CA Lalit Munoyat

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The Principle of Unjust Enrichment

Sec 15 (3) provides that the value of the supply shall not include any discount which is given after the supply has been effected Unless

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Sec 34. (1) provides that where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.

Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.

As per Section 54(4) the application for refund shall be accompanied by such documentary or other evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person:

As per Section 54(5) the proper officer shall determine the amount as is refundable, he may make an order accordingly and the amount so determined shall be credited to the Consumer Welfare Fund referred to in section 57.

Explanation to Rule 89(2) of the GST Rules 2017 provides that in order to get the refund, the refund application must contain

1) a declaration to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person, in a case where the amount of refund claimed does not exceed two lakh rupees:

2) a Certificate issued by a chartered accountant or a cost accountant to the effect that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person, in a case where the amount of refund claimed does not exceed two lakh rupees:

3) where the amount of tax has been recovered from the recipient, it shall be deemed that the incidence of tax has been passed on to the ultimate consumer.

The above provisions follows the provisions of Section 12B of the Central Excise Act which provides that every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods.

One thing that is common to all of the above provisions is that for claiming the refund the supplier shall have to prove with relevant documents that the incidence of such tax and interest had not been passed on to any other person.

If the supplier of goods and services has recovered GST from recipient, it is clear that he has passed on the burden to the recipient and has already recovered GST from him. In such cases, refund of excess GST paid will amount to excess and un-deserved profit to supplier of goods and service. It will not be equitable to refund the tax to him, as he will get double benefit – first from the recipient of goods and services and again from the Government. This is called the doctrine of unjust enrichment.

Unjust enrichment – A benefit obtained from another, not intended as a gift and not legally justifiable, for which the beneficiary must make restitution or recompose – Indian Council for Enviro-Legal Action v. UOI (2011) 8 SCC 161.

Refund, if any, should be paid to customer who has borne the burden of GST. However, in majority of the cases, it is not practicable to identify individual consumer and pay refund to him. At the same time, the GST illegally collected and hence cannot be retained by Government.

In UOI v. Roplas Ltd. AIR 1989 Bom 183 = 1988(38) ELT 27 (Bom HC), it was suggested that in such cases, the refund due should be transferred to a Consumer Welfare Fund instead of paying it to the supplier. The fund may be used for activities of protection and benefit of consumers.

With this view in mind, concept of unjust enrichment was introduced in Central Excise Act and Customs Act w.e.f. 20th September, 1991. These provisions are being continued under GST also.

Whether this doctrine of unjust enrichment shall apply to the cases where the value of supply is altered/revised downward for reduction in the Rate after the supply was made?

The doctrine of unjust enrichment has been a subject of many court-debates ever since 1950 and was reviewed by the Supreme Court to Tribunal many times. An analysis of these court debates lead us to the following formation of legal position.

The Law of refund is founded upon the principle of “unjust enrichment”. “It presupposes three things:

1) that the defendant has been enriched by the receipt of a benefit;

2) secondly that he has been so enriched at the plaintiff’s expense; and

3) thirdly, that it would be unjust to allow him to retain the benefit.

The tax under the GST is indirect tax. GST is levied on the supplier on supply. The tax being a component of the price for which the goods are sold, is ordinarily passed on the customer. It is a matter of common knowledge that every prudent businessman will adjust his affairs in his best interests and pass on the tax levied or leviable on the commodity to the consumer. That is the presumption in law.

The person claiming refund should have suffered a “loss or injury”. In cases where the person claiming refund has passed on the incidence of tax to a third person, how can it be said that he has suffered a loss or injury? How is it possible to say that he has got ownership or title to the amount claimed, which he has already recouped from a third party? So, the very basic requirement for a claim of refund is that the person claiming refund should plead and prove a loss or injury to him; in other words, he has not passed on the liability. If it is not so done, the action for refund, should fail.

Every civilised system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which it is against conscience that he should keep.

