Before we understand and deep diving, let us first know what provision actually say on the above two Acts and how the breach of doctrine of unrichment happening…..
Sec 15 of Micro, Small and Medium Enterprises Development Act, 2006 states on the Liability of buyer to make payment.-
“Where any supplier, supplies any goods or renders any services to any buyer, the buyer shall make payment therefore on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day: Provided that in no case the period agreed upon between the supplier and the buyer in writing shall exceed forty-five days from the day of acceptance or the day of deemed acceptance.”
And Where any buyer fails to make payment of the amount to the supplier, as required under section 15, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank as per the provision of Sec 16 of Micro, Small and Medium Enterprises Development Act, 2006
Similarly Chapter V of the CGST act deals with Input Tax Credit. Second and third proviso of Sec 16(2) read as
“ Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon”
Now on the simple reading of those specific provisions of the two acts, we can conclude
a) MSME Act states that one have to make payment to seller / vendor within a period of 45 days.
b) CGST Act 2017 state that one have to reverse the ITC credit if the payment with respect to those input supply is not made within a span of 180 days.
c) The intent of both the provisions is same but the periods of payment have changed.
d) MSME ACT safeguards the supplier whereas CGST ACT is safeguarding the treasury on the cost of supplier.
e) But my main point of contention is Sec 16 of CGST Act, is “violation of doctrine of unjust enrichment”.
Let us first understand the concept of doctrine of unjust enrichment and various Apex courts judgments.
Unjust enrichment has been defined as: “A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompense.” A claim for unjust enrichment arises where there has been an “unjust retention of a benefit to the loss of another or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.” It is a general equitable principle that a person should not profit at another’s expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.
In India, the doctrine of unjust enrichment is codified in enactments such as the Contract Act, 1872 (Sections 68-72), the Central Excise and Customs Law (Amendment) Act, 1991. The law has been further developed by various judgments. This doctrine was invoked in the very recent case of Amrapali Group i.e. Bikram Chatterji vs Union Of India on 23 July, 2019 by honourable Supreme Court of India.
Further since we are discussing on CGST Act, Supreme Court of India in the case of Sahakari Khand Udyog Mandal Ltd vs Commissioner Of Central Excise … on 9 March, 2005 invoked the same doctrine and state classically. Court goes on to say that appellant-Mandal has recovered the amount from consumers and as such excise duty is passed on to consumers/customers. In view of specific finding, in our opinion, the conclusion is inescapable that the appellant-Mandal is not entitled to claim any amount. Allowing exemption or refund of amount would result in `unjust enrichment’ by the appellant which cannot be permitted. In our opinion, therefore, even on that count, orders passed by the authorities and refusal to grant benefit cannot be held arbitrary, unreasonable or inequitable. The said ground also, therefore, has to be rejected.
So in simple meaning unjust enrichment means that “a person should not profit at another’s expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.
Restitution and Unjust Enrichment
The concept of unjust enrichment is basic to the subject of restitution, and is approached as a fundamental principle. The meaning of the term ‘restitution’ has been extended to include not only the restoration or giving back of something to its rightful owner, but also compensation, reimbursement, indemnification, or reparation for benefits derived from, or for loss or injury caused.
Now coming back to Sec 16(2) of CGST Act, the supplier have paid tax to the revenue but the recipient of the Goods/Service if not made the payment, have to reverse the ITC. So treasury effectively gets two taxes on same supply that to at the cost of supplier.
To conclude, it is clear cut case of Unjust Enrichment and also not Restitution or giving back of something to its rightful owner and violations of Sec 15/16 of MSME Act 2006.
The view express above are opinion of writer/Author.
CA Pawan Kumar Periwal
Author can be reached at firstname.lastname@example.org or 9771491501