The doctrine of unjust enrichment in case of refunds claimed in indirect taxation laws has been one of the major hurdles in claiming refund of tax. It has been really difficult for the assessees to claim refund in indirect tax laws whether we talk of erstwhile Central Excise Laws/Service Tax Laws or talk of the present GST regime. The provisions in GST era are similar to the erstwhile indirect taxation laws. The present update seeks to discuss the applicability of unjust enrichment with respect to refund of interest in GST regime.
The assessees may claim refund of interest on account of multiple reasons such as tax along with interest discharged but subsequently held by the appellate authorities that there is no tax liability, excess interest paid on gross liability without considering input tax credit admissible whereas as per GST Council's decision, interest is required to be paid on net tax liability retrospectively. The moot question that arises is whether the assessee is required to pass the test of unjust enrichment in case of refund filed for interest? In order to arrive at conclusion, reference is required to be made to the relevant provisions contained in section 54 of the CGST Act, 2017 which reads as follows:-
Section 54 REFUNDS:-
(1) Any person claiming refund of any tax and interest, if any, paid on such tax or any other amount paid by him, may make an application before the expiry of two years from the relevant date in such form and manner as may be prescribed (5) 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 Fund referred to in section 57.
(8) Notwithstanding anything contained in sub-section (5), the refundable amount shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to—
(a) refund of tax paid on zero-rated supplies of goods or services or both or on inputs or input services used in making such zero-rated supplies;
(b) refund of unutilised input tax credit under sub-section (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;
(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.
On conjoint reading of the above cited provisions, it is clear that the assessee is required to prove that incidence of interest has not been passed on to any other person before claiming refund from the revenue authorities. However, it is commonly observed that interest paid to the government for delay in payment of taxes is never recovered from the buyers and consequently there should be no requirement to prove unjust enrichment. Reliance can be placed on the decisions rendered in the erstwhile indirect taxation regime.
In this context, reference may be made to decision given by the Hon'ble Tribunal in the case of ISPAT INDUSTRIES LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, RAIGAD [2019 (370) E.L.T. 557 (TRI.-MUMBAI)] wherein it was held that when the interest is paid by the appellant own and the same not being part of the price of goods, the question of passing of incidence of the same not arises. Hence, refund of interest is not hit by unjust enrichment. Similarly, reliance may be placed on the decision given by the Hon'ble Tribunal in the case of ANDHRA ORGANICS LTD. VERSUS COMMR. OF CUS. & S.T., VISAKHAPATNAM [2018 (362) E.L.T. 275 (TRI. – HYD.)] wherein Chartered Accountant's certificate was taken as basis for concluding that unjust enrichment is not applicable for refund of interest filed by the appellant.
In nutshell, we may conclude that although the refund provisions contained in CGST Act, 2017 require provinginapplicability of unjust enrichment by person claiming refund of interest but there are favourable decisions in this context in the erstwhile era containing similar provisions. Moreover, certificate from Chartered Accountant can
also help the assessee in passing the hurdle of unjust enrichment for refund of interest.