By way of analogy, it can be stated that in cases where refund (restitution) is claimed, on the ground of payment due to mistake of law, the person claiming restitution, should plead and prove that “he has not passed on” the liability to another. That is the nature of “accounting”. The proposition that a person claiming refund of tax on the ground of mistake of law is not obliged to allege and prove that it has not been passed on; on the other hand, it is mandatory for a claimant in such cases to allege and prove that he suffered a loss or detriment. Then and then alone, the Court can grant the equitable relief of refund.

If the relief of refund is withheld or denied on the ground that the assessee has passed on the tax (liability) to the consumer or third party, it will result in a position where the State is enabled to retain and appropriate the unlawful collection to itself. The plea was that Article 265 of the Constitution of India contains a mandate to the effect that “no tax shall be levied or collected except by authority of law”. It was argued that this is a basic feature of the Constitution and cannot be ignored. If no tax can be collected except by authority of law, the same logic would prevail that no tax collected can be retained without the authority of law.

The principle stresses the point that the persons claiming refund who were only middle-men, should not be unjustly enriched and allowed to make a “fortune” as it were, at the expense of innumerable unidentifiable innocent consumers and that “public interest” requires that such persons claiming refund should not be unduly or unjustly benefited; and, public interest is better served, if the State is allowed to retain the collection of tax, which could be made/spent, for the benefit of the “public”.

The following examples will clarify the matter.

Example-1 : Original Invoice with Actual rate of supply

S.No Supplier No of Pcs Each Supplier /consumer gets No. of Pcs/ per supplier /Consumer Rate-Per
Pc
Value of Supply GST @ 18% GST per Supplier/ Consumer
1 Manufacturer 1 500 100 50000 9000 9000.00
2 Distributors 5 100 115 57500 10350 2070.00
3 Dealers 25 20 132 66000 11880 475.20
4 Retailers 100 5 152 76000 13680 136.80
5 Consumers 500 1 175 87500 15750 31.50

In this case each consumer bears GST of Rs. 31.50/- at the original rate of supply.

Example-2 : Original Invoice after giving Credit Note for reduction in Rate of Supply.

S.No Supplier No of Pcs Each Supplier/ consumer gets No. of Pcs/ per supplier / Consumer Rate/Per
Pc
Value of Supply GST @ 18% GST per Supplier/ Consumer
1 Manufacturer 1 500 80 40000 7200 7200.00
2 Distributors 5 100 92 46000 8280 1656.00
3 Dealers 25 20 106 53000 9540 381.60
4 Retailers 100 5 122 61000 10980 109.80
5 Consumers 500 1 140 70000 12600 25.20

In this case the supplier revises the price downward by giving a discount of 20% by issue of Credit Note, after the original supply. After such discount, GST payable would be Rs. 25.20/- and an amount of Rs. 6.30/- per consumer becomes refundable. This refund belongs to the consumer and not to any supplier because the consumer has born the final incidence of the GST. However it is practically impossible to locate 500 consumers to give them refund. In such a case, though the refund will be determined but it will not be paid to the supplier nor can the department retain it. Instead it will be credited to the Consumer Welfare Fund established u/s 57 to be eventually used for the welfare of the consumer as per the provisions of section 54(5)

Example-3: Reduction in the rate after original supply not passed on to the consumers

S.No Supplier No of Pcs Each Supplier/ consumer gets No. of Pcs/ per supplier / Consumer Rate/Per
Pc
Value of Supply GST @ 18% GST per Supplier / Consumer
1 Manufacturer 1 500 80 40000 7200 7200.00
2 Distributors 5 100 115 57500 10350 2070.00
3 Dealers 25 20 132 66000 11880 475.20
4 Retailers 100 5 152 76000 13680 136.80
5 Consumers 500 1 175 87500 15750 31.50

The supplier revises the price downward by giving a discount of 20% by issue of Credit Note, after the original supply. However the distributors have not passed on the discount such that the incidence of GST before and after Rate reduction remains the same i.e. Rs.31.50/- per consumer. The benefit of reduction is GST subsequent to discount is fully usurped by the Distributors and not passed on to the consumers. No refund shall be determined as payable in this case.

