported were under dispute for a long time. During the period of dispute the appellant followed provisional assessment. Persuant to the dispute being settled by an order of the Tribunal, assessment of consignments provisionally assessed was finalized. In a number of cases, it was found that the appellant had paid excess duty than due. It claimed refund which was allowed. In respect of certain consignments, the appellant was not able to establish that the excess duty paid had not been fully or partly passed on to its buyers. In separate orders, the original authority sanctioned refund to the tune of Rs. 25,42,726/-and credited to the Consumer Welfare Fund. Particulars are as follows :-

Sl. No.

Order-in-original

Refund involved

1

53/2007 dt. 31-12-2007

Rs. 17,205/-

2

56/2007 dt. 11-2-2008

Rs. 2,37,814/-

3

57/2007 dt. 15-2-2008

Rs. 21,93,663/-

4

59/2007 dt. 26-2-2008

Rs. 48,514/-

5

65/2007 dt. 10-3-2008

Rs. 45,530/-

The period of dispute is 1998-99 to 2005-06.

2. The impugned order is challenged on various grounds. It is submitted that the provisions of unjust enrichment would not apply for the period prior to 13-7-2006 in respect refund arising on finalization of provisional assessment. The assessee relied on the judgment of the Honble High Court of Gujarat in the case of CC v. Hindalco Industries Ltd. [2008 (231) E.L.T. 36 (Guj.)]. They have also cited orders of the Tribunal in the case of CC v. Hindustan Zinc Ltd. [2009 (235) E.L.T. 629 (Tri. -LB.)] and A.P. Gas Power Corporation Ltd. v. CC [: 2008 (224) E.L.T. 469], both of which had also held the same view. It is submitted that in the case of CCE v. TVS Suzuki Ltd. [2001 (135) E.L.T. 140], the Tribunal had held that in the case of finalization of provisional assessment, for returning excess payment, the bar of unjust enrichment would not be applicable. The appeal preferred by the Department was dismissed by the Apex Court as reported in : 2003 (156) E.L.T. 161 (S.C.). It is argued that the decision of the Honble Apex court in the case of Mafatlal Industries Ltd. v. UOI [: 1997 (89) E.L.T. 247 (S.C.)], contained in para 95 is applicable also to the refunds arising out of finalization of provisional assessment under Section 18 of the Customs Act, 1962 (the Act) and that such refunds are not governed by the provisions of Section 27 of the Act. They also relied on following judicial authorities in support of the above plea :-

(a) G.K.N. Invel Transmissions Ltd. v. CC, New Delhi [: 2001 (137) E.L.T. 527 (Tri. -Del.)]

(b) Kinetic Motors Co. Ltd. v. CCE, Indore [2001 (136) E.L.T. 85 (Tri. -Del.)]

(c) Oriental Exports v. CC, New Delhi [: 2001 (127) E.L.T. 578 (Tri. -Del.)]

(d) Hero Honda Motors Ltd. v. CC, New Delhi [2000 (126) E.L.T. 1014]

(e) Escorts Yamaha Motors Ltd. v. CC, New Delhi [: 2000 (122) E.L.T. 883]

(f) Finolex Industries Ltd. v. CC, Pune [: 2004 (166) E.L.T. 230 (Tri. -Del.)]

A Larger Bench of the Apex Court in the case of Allied Photographics India Ltd. [: 2004 (166) E.L.T. 3 (S.C.)] affirmed the decision in the case of TVS Suzuki Ltd. and held that in the case of consequential refund arising out of finalization of provisional assessment, principles of unjust enrichment did not apply. The CBEC had directed the field officers to dispose the pending cases in the light of the above judgment in the case of Allied Photographics India Ltd. Yet another ground taken to assail the impugned order is that it was settled by the following decisions that where the unit was suffering loss, it cannot be held that it had passed on the duty to the customers.

(a) Superintending Engineers, TNEB v. CCE [: 2004 (164) E.L.T. 84 (T)]

(b) Shakun Overseas Ltd. & Another v. CCE : [2001 (47) RLT 221 = 2002 (140) E.L.T. 444 (Tribunal)].

