Only person who has borne the incidence of duties/ taxes, is entitled to claim refund

The Hon'ble Madras High Court in the case of M/s. Chennai Petroleum Company Ltd. (CPCL) v. Commissioner of GST & Central Excise [C.M.A.Nos.4298, 4299 and 4301 of 2019 dated, October 28, 2020] rejected the refund of excise duty under Section 11B of the Central Excise Act, 1944 ("Central Excise Act") on the basis of credit notes issued, and held that the facts could not indicate, that M/s. CPCL has borne the incidence of Excise Duty which in law, could not be charged from it and it is a settled legal position under Section 11B of the Central Excise Act that it is only the person who has borne the incidence of Excise Duty who is entitled to claim refund.

Facts

M/s. Chennai Petroleum Company Limited ("Appellant Company/ M/s. CPCL")is an oil refinery and is manufacturer of petroleum products which are sold at the instance of or on the purchase orders placed by their marketing company M/s. Indian Oil Company Ltd., ("M/s. IOCL") to yet another Government Company M/s. PPN Power Generating Company Ltd., ("M/s. PPN") which manufactures power, out of the raw naptha, which is manufactured by M/s. CPCL and sold to M/s. PPN on the basis of purchase orders placed by their marketing company M/s. IOCL. The Appellant Company raises invoice including Excise Duty component on its marketing company M/s. IOCL, which in turn raises its own invoice on the purchasing company M/s. PPN.

The Appellant Company had a Running Account with the marketing company M/s. IOCL. Due to some reduction in price, M/s. IOCL informed the Appellant Company that excess price has been charged by the Appellant Company from M/s. PPN and accordingly it has issued Credit Notes to M/s. PPN.

Accordingly, refund claims were made by the Appellant Company with the Excise Department ("Respondent"), which were rejected on the basis of the impugned Show Cause Notice ("SCN") issued to the Appellant Company on July 19, 2002, which further resulted in adverse orders against the Appellant Company, being Order in Original on November 29, 2002 and order passed by the Commissioner of Appeals dated April 11, 2018 and impugned order passed by the learned CESTAT on May 10, 2019.

Issue

Whether questions of law arise from the order of the CESTAT rejecting the claim of refund of Excise Duty to the Appellant Company?

Held

The Hon'ble Madras High Court in W.P. No. 38488 of 2015, dated September 2, 2020 held as under:

• The scheme of the Central Excise Act, contained in Section 11B read with its other relevant provisions, as it then prevailed before the introduction of GST regime, with regard to refunds is very clear that it is only the person who has borne the incidence of Excise Duty, which was not leviable in law, is entitled to claim refund of the same, subject to his locus standi and the limitation prescribed in Section 11B of the Central Excise Act.

• Observed that, merely because M/s. IOCL issued a credit note to the buyer M/s. PPN, it cannot be said that the incidence of Excise Duty was not passed on to the purchaser M/s. PPN. The Appellant Company, cannot be said to have borne any incidence of Excise Duty illegally levied and therefore, the right of the Appellant Company to claim any refund cannot arise.

• Relied on the case of Mafatlal Industries Ltd., vs. UOI [1997(89) ELT 247 (SC) dated December 19, 1996] and stated that, the law in this regard of unjust enrichment has been settled, propounded beyond the pale of doubt by the Constitution Bench of the Hon'ble Supreme Court and the said judgment has been correctly applied, with great respects, by the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Madras vs. M/s. Addison and Co. Ltd., [2016(339) ELT 177 (SC) (dated, August 29, 2016)]. There is hardly any doubt on facts in the present case, where, admittedly, the invoice of the Appellant Company for the supply of raw naptha which is a dutiable product, was raised by the Appellant Company on its marketing company M/s. IOCL, which is a separate company, who in turn raised invoice on the purchaser or buyer of the said raw naptha M/s. PPN, who in turn, manufactured power by use of such raw naptha and other raw materials. If at all, duty can be said to have been collected in excess on account of over valuation of the supplies, it is the consumer of the said raw material/raw naptha, viz., M/s. PPN who could have claimed the refund of Excise Duty as per the settled legal position.

• Held that, the facts before the Court were clear and undisputed and there was no material or facts available on record which even prima facie could indicate that the Appellant Company has borne the incidence of Excise Duty, which in law could not be charged from it. The moment it raised the invoice on M/s. IOCL and M/s. IOCL issued Invoice on M/s. PPN, the incidence of Excise Duty is definitely passed on to the buyer or consumer of raw naptha, viz., M/s. PPN. Therefore, the right to claim refund by the Appellant Company is completely lost.Further, the Court did not find any question of law arising in the present appeals, which were required to be consideredafresh or outside the scope of the binding precedents.

Comments

The above principle that only the person who has borne the incidence of duties/ taxes, is entitled to claim refund, is also applicable in the GST law and the person claiming refund is required to pass the test of unjust enrichment. ‘Unjust enrichment’ means retention of a benefit by a person that is unjust or inequitable. Hence, the ‘doctrine of unjust enrichment’, therefore, is that no person can be allowed to enrich inequitably at the expense of another.