The Act of “Passing On”

Since restitution at common law is based upon the principle of reversing an unjust enrichment, it is important to determine whether the defendant has actually enriched at the plaintiff’s expense. This raises a difficult problem where the Revenue was initially enriched at the taxpayer’s expense, by virtue of the receipt of overpaid tax, but the taxpayer did not ultimately suffer a loss because the burden of the payment was passed on to somebody else.. As a matter of principle it could be argued that, in such a case, the taxpayer should not be allowed to recover the amount overpaid from the Revenue, because recovery would mean that the taxpayer was unjustly enriched at the expense of those who ultimately bore the burden of the tax.

A possible solution to this is to allow those who effectively paid the tax to recover from the tax payer, who in turn should recover from the Revenue. However, typically in cases of passing on there are many people who effectively bear the burden of the tax and to encourage actions by them would be impractical and unrealistic. Thus, in such cases the best approach is to allow the Revenue a defense of passing on and enable it to retain the tax and use it for the public benefit.

The claims for refund can be classified broadly into 3 groups. They are —

  1. The levy is unconstitutional – outside the provisions of the Act or not contemplated by the Act.
  2. The levy is based on misconstruction or wrong or erroneous interpretation of the relevant provisions of the Act, Rules or Notifications; or by failure to follow the vital or fundamental provisions of the Act or by acting in violation of the Fundamental Principles of judicial procedure.
  3. Mistake of law — the levy or imposition was unconstitutional or illegal or not eligible in law, or without jurisdiction and found to be refundable by the Court of Law in a proceeding initiated by a third party.

It should be borne in mind, that in all the three categories of cases, the assessee should prove the fundamental factor that he has not “passed on” the tax to the consumer or third party and that he suffered a loss or injury.

GST is an indirect levy. It is intended or presumed to be passed on. This is so under the ordinary law. If it turns out that the tax is not exigible, it is refundable to the person who had borne the liability. Ordinarily, in the case of indirect taxes, such persons will be innumerable and cannot be easily identified or located. If the tax, which is not exigible, is refunded to the person who had not borne the liability, it will result in an unjust benefit to him. So the Act has providedthat in such cases where the duty is refundable, it will be credited to the Consumer Welfare Fund

Propositions of laws as framed by the Supreme Court of India in MRF case:

A) If the excise duty paid by the assessee was ultimately passed on to the buyers or any other person, and that the assessee has suffered no loss or injury, the action for restitution based on Section 72 of the Contract Act, is unsustainable. (This is the legal position even under general law.

B) The decision in Kanhaiya Lal’s case, and the cases following the same, 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.

C) Article 265 should be read along with the Preamble and Article 39(b) and (c) of the Constitution, and so construed in cases where the assessee has passed on the liability to the consumer or third party, he is not entitled to restitution or refund. The fact that the levy is invalid need not automatically result in a direction for refund of all collections made in pursuance thereto.

D) The presumption is that the taxpayer has passed on the liability to the consumer (or third party). It is open to him to rebut the presumption. The matter is exclusively within the knowledge of the taxpayer, 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 in depth 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 of the taxpayer, the burden of proving that the liability has not been passed on should lie on him.

E) It is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax, can be made only in accordance with the provisions of the Act. An action by way of suit or a petition under Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without jurisdiction and/or claim refund,

F) Alternatively, it may be stated that tax/duty paid in cases, which finally ended in orders or decrees or judgments of courts, must be deemed to have been paid under protest and be eligible for refund.