3. The ld. Counsel appearing for the appellants reiterated the arguments taken in the appeal. He has relied on a decision of the Tribunal in Hindustan Petroleum Corporation Ltd. v. CC, Chennai [2009 (242) E.L.T. 228 (Tri. -Chennai)] wherein the Tribunal had held that bar of unjust enrichment was not attracted in cases of refund arising on finalization of provisional assessment prior to 13-7-2006 when Section 18 of the Act was amended incorporating relevant provision on unjust enrichment. In passing the said order, the Tribunal had followed the judgment of Honble Gujarat High Court in the case of Hindalco Industries Ltd. The ld. Counsel also invited our attention to the CBEC Circular F.No. 354/66/2001-TRU dt. 21-6-2001, which had clarified, inter alia, Rule 7 relating to provisional assessment introduced in the Central Excise (No. 2) Rules, 2001 that it did not apply to cases where provisional assessment was resorted to on or before 1-7-2001 when the said set of Rules were brought into force.

3.1 The ld. SDR relies on the judgment of the Honble High Court of Bombay in the case of United Spirits Ltd. v. CC (Import), Mumbai [: 2009 (240) E.L.T. 513 (Bom.)] in support of the claim that the principle of unjust enrichment applied to cases of refund arising out of finalization of provisional assessment.

4. We have examined the case records and carefully considered the rival submissions. We find that the Commissioner (Appeals) rejected the claim of the appellant that principle of unjust enrichment did not apply to cases of refund arising out of the finalization of provisional assessment relying on the judgment of the Honble High Court of Bombay in the case of Bussa Overseas and Properties Pvt. Ltd. v. UOl [: 2003 (158) E.L.T. 135 (Bom.)]. He has extracted the following observations of the Honble High Court.

26............Thus, the ratio laid down by the Apex Court in the case of Mafatlal Industries (supra), Solar Pesticides Pvt. Ltd. (supra) and S.R.F. Ltd. (supra) conclusively establish that all claims of refund under the Customs Act, 1962 must pass the test of unjust enrichment contained in Section 27 of the Act and unless it is established that the duty element has not been passed on to others, no refund can be granted. In the light of the above dictum laid down by the Apex Court, it is not open to the Petitioners to contend that in respect of the refund arising under Section 18 of the Customs Act, the principles of unjust enrichment contained in Section 27 of the Customs Act are not applicable.

5. We also note that the Honble High Court of Bombay had dealt with this specific issue in United Spirits Ltd. case (supra). After considering the facts and pertinent ratio contained in the judgments of the Apex Court in Allied Photo-graphics India Ltd. (supra) and Mafatlal Industries Ltd. (supra), their lordships rendered the following findings;-

20. In Allied Photographics India Ltd. (supra) certain refund claims had been filed on behalf of M/s. AGIL. These claims were rejected. Claims were made in 1986. Writ Petition came to be filed in the High Court. The learned Single Judge held that the action of the Department collecting the duty not on the sale price of NIIL to M/s. AGIL was illegal and, therefore, NIIL was entitled to refund. As the question of unjust enrichment was debatable, the question was referred to the Full Bench. After the decision of the Full Bench, the petition was reposted, and Union of India was directed to prove that the tax burden has in fact been shifted to consumers. Pending further examination, the Department was directed to deposit the amount in Court. When the petition came for hearing, NIIL conceded that it had passed on the burden to M/s. AGIL the sole selling distributors of NIIL. The refund claims of NIIL were rejected. The learned Judge directed M/s. AGIL to file affidavit stating whether it had passed on the burden to its dealers or not After further inquiry, it was held that the Union of India had failed to prove that M/s. AGIL had passed on the burden to its dealers and accordingly, ordered refund of the amount. In an intra Court appeal, the Division Bench took a view that since NIIL had conceded of having passed on tax burden to M/s. AGIL, the question of further examining as to whether M/s. AGIL has passed on burden to its dealers, would not arise and accordingly, the appeal was allowed. Aggrieved, an SLP was preferred and the same was dismissed with clarification that the said order will not prevent M/s. AGIL from adopting appropriate remedy as open to it in law. M/s. AGIL then filed a Writ Petition. Subsequent to the judgment of Mafatlal Industries Limited (supra), M/s. AGIL moved an application for refund before the Department. Refund was ordered against which the matter reached the Supreme Court. On behalf of the Department, it was contended that under the second proviso to Section 11B if duty is paid by the manufacturer under protest the limitation of six months was not applicable, however, the purchaser of duty paid goods, after finalisation of assessment of excise duty payable by the manufacturer, was not entitled to rely upon the said proviso. That in any event, the claim for refund would be governed by Section 11B. Reliance was placed on Mafatlals case (supra). Per contra on behalf of the claimant therein, it was submitted that when a provisional assessment is made under the Act or when excise duty is paid under protest by the claimant, all payments of excise duty are on account payments which are to be adjusted and appropriated only on vacating of the protest or finalisation of assessment. Considering the above arguments, the Supreme Court framed the following point for determination :-

