Principle of unjust enrichment not applicable to pre-deposit made under protest during pendency of the appeal

The Hon'ble Madras High Court in The Daily Thanthi v. Commissioner of Customs (Appeals) [W.P.No.1879 of 2007 and M.P.Nos.1 of 2007 & 01 of 2008, decided on January 25, 2021] set aside the order passed by the Commissioner of Customs demanding documentary evidence to substantiate no unjust enrichment, and held that, the amount deposited during the pendency of the appeals before the Hon'ble Supreme Court has to be construed as having paid 'under protest' and has to be refunded without insisting on such importer or manufacturer satisfying the requirement of 'unjust enrichment' as in the case of pre deposit. Such amount has to be considered outside the purview of sting of 'unjust enrichment' in Section 27 of the Customs Act, 1962 ('Customs Act').

Facts

The Daily Thanthi ('the Petitioner') had earlier imported certain machineries for its printing purpose and availed the benefit of Customs Notification No.114/1980-Customs dated June 19, 1980. The Petitioner filed 3 bills of entries, which were assessed by the proper officer of the Customs Department and the benefit of the exemption under the aforesaid Customs Notification was allowed to the Petitioner at the time of clearance. However, the Petitioner was issued 3 Show Cause Notices ('SCN') under Section 28 of the Customs Act and the benefit of aforesaid exemption notification, amounting to INR 1,29,61,768/- was sought to be denied.

Several appeals/petitions has been filed by the Petitioner before various Authorities, Tribunals and the Courts:

• The Hon'ble Madras High Court- Petitioner was directed to approach CEGAT, Chennai (Now, CESTAT, Chennai).
• Hon'ble CEGAT, Chennai- Partly set aside the demand on account of being time barred and confirmed the rest of the demand of ₹ 88,44,510/-.
• Hon'ble Supreme Court - The Petitioner paid the amount of INR 88,44,510/- under protest and vide order dated March 31, 2005 the Hon'ble Supreme Court allowed the appeal in favour of the Petitioner.

Pursuant to such favourable order, the Petitioner preferred a refund claim of INR 88,44,510/- before the Assistant Commissioner of Customs ('Respondent No. 2') on May 18, 2005.

Respondent No. 2- Rejected the refund claim on the basis of alleged unjust enrichment and passed Order-in-Original No.5430 of 2006, dated August 30, 2006, sanctioning the refund claim to the Petitioner and ordered the same to be credited to the Consumer Welfare Fund of India.

Aggrieved by the above order, the Petitioner filed an appeal before the Commissioner of Customs (Appeals) ('Respondent No. 1').

Respondent No. 1- Remanded back to Respondent No. 2 to decide the issue de novo on the ground as to whether the incidents customs duty had been passed on to the consumer or not vide Order-in-Appeal No. C.CUS.844/06, dated November 21, 2006('Impugned OIA').

Pursuant to the Impugned OIA, the Deputy Commissioner of Customs (Refunds) vide communication dated November 29, 2006 also called upon the Petitioner to produce documentary evidence to substantiate that there was no 'unjust enrichment'.

Aggrieved by the Impugned OIA, the Petitioner has filed this writ petition to quash the Impugned OIAand to direct the Respondents to refund the amount of INR 88,44,510/- along with interest at 12% per annum from March 31, 2005 till the date of payment.

Respondents view- INR 88,44,510/- paid under protest by the Petitioner was not a pre-deposit within the meaning of Section 129E of the Customs Act, and it was a 'duty paid under protest'. Therefore, the Petitioner has to pass a mandatory test of 'unjust enrichment' as is contemplated under Section 27 of the Customs Act.

Issue

Whether the amount paid by the Petitioner was merely in the nature of 'pre-deposit' for pending disposal of the appeals or 'duty' for the purpose of Section 27 of the Customs Act?

Held

The Hon'ble Madras High Court in W.P.No.1879 of 2007 and M.P.Nos.1 of 2007 & 01 of 2008, decided on January 25, 2021 held as under:

• The Court has jurisdiction to entertain a writ petition even if it is assumed that provisions of the Section 27 of the Customs Act, are attracted or an alternate remedy exist. It would be unfair to relegate the Petitioner to an alternate remedy at this distant point of time after a lapse of 13 years. Hence, this case is examined on merits and disposed.
• Noted that in Suvidhe Ltd. v. Union of India [1996 (82) E.L.T. 177 (Bom.)] held that a deposit under Section 35-F of the Central Excise Act1944 ('Central Excise Act') is not a payment of duty but only a pre-deposit for availing the right of appeal. Such amount is bound to be refunded when the appeal is allowed with consequential relief. The case was later affirmed by Hon'ble Supreme Court in Union of India v. Suvidhe Ltd. [(2016) 11 SCC 808]
• Clarified that there are 2 kinds of payments made to entertain an appeal and delayed payments which are required to be made at the stage of first and second appeal.
  1. Deposits under Section 129E of the Customs Act and Section 35F of the Central Excise Act are made as a condition for hearing whereas,
  2. Payments under Section 131 of the Customs Act, and Section 35N of the Central Excise Act, are not made for the same reason. These are the payments which are delayed

Payments under all these provisions are in the nature of pre-deposit pending disposal of appeals. They are not paid as duties. Such payment will partake the colour of a 'duty' only if the importer or the manufacturer accepts the decision of the CESTAT and does not put such order/decision to jeopardy by way of an appeal or reference.