In order to claim refund of excess GST paid, proper documentation of the claim with evidence that the incidence of excess tax has not been passed on to any other person. The following documents can be used as evidence:

1. The Certificate of a Chartered Accountant

2. Finance Year wise Cost Data, Sample Invoices

3. Copy of Audited Profit & Loss Account showing the additional GST charged to the profit of the year and not passed on to the buyers.

4. Copy of Audited Balance Sheet showing the amount of Refund under the head Loans & Advance on the assets side as GST Refundable.

5. An affidavit issued by the buyer of the goods indicating that they have not paid the excess duty claimed by the appellant in its invoice

6. A Corresponding Debit Note issued by the Buyer

The Ratio of some of the landmark judgments delivered under the Central Excise Act. Such judgments may also apply to GST, being of the nature of an indirect tax like excise duty.

S. N. Particulars
1 Supreme Court of India 1997 (92) ELT 309 SC,

MRF Ltd. vs Collector Of Central Excise,  on 12 March, 1997

The duty is chargeable at the rate and price when the commodity is cleared at the factory gate and not on the price reduced at a subsequent date. Besides the subsequent fluctuation in the prices of the commodity can have no relevance whatsoever so far as the liability to pay excise duty is concerned. That being so, even if we assume that the roll back in the price was occasioned on account of the directive issued by the Central Government, that by itself, without anything more, would not entitle the appellant to claim a refund on the price differential unless it is shown that there was some agreement in this behalf with the Government and the latter had agreed to refund the excise duty to the extent of the reduced price.

2 Supreme Court Of India (3 May, 1995)

Government Of India And Others/ v. Madras Rubber Factory Ltd. And Others

1. Trade Discounts.—

Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.

2. TAC/Warranty discount.

The question is whether the claim, put forward as TAC/Warranty discount is a trade discount within the meaning of Section 4(4) (d) (ii)? We think not. It is only a claim for refund by the buyer for the manufacturing defect in the product sold by the assessee, which is being honored by the assessee in a manner acceptable to both the parties. In a given case, a buyer may well insist that he must be reimbursed in cash and not in kind. In such a case, the assessee cannot certainly refuse such a claim; it would have to pay cash. The nature and character of the amount so being refunded is certainly not a trade discount contemplated by Section 4(4)(d)(ii), whether the claim is honored by paying cash or by deducting it from the price of the new product. As rightly pointed out by Bhagwati, C.J in the order dated 20-12-1986, “what is really relevant is the nature of the transaction” (SCC p. 760, para 8). The learned Chief Justice pointed out further that “the warranty is not a discount on the product already sold, but relates to the goods which are being subsequently sold to the same customers. It cannot be strictly called as discount

3.One per cent Turnover Discount

The assessee’s case in this behalf is this: this is a discount granted to all dealers operating under Recurring Credit Scheme (RCS) with effect from 1-4-1980. The discount is being given on a half-yearly basis depending upon the volume of purchases made by each such dealer. The discount is being granted by issuing credit notes to dealers and though the said discount is not shown on the face of each invoice, it is known to all the dealers. The discount cannot indeed be shown in the invoice for the simple reason that the discount is known only at the end of the half year. This is a discount which is known and understood at the time of removal of the goods though it is quantified later. Such system of grant of discounts is not uncommon in the trade and therefore allowed as a deduction from the value.

4. Year Ending Discount and Prompt Payment Discount

“Year ending discount” is really a bonus given by the supplier to its dealers. This discount is payable only where the payments are actually received within forty-five days from the date of the invoice. Under this scheme, it appears a declaration is to be received dealer-wise and thereafter provision is to be made at the head office for the bonus. This discount was allowed by the assessee not out of any extra commercial considerations but that they were meant only to boost the sales. Such a system of grant of discount is prevalent in normal trade practice and the only difference may be that it is granted, either at the end of the year and or at the time of actual sales. Held: Discounted is allowable as a deduction from the value.