Whether the doctrine of unjust enrichment in Section 11B of the Act is applicable to the facts of this case, having regard to the fact that NIIL (manufacturer) had paid the differential disputed excise duty under protest from 1-3-1974 to 31-10-1984 when the assessment was finalised in favour of NIIL in view of the judgment of this Court in the case of Union of India and Others v. Bombay Tyre International Limited, reported in : 1983 (14) E.L.T. 1896 (S.C.) = AIR 1984 S.C. 420

To answer the issue, two points were framed for determination, Firstly, whether refund of duty paid under provisional assessment is similar to duty under protest as both are "on account" payments adjustable on vacation of protest. Secondly, if in the course of such adjustment or vacation of protest if any amount is payable by the Revenue to the manufacturer, is it open to the purchaser to contend that he has stepped into the shoes of the manufacturer seeking refund of "on account payments" and therefore, he was not bound to comply with Section 11(B) of the said Act.

The Court noted that there is nothing in Para 95 of Mafatlal (supra) to suggest that payment of duty under protest does not attract the bar of unjust enrichment. Paragraph No. 104 only states that if refund arises upon finalisation of provisional assessment, Section 11(B) will not apply. Relying on this paragraph, it was argued that payment under protest and payment of duty under provisional assessment are both "on account" payments under the Act. This submission was rejected. The Court held that there is basic difference between duty paid under protest and duty paid under Rule 9B. The duty paid under protest falls under Section 11B and duty paid under provisional assessment falls under Rule 9B. Section 11B deals with the claim for refund whereas Rule 9B deals with making of refund in which case the assessee has not to comply with Section 11B. Therefore, Section 11B and Rule 9B operate in different areas. Proceeding further the Court in Paragraph No. 14 observed as under :-

14. As stated above, para 104 of the judgment in the case Mafatlal Industries Ltd. (supra) states that if refund arises upon finalisation of provisional assessment, Section 11B will not apply. Para 104 of the said judgment does not deal with payment under protest. In the light of what is stated herein, we may now consider the judgment of this Court in the case Sinkhai Synthetics and Chemicals Pvt. Ltd. (supra). In that matter, the assessee was a manufacturer. The assessee claimed exemption which was denied by the Department. The assessee went in appeal to CEGAT. Pending appeal, assessee paid excise duty under protest. The assessee succeeded before the CEGAT and claimed refund on 17-1-1991. Refund was denied by the Department. Therefore, it was a case of payment of duty under protest. However, in the scud decision, this Court applied para 104 of the judgment of the Constitution Bench in the case of Mafatlal Industries Ltd. (supra), which with respect, had no application. As stated above, para 104 of the judgment in the case of Mafatlal Industries Ltd. (supra) dealt with refund consequent upon finalisation of provisional assessment. Para 104 does not deal with refund of duty paid under protest. As stated above, there is a difference under the Act between payment of duty under protest on one hand and refund consequent upon finalisation of provisional assessment on the other hand. This distinction is missed out, with respect, by the judgment of this Court in the case of Mafatlal Industries Ltd. (supra). We may also point out that the judgment in the case of Sinkhai Synthetics & Chemicals Pvt. Ltd. (supra) is based on the concession made by the Counsel appearing on behalf of the Department. That judgment is, therefore, per incuriam. Learned Counsel for the respondent herein placed reliance on the judgment of this Court in the case of TVS Suzuki Ltd. (supra). In that case, application for refund was filed. This was on completion of final assessment. On 9-7-1996, the Department issued a show cause notice as to why the refund claim should not be rejected for non-compliance of Section 11B. By order dated 17-7-1996, the refund claim was rejected on the ground that it was beyond limitation. On appeal, the Commissioner (Appeals) observed that the bar of unjust enrichment was not applicable as the assessee claimed refund consequent upon final assessment. He allowed the refund claim. CEGAT agreed with the view of Commissioner (Appeals). Before this Court, the Department conceded rightly that in view of para 104 of the judgment of this Court in Mafatlal Industries Ltd. (supra), bar of unjust enrichment was not applicable in cases of refund consequent upon adjustment under Rule 9B(5). The judgment of this Court in the case of TVS Suzuki Ltd. (supra), therefore, supports the view which we have taken herein above that refund consequent upon finalisation of provisional assessment did not attract the bar of unjust enrichment.