• The amount of INR 88,44,510/- paid by the Petitioner as a consequence of the recovery notice issued by the office of the Customs Department long after the completion of assessment and clearance of the imported goods pending its appeals before the Hon'ble Supreme Court cannot be said to be a 'duty' for the purpose of Section 27 of the Customs Act. Therefore, presumption under Section 28D of the Customs Act, that the incidence of duty paid has been passed on to the buyer cannot be inferred. Amounts paid pursuant to an adverse order passed under Section 28 of the Customs Act, whether under Section 129E or under Section 131 of the Customs Act, are not 'duty' for the purpose of Section 27 of the Customs Act.
• The question of subjecting a person to the rigours of 'unjust enrichment' under the aforesaid provisions of the Customs Act, 1962 is attracted only where a refund claim is made on the duty paid or interest borne.
• The court was of the view that the Respondent No. 2 was not justified in subjecting the Petitioner to limitation prescribed under Section 27 of the Customs Act. Therefore, the impugned order is liable to be interfered in this Writ Petition.
• Held that, the Petitioner is however not entitled to interest at 12% as prayed. The Petitioner is entitled to interest at the rates prevailing for refund under notifications issued from time to time under Section 129EE of the Customs Act, for refund of pre-deposit made under thereunder, as the amount paid by the Petitioner on March 21, 2001 was in the nature of pre-deposit under Section 131 of the Customs Act, 1961. Such interest will be payable on a sum of ₹ 88,44,510/- for the period commencing after the expiry of three months of date of the Hon'ble Supreme Court's order dated March 31, 2005.
• Directed the Respondent No. 2 to calculate the amounts and pay the amounts to the Petitioner within a period of three months.

Relevant Provisions

Section 27(1) of the Customs Act

'Claim for refund of duty. - (1) Any person claiming refund of any duty or interest,-

(a) paid by him; or

(b) borne by him,

may make an application in such form and manner as may be prescribed for such refund to the Assistant Commissioner of Customs or Deputy Commissioner of Customs, before the expiry of one year, from the date of payment of such duty or interest:

Provided that where an application for refund has been made before the date on which the Finance Bill, 2011 receives the assent of the President, such application shall be deemed to have been made under sub-section (1), as it stood before the date on which the Finance Bill, 2011 receives the assent of the President and the same shall be dealt with in accordance with the provisions of sub-section (2):

Provided further that the limitation of one year shall not apply where any duty or interest has been paid under protest.

Provided also that where the amount of refund claimed is less than rupees one hundred, the same shall not be refunded.

Explanation.- For the purposes of this sub-section, "the date of payment of duty or interest"" in relation to a person, other than the importer, shall be construed as "the date of purchase of goods" by such person.'

Section 129E of the Customs Act

'Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. - The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal,  -

(i) under sub-section (1) of section 128, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of customs lower in rank than the Principal Commissioner of Customs or Commissioner of Customs;

(ii) against the decision or order referred to in clause (a) of sub-section (1) of section 129A, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section (1) of section 129A, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against :

Provided that the amount required to be deposited under this section shall not exceed rupees ten crores:

Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014'

Section 131 of the Customs Act

'Sums due to be paid notwithstanding reference, etc.-

Notwithstanding that a reference has been made to the High Court or the Supreme Court or an appeal has been preferred to the Supreme Court, under this Act before the commencement of the National Tax Tribunal Act, 2005 sums due to the Government as a result of an order passed under sub-section (1) of section 129B shall be payable in accordance with the order so passed.'

Section 35F of the Central Excise Act

'Deposit of certain percentage of duty demanded or penalty imposed before filing appeal. -

The Tribunal or the Commissioner (Appeals), as the case may be, shall not entertain any appeal -

(i) under sub-section (1) of section 35, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of a decision or an order passed by an officer of Central Excise lower in rank than the Principal Commissioner of Central Excise or Commissioner of Central Excise;

(ii) against the decision or order referred to in clause (a) of sub-section (1) of section 35B, unless the appellant has deposited seven and a half per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against;

(iii) against the decision or order referred to in clause (b) of sub-section (1) of section 35B, unless the appellant has deposited ten per cent. of the duty, in case where duty or duty and penalty are in dispute, or penalty, where such penalty is in dispute, in pursuance of the decision or order appealed against :

Provided that the amount required to be deposited under this section shall not exceed rupees ten crores:

Provided further that the provisions of this section shall not apply to the stay applications and appeals pending before any appellate authority prior to the commencement of the Finance (No. 2) Act, 2014.

Explanation. - For the purposes of this section 'duty demanded' shall include, -

(i) amount determined under section 11D;

(ii) amount of erroneous Cenvat credit taken;

(iii) amount payable under rule 6 of the Cenvat Credit Rules, 2001 or the Cenvat Credit Rules, 2002 or the Cenvat Credit Rules, 2004.'