“Prompt payment discount” was treated at par with the yearend discount and was allowed it on the same reasoning as is applicable to the year ending discount.

3 Supreme Court August 29, 2016 (339) E.L.T. 177 (Sc),

Commissioner Of Central Excise, Madras Versus M/S Addison & Co. Ltd.

Refund: it was held by this Court in Union of India Vs Bombay Tyre International Pvt. Ltd. 1983 that trade discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. If the turnover discount is known to the dealer even at the time of clearance then the Assessee is entitled for filing a claim for refund on the basis of credit notes raised by him towards turnover discount.

Unjust enrichment – incidence of duty was originally passed on to the buyer – Held that:- there is no material brought on record to show that the buyer to whom the incidence of duty was passed on by the Assessee did not pass it on to any other person. There is a statutory presumption under Section 12-B of the Act that the duty has been passed on to the ultimate consumer. It is clear from the facts of the instant case that the duty which was originally paid by the Assessee was passed on. The refund claimed by the Assessee is for an amount which is part of the excise duty paid earlier and passed on. The Assessee who did not bear the burden of the duty, though entitled to claim deduction, is not entitled for a refund as he would be unjustly enriched.

Refund claim – job-work – the excise duty paid originally at the rate of 8.8 per cent was passed on from the Assessee-processor (Job Worker) to the owner of the fabric and later to the customers. Refund not allowed.

Refund claim – excess excise duty paid at the rate of 18.11 per cent instead of 9.20 per cent – Assessee initially passed on the duty incidence to its customers. Later the Assessee returned the excess duty amount to its buyers which was evidenced by a certificate issued by the Chartered Accountant – Held that: – except for a factual dispute about the genuineness of the certificate issued by the Chartered Accountant and the credit notes raised by the Assessee regarding the return of the excess duty paid by the Assessee, there is no dispute in this case of the duty being passed on to any other person by the buyer. As it is clear that the Assessee has borne the burden of duty, it cannot be said that it is not entitled for the refund of the excess duty paid.

4 Supreme Court Dated.- March 13, 2015 (318) E.L.T. 594 (SC)

Commnr. Of Central Excise, Chennai-III Versus Grasim Industries

Refund claim – doctrine of unjust enrichment – Capital goods – Captive consumption – Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product – Held that:- principle of unjust enrichment is applicable even when the goods are used for captive consumption. – if a particular material is used for manufacture of a final product, that has to be treated as the cost of the product. Insofar as cost of production is concerned, it may include capital goods which are a part of fixed cost as well as raw material which are a part of variable cost.

Both are the components which come into costing of a particular product. Therefore it cannot be said that the principle laid down by the Court in Solar Pesticides would not extend to capital goods which are used in the manufacture of a product and have gone into the costing of the goods. In order to come out of the applicability of the doctrine of unjust enrichment, it therefor becomes necessary for the assessee to demonstrate that in the costing of the particular product, the cost of capital goods was not taken into consideration.

5 Supreme Court Of India Dated.- March 9, 2005 (181) E.L.T. 328 (SC),

Sahakari Khand Udyog Mandal Ltd. Versus Commissioner Of C. Ex. & Cus.

Whether the doctrine of ‘unjust enrichment’ is based on equity.

Held that:- In our opinion, irrespective of applicability of Section 11B of the Act, the doctrine of ‘unjust enrichment’ can be invoked to deny the benefit to which a person is not otherwise entitled. Section 11B of the Act or similar provision merely gives legislative recognition to this doctrine. That, however, does not mean that in absence of statutory provision, a person can claim or retain undue benefit. Before claiming a relief of refund, it is necessary for the petitioner/appellant to show that he has paid the amount for which relief is sought, he has not passed on the burden on consumers and if such relief is not granted, he would suffer loss.