The Supreme Court, therefore, held that in order to get refund the Respondent was bound to comply with Section 11B of the Act. (Para 104 is as set out in SCC which corresponds to para 95 in E.L.T.). What was therefore being considered was Rule 9B(5) of the Central Excise Rules before the proviso was inserted w.e.f. 15-6-1999.

21. It would, thus, be clear that what was under the consideration was the provisions of the Central Excise Act, 1944 and Rules framed thereunder as in 1986. This is not an authority for the proposition that in case of provisional assessment under the Customs Act, the doctrine of unjust enrichment will not apply considering Sections 27(2), (3) of the Customs Act. The doctrine of unjust enrichment will only apply when the assessment is finally completed. There can be no application for refund before the final assessment is made.

22. Insofar as the Customs Act, 1962 is concerned, under Section 27(3), no refund of duty and interest can be made without satisfying the requirements of sub-section (2). Therefore, even though under Section 18, subsection (5) has been introduced w.e.f. 13-7-2006, the issue of refund was always subject to the provisions of Section 28(3), considering that Sections 18(2) (a) applies to final assessment. We may only note that the order of this Court dated 30-10-1991 in the matter of restitution would be subject to the provisions of Section 27(3) of the Customs Act, 1962.

6. In the light of the above authoritative reading of the relevant provisions of the Act, after considering the Apex Court judgment in the case of Mafatlal Industries Ltd. (supra) especially in para 95, by the Honble High Court of Bombay, we uphold the impugned order as in accordance with law. In this connection, we also note the observation of the Honble High Court of Karnataka in the case of CC, Mangalore v. Agrotech Foods Ltd. [: 2010 (249) E.L.T. 348 (Kar.)] that even in a case of adjustment (following finalization of assessment) the doctrine of unjust enrichment cannot be kept out, brought to our notice by the Id. SDR is relevant. We are also fortified in our above finding by the decision of the Apex Court in the case of Sahakari Khand Udyog Mandal Ltd. v. CCE&C [: 2005 (181) E.L.T. 328 (S.C.)] that all claims for refund must meet the test of unjust enrichment.

7. As regards the ground that principle of unjust enrichment did not apply to units that suffered loss, we find that the facts of the cases relied on are distinguishable from the case in hand.

In Superintending Engineer, TNEB case (supra), the assessee had shown that duty paid wrongly on raw naphtha had not been factored in the tariff at which the appellant TNEB sold its final product, electricity. Moreover, the tariff remained constant and was not affected by the payment of duty on exempted raw naphtha purchased by TNEB.

In the Skakun Overseas Ltd. & another case (supra), the appellants were able to establish with its financial records certified by Chartered Accountant that it had not passed on the duty, refund of which was claimed.

8. In the circumstances, we sustain the impugned order and reject the appeals.

(Pronounced on 25-1-2011)