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2016 (5) TMI 300 - GUJARAT HIGH COURT

2016 (5) TMI 300 - GUJARAT HIGH COURT - 2016 (336) E.L.T. 423 (Guj.) - Refund - unjust enrichment - Department encashed the bank guarantee of the petitioner and recovered sum of ₹ 9,19,801/ - Since the Supreme Court allowed the appeal of the petitioner, amount already recovered by the department became refundable - Unjust enrichment - - Held that:- The bank guarantees were undoubtedly securities to safeguard the interest of the Revenue but, once the High Court dismissed the petitions .....

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ief upon by the Appellant distinguished on the following grounds:- When the Court observed that the amount of disputed tax or duty that is secured by a bank guarantee, cannot be held to be “paid” to the Revenue, we are in respectful agreement. However, these observations were made in the background of the facts where the High Court had directed the assessee to furnish bank guarantee for the differential duty. The writ petition was ultimately dismissed on the ground of alternative remedy. While d .....

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etitioner failed to pass the test of unjust enrichment - refund not allowed - Decided against the assessee. - SPECIAL CIVIL APPLICATION NO. 14540, 14541, 14542 of 2015 - Dated:- 28-4-2016 - MR. AKIL KURESHI AND MR. A.Y. KOGJE, JJ. FOR THE PETITIONER : MR.G.L.RAVAL, SENIOR ADVOCATE with MR. JAY TRIVEDI, ADVOCATE for MR DIPEN DESAI, ADVOCATE FOR THE RESPONDENT : MR RJ OZA, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions arose in the similar background. They hav .....

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tioner must pay higher customs duty on the basis of tariff values fixed for the goods in question in terms of section 14(2) of the Customs Act, 1962 ('the Act' for short). Case of the petitioner was that at the time of import of the goods by the petitioner, the notification issued by the Government of India, fixing tariff value under section 14(2) of the Act had not come into effect and that therefore, the petitioner was liable to pay duty only in terms of the provisions contained in pro .....

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main. The High Court by order dated 07.10.2002, while admitting the petition, granted interim relief to the petitioner in following terms: 2 We have heard the learned Advocates on the question of grant of interim relief and after hearing them, it is directed that for clearance of the goods in question, the petitioners shall furnish a Bank Guarantee for the difference of duty of customs payable under sections 14(1) and 14(2) of the Customs Act. This arrangement would be subject to the order to be .....

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ure. The High Court dismissed all the petitions and vacated the interim relief. 6. Against the judgment of the High Court, the present petitioner and other aggrieved importers filed appeal before the Supreme Court. The Supreme Court by the judgment in case of Union of India v. Param Industries Ltd., reported in 2015 (321) E.L.T. 192 (S.C.), allowed the appeals and reversed the judgment of the High Court, making following observations. 7. On the facts of these appeals as well, we find that though .....

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udgment dated 13.09.2012 and vacated the interim relief, the department on or around 28.01.2013 encashed the bank guarantee of the petitioner and recovered sum of ₹ 9,19,801/. Since the Supreme Court allowed the appeal of the petitioner, such amount of ₹ 9,19,801/already recovered by the department became refundable. The petitioner therefore, filed refund application before the department on 04.06.2015 and requested that the said sum of ₹ 9,19,801/be repaid. On such application .....

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ity has conveyed to the petitioner as under: no documents such as, Balance sheet, Ledgers, P & L Account etc. for the relevant F.Y. wherein the said amount of Refund has been shown as 'receivables', duly certified by the independent Chartered Accountant, have been filed with refund claim to establish that the refund claims is not hit by the principles of unjust enrichment in the present case in terms of section 27(2) read with section 18(5) of the Customs Act 1962. 8. In response to .....

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itions are similar except for the amount of refund involved. 10. It can thus be seen that material facts are not in dispute at all. The short question that calls for consideration is, whether in background of such facts, the department is correct in raising the issue of unjust enrichment ? 11. Counsel for the petitioner submitted that the petitioner had provided bank guarantees as directed by this Court in the interim order dated 07.10.2002, which was in the nature of security to protect the int .....