6. Sudhir Paper Ltd.Vs CCE CESTAT

If the cash discounts, quantity discounts, and other trade discounts in question were known and understood at the time of removal in form of price circulars, price lists, discount policy, circulated among the dealers their deduction from the assessable value would have to be allowed in view the Apex Courts judgment in the case of Union of India Vs. M/s. Madras Rubber Factory even if the same were quantified, subsequently, subject to the conditions that the same had actually been passed on to the buyers. The Chartered Accountants also certified that the appellant had not passed on the excise duty corresponding to the credit notes issued by them later on to their customers on account of various discounts.

No Unjust Enrichment

7. Karnataka High Court Dated.- March 8, 2011 (268) E.L.T. 79 (Kar.)

Commissioner Of C. Ex., Bangalore-I Versus Om Pharmaceuticals Ltd.

Doctrine of Unjust Enrichment – It is clear that the assessee has not passed on the duty liability to the customers though initially he had passed on the liability, he has returned the said duty collected from the buyer – Therefore, he is entitled to get back the duty, which he has paid, which in law he was not liable to pay as held by the original authority – Therefore, the Tribunal was justified under the facts of this case in upholding that the Doctrine of Unjust Enrichment is not attracted to the facts of this case.

8. Karnataka High Court: November 11, 2011 2012 (281) E.L.T. 43 (Kar.)

Commissioner Of Central Excise, Belgaum Commissionerate Versus Jineshwar Malleable & Alloys

Application for refund of the excess amount of duty paid under the mistaken notion that the actual duty to be paid was 12.8% whereas, in fact, quantum of excess duty liable to be paid by the assessee was only 9.6%. Further, excess duty paid has been collected and credited to the consignee and the entire burden of duty has been borne by the assessee and has not been passed on to the consignee.

Refund allowed – Decided in favor of the assessee.

9. A similar view has been taken by the Honble Tribunal in the case of CCE, Chandigarh Vs. Vardhman Industries Ltd., as reported in 2006(205) ELT.41(Tri.Del.), which has been affirmed by the Honble Supreme Court, as reported in 2011(267) ELT. A25(SC).

I hold that provisions of unjust enrichment are not applicable to the present case since the duty of excise claimed to be excess paid in the instant appeal has been credited back to the buyers account by the appellant by way of issuing the credit notes. However, the adjudicating authority shall allow the refund of duty, as admissible, after due verification of all the credit notes and relevant accounting ledgers to ascertain that burden of duty has not been passed on by the appellant to their customers.

The discount policy also was available and was known to the customers at the time of clearance of their final product. The discounts stand actually given when a particular customer attains that goal of quantum of purchase. In such a scenario the Revenue cannot question the assessee, as to why, the discounts stand given to a particular customer.

10. 1996 (87) E.L.T. 660 (Tribunal)

Esprit Switchgear Pvt. Ltd. Versus Commissioner Of C. Ex., Mumbai-II

According to law, as amended, the assessee is required to show the excise duty element separately and credit the excise duty so collected to the Government. The burden is also cast on them to establish that the duty so collected has not been passed on to the consumer. There is no dispute that the item is consumer product and the duty element is not indicated separately in the invoices. Merely because they have maintained the same cum duty price, it cannot be concluded that they have borne the higher duty incidence without passing it on to the consumer. It can only raise a presumption, but refund cannot be granted on such presumption.

11. CESTAT Ahmedabad Dated.- March 27, 2018

M/S Ahmedabad Packaging Industries Ltd. Versus Commissioner Of Central Excise, Ahmedabad

Held that: – Consequent to the principle laid down by the Hon’ble Supreme Court in the case of UOI Vs. Solar Pesticides (P) Ltd. -2000 SUPREME COURT OF INDIA], observing that the principle of Unjust enrichment is applicable to refund of duty on goods captively consumed, this Tribunal remanded the matter to the Adjudicating Authority with the liberty to the appellant to produce evidences to establish that the incidence of duty has not been passed on to others.