Owing to above, Section 54(5) of the CGST Act, 2017 ("CGST Act") states that if, on receipt of any such application, the proper officer is satisfied that the whole or part of the amount claimed as refund is refundable, he may make an order accordingly and the amount so determined shall be credited to the Consumer Welfare Fund ("the Fund"). However, Section 54(8) of the CGST Act lists down following scenarios where the doctrine of unjust enrichment is not applicable, i.e., the refundable amount shall, instead of being credited to the Fund, be paid to the applicant:

(a) refund of tax paid on export* of goods or services or both or on inputs or input services used in making such exports*;

(b) refund of unutilised input tax credit under Section 54(3);

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has not been issued, or where a refund voucher has been issued;

(d) refund of tax in pursuance of Section 77 (i.e. tax wrongfully collected and paid to Central Government or State Government);

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the incidence of such tax and interest to any other person; or

(f) the tax or interest borne by such other class of applicants as the Government may, on the recommendations of the Council, by notification, specify.

Thus, the GST law makes the test of unjust enrichment inapplicable only in above cases. In all other cases, the test of unjust enrichment needs to be satisfied for the refund claim to be paid to the applicant. Meaning thereby, if unjust enrichment cannot be proved, then the amount of refund sanctioned will be credited to the Fund.

*It is to be noted that vide Central Goods and Services Tax (Amendment) Act, 2018 w.e.f. February 1, 2019, clause (a) of Section 54(8) of the CGST Act was amended to substitute the words "zero-rated supplies" with "export" and "exports", thereby making the principle of unjust enrichment applicable in case of refund claims arising out of supplies of goods or services or both made to a SEZ unit or developer.

Relevant provision

Section 11B of the Central Excise Act:

"Claim for refund of duty and interest, if any, paid on such duty.  -

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person :

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act :

Provided further that the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.

(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund :

Provided that the amount of duty of excise and interest, if any, paid on such duty as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise under the foregoing provisions of this sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to -

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant’s account current maintained with the Principal Commissioner of Central Excise or Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(e) the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(f) the duty of excise and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify :

Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty and interest, if any, paid on such duty has not been passed on by the persons concerned to any other person.

(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in sub-section (2).

(4) Every notification under clause (f) of the first proviso to sub-section (2) shall be laid before each House of Parliament, if it is sitting, as soon as may be after the issue of the notification, and, if it is not sitting, within seven days of its re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a resolution moved within a period of fifteen days beginning with the day on which the notification is so laid before the House of the People and if Parliament makes any modification in the notification or directs that the notification should cease to have effect, the notification shall thereafter have effect only in such modified form or be of no effect, as the case may be, but without prejudice to the validity of anything previously done thereunder.

(5) For the removal of doubts, it is hereby declared that any notification issued under clause (f) of the first proviso to sub-section (2), including any such notification approved or modified under sub-section (4), may be rescinded by the Central Government at any time by notification in the Official Gazette.

Explanation. - For the purposes of this section, -

(A) "refund" includes rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(B) "relevant date" means, -

(a) in the case of goods exported out of India where a refund of excise duty paid is available in respect of the goods themselves or, as the case may be, the excisable materials used in the manufacture of such goods, -

(i) if the goods are exported by sea or air, the date on which the ship or the aircraft in which such goods are loaded, leaves India, or

(ii) if the goods are exported by land, the date on which such goods pass the frontier, or

(iii) if the goods are exported by post, the date of despatch of goods by the Post Office concerned to a place outside India;

(b) in the case of goods returned for being remade, refined, reconditioned, or subjected to any other similar process, in any factory, the date of entry into the factory for the purposes aforesaid;

(c) in the case of goods to which banderols are required to be affixed if removed for home consumption but not so required when exported outside India, if returned to a factory after having been removed from such factory for export out of India, the date of entry into the factory;

(d) in a case where a manufacturer is required to pay a sum, for a certain period, on the basis of the rate fixed by the Central Government by notification in the Official Gazette in full discharge of his liability for the duty leviable on his production of certain goods, if after the manufacturer has made the payment on the basis of such rate for any period but before the expiry of that period such rate is reduced, the date of such reduction;

(e) in the case of a person, other than the manufacturer, the date of purchase of the goods by such person;

(ea) in the case of goods which are exempt from payment of duty by a special order issued under sub-section (2) of section 5A, the date of issue of such order

(eb) in case where duty of excise is paid provisionally under this Act or the rules made thereunder, the date of adjustment of duty after the final assessment thereof;

(ec) in case where the duty becomes refundable as a consequence of judgment, decree, order or direction of appellate authority, Appellate Tribunal or any court, the date of such judgment, decree, order or direction;

(f) in any other case, the date of payment of duty."