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a v. Grasim Industries Ltd., reported in 2005 (183) E.L.T. 12 (Raj.) 12. On the other hand, learned counsel Shri R.J.Oza opposed the petitions contending that once the High Court dismissed the writ petitions by judgment dated 13.09.2012, the differential customs duty became payable. After waiting for a reasonable period, when the petitioner was not protected by any order from the Supreme Court, the bank guarantees were encashed. At that stage, therefore, it was a recovery of duty payable by the .....

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fund of any duty or any interest paid or borne by him, could make an application in such form and manner as prescribed for such refund to the competent authority within the time prescribed. Subsection (1A) of section 27 requires that the application under under subsection (1) would be accompanied by such documentary or other evidence as the applicant may furnish to establish that the amount of duty or interest in relation to which such refund is claimed, was collected from or paid by him and the .....

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is refundable, he would make an order accordingly. Proviso to subsection (2) of section 27 is in consonance with the provisions of subsection (1A) and lists the instances under which instead of appropriating the duty towards the common fund, the authority would refund it to the applicant. 14. The question of unjust enrichment came up for consideration before the Constitution Bench of Supreme Court in case of Mafatlal Industries v. Union of India, 1997 (5) SCC 536, in which, in the majority opini .....

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e, cannot be understood as laying down the law that even in cases the liability has been "passed on", the assessee can maintain an action for restitution. If the decision in Kanhaiya Lal's case (supra) and the cases following the said decision, enables such a person to claim refund (restitution), with great respect of the learned Judges, who rendered the above decisions, I express my dissent thereto. In this context, the observations in para 29 Clause III shall also be borne in min .....

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open to him to rebut the presumption. The matter is exclusively within the knowledge of the taxpayer, whether the price of the goods included the 'duty" element also and/or also as to whether he has passed on the liability since he is in possession of all relevant details. Revenue will not be in a position to have an indepth analysis in the innumerable cases to ascertain and find out whether the taxpayer has passed on the liability. The matter being within the exclusive knowledge to the .....

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rence of duty of customs payable under section 14(1) and 14(2) of the Act. The petitioner provided such bank guarantee. The High Court ultimately dismissed the petitions by judgment dated 13.09.2012. By virtue of dismissal of the petitions by the High Court, higher duty in terms of section 14(2) of the Act became payable. When the department therefore, encashed the bank guarantees given by the petitioner, it was towards this duty liability which had arisen by virtue of the judgment of the High C .....

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interim relief, the duty became payable as on that date. Encashment of the bank guarantees by the department was thus a step in furtherance of recovery of the duties. In the hands of the department, thus at that stage, it was in the nature of duty and not a security. When subsequently the Supreme Court reversed the judgment of the High Court, this duty became refundable. Any refund application would therefore, necessarily be governed by section 27 of the Act. 16. The question can be looked from .....

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e Court, would the principle of unjust enrichment not apply? Once again the answer is obvious. We see no distinction between this hypothetic situation and the actual fact situation of these cases merely because the recovery in the instant cases came through the bank guarantees furnished by the petitioner pending the writ petitions. 17. In case of Oswal Agro Mills Ltd. (supra), on which heavy reliance was placed by the counsel for the petitioner, the High Court had granted stay against the judgme .....

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Since such refund application was not decided, the assessee approached the Punjab and Haryana High Court, which directed the authorities to decide the same within time frame and directed the assessee to extend the bank guarantee till the disposal of the refund claims. The Excise authorities passed an order holding that the amount deposited by the appellants in Court and withdrawn by the Excise authorities and the amounts gathered by the bank guarantees furnished by the assessees' pursuant to .....

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nd had directed the Excise authorities to repay the amount to the bank. In said background, the question of unjust enrichment was discussed by the Supreme Court in the following manner. 8. The judgment in the case of Jain Spinners applies to a case where excise duty has been deposited in court pursuant to an interim order and has been withdrawn by the excise authorities. In such a case, clearly, the assessee has to make an application for refund and to such a case, therefore, the provisions of s .....