12. CESTAT Mumbai March 22, 2018

M/S. Aspire Exports Pvt. Ltd, Versus Commissioner Of Central Excise, Mumbai-IV

Refund claim – unjust enrichment – case of appellant is that since the transaction is of job work and not of sale there is no question of passing of incidence of duty to the principal – Held that: – duty was deposited during investigation with reference to removal of goods manufactured by appellant on job work basis – the goods were undisputedly dutiable therefore payment made by the appellant is differential duty therefore it cannot be said that amount paid by the appellant is deposit and not the duty.

Unjust enrichment is very much applicable in the present case.

13. M/S. Dhariwal Industries Ltd, Versus Commissioner Of Central Excise, Pune-III March 22, 2018

Unjust enrichment – submission of the appellant is that since the goods were cleared to their own unit which amounts to captive consumption there is no sale of the goods, hence the incidence of duty paid in excess was not passed on – Held that: – even in respect of captive consumption, unjust enrichment provision is applicable as held by Hon’ble Supreme Court in case of Union of India vs. Solar Pesticides Pvt. Ltd. [2000 (2) TMI 237 – SUPREME COURT OF INDIA] – it is obvious that when the goods are sold all the cost of raw material including taxes, duties thereof is considered for arriving at the cost of final product.

Since the appellant and the recipient unit are under the same umbrella of one company, balance sheet of company consist of final sale transaction takes place by all the units therefore whether there is sale between appellant and their own recipient unit or otherwise that cannot be sole factor to decide that there is no unjust enrichment – the factual matrix has to be ascertained that whether excess duty paid by the appellant was absorbed in the value of the Pan Masala and Gutkha, only thereafter it can be established that whether the incidence of duty has been passed on to any other person or otherwise.

14. CESTAT Chandigarh: March 9, 2018

M/S. Uttar Haryana Bijli Vitran Nigam Limited Versus Commissioner Of Central Excise & St, Panchkula

Refund claim – unjust enrichment – Held that: – the only product sold and for which the consideration received by the appellant was electricity. Admittedly, the tariff of such electricity was fixed by the State authorities. The appellant had no flexibility in this regard. As such, the question of passing on the duty burden suffered in the workshop, on the goods which were captively consumed in the repair of transformers, which were again consumed in the distribution of electricity, does not arise.

15. CESTAT Bangalore March 7, 2018

Mann And Hummel Filters Pvt Ltd Versus C.C.,C.E. & S. T-Commissioner Of Central Tax, Bangalore North, West Commissionerate

Refund claim – any amount deposited during the investigation will be in the nature of pre-deposit made by the assessee and principle of unjust enrichment will not be applicable in such cases

16. CESTAT Hyderabad February 15, 2018

Commissioner Of Central Tax, Medchal – Gst Versus M/S Saraca Laboratories Ltd.

Refund claim – unjust enrichment – case of Revenue is that the ground of unjust enrichment having not been considered by the First Appellate Authority in it is correct prospective – Held that: – the First Appellate Authority has come to a correct conclusion as to satisfaction of unjust enrichment by the respondent herein – the Chartered Accountant has categorically stated that the respondent (assessee) has been carrying on an amount of ₹ 6,80,974/- in the balance sheet under the “excise duty receivable” – the First Appellate Authority was correct in holding that the respondent herein has satisfied the condition of there is no unjust enrichment – refund allowed

17. CESTAT New Delhi: September 12, 2017

Swastika Suitings Ltd. Versus Commissioner Of Central Excise, Jaipur-II

Refund of excess duty paid – rejection on the ground of unjust enrichment – Held that: – affidavit issued by the buyer of the goods indicates that they have not paid the excess duty claimed by the appellant in its invoice – the Chartered Accountant has also issued the certificate, certifying that the incidence of duty has not been passed on by the appellant to any other person and the incidence of such amount has been borne by it – the doctrine of unjust enrichment is not applicable – refund allowed –

18. CESTAT