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urt is equivalent to payment of the amount of excise duty. In our view, the answer is in the negative. For the purposes of securing the Revenue in the event of the Revenue succeeding in the proceedings before a Court, the Court as a condition of staying the demand for the disputed tax or duty, imposes a condition that the assessee shall provide a bank guarantee for the full amount of such tax or duty or part thereof. The bank guarantee is required to be given either in favour of the principal ad .....

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en to the Revenue to invoke the bank guarantee and demand payment thereon. The bank guarantee is security for the Revenue, that in the event the Revenue succeeds its dues will be recoverable, being backed by the guarantee of a bank. In the event, however, unlikely, of the bank refusing to honour its guarantee it would be necessary for the Revenue or, where the bank guarantee is in favour of the principal administrative officer of the Court, that officer to file a suit against the bank for the am .....

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nts to renew the same. We reiterate our direction to the 1st and 2nd respondents forthwith to repay to the State Bank of Patiala, Overseas Branch, Millar Ganj, Ludhiana, the amount of ₹ 1,18,00,000/collected upon the bank guarantees within two weeks. 18. It can thus, be seen that in the said case of Oswal Agro Mills Ltd. (supra) while recognizing that the concept of unjust enrichment would apply to the case where excise duty was paid in the Court pursuant to the interim order passed by the .....

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ntee, the department by writing to the bank, had recovered the amount of bank guarantee and it was in this background that the Supreme Court refused to review its earlier order of directing refund of the amount of bank guarantee. Significantly, in this case, the encashment of the bank guarantee was done after the Supreme Court had already allowed the appeal of the assessee and had thus, set aside the judgment of CEGAT, out of which, the department's duty demand arose. 19. In case of Somaiya .....

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he enunciation of the law by this Court in Oswal Agro Mills Ltd. case (supra), a bank guarantee which is furnished cannot be regarded as payment of excise levy which the Government is entitled to retain. The furnishing of a bank guarantee is ordered normally in order to ensure collection of dues. Where, however, the State, as in the present case, has been held not to be entitled to collect or realise vend fee after 25th October, 1989 it cannot be allowed to invoke the bank guarantee and realise .....

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respect of the period prior to 25th October, 1989. 20. In case of Grasim Industries Ltd. (supra), the High Court relying on the judgment of the Supreme Court in case of Oswal Agro Mills Ltd. (supra) and Somaiya Organics (supra) made following observations: 3. We have heard Mr. Ravi Bhansali, learned counsel for the department and Mr. Rajendra Mehta, learned counsel for the assessee. In our opinion, no referable question of law arises from the order of the C.E.G.A.T. as the same has been decided .....

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uty that is secured by a bank guarantee cannot, therefore, be held to be paid to the revenue. Therefore, the question of refund under section 11B is not attracted. 21. To this proposition, particularly, when the Court observed that the amount of disputed tax or duty that is secured by a bank guarantee, cannot be held to be paid to the Revenue, we are in respectful agreement. However, these observations were made in the background of the facts where the High Court had directed the assessee to fur .....

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e High Court upheld holding that no question of law arises. 22. We are therefore unable to uphold the contention of the petitioner counsel and do not find that present situation is covered by the ratio laid down by the Supreme Court either in the case of Oswal Agro Mills Ltd. (supra) or Somaiya Organics (supra). 23. The case on hand is similar to the one decided by the Supreme Court in case of DCW Ltd. v. Union of India, 2015 (324) E.L.T. 702 (S.C.) relied upon by the counsel for the Revenue. In .....

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stay granted earlier and permitted the department to encash the bank guarantee. In further appeal, the Supreme Court allowed the department to encash part of the bank guarantee to the extent of ₹ 70 lakhs. The classification dispute was ultimately settled by the Tribunal, under which, a sum of ₹ 41,48,176/became payable to the assessee being the difference between the duty payable and the duty actually paid. When the assessee filed the refund application, the same was rejected on the .....

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before the Supreme Court, the Special Leave Petition was dismissed in following terms: 7. It cannot be disputed that the doctrine of unjust enrichment as incorporated by section 27 of the Customs Act applies in all such cases. The only exception to the applicability of the aforesaid doctrine is that such amount is not paid as duty but has been paid by some interim orders in some proceedings by the Court as predeposit then it is not treated as duty. The endeavour of the appellant is to submit th .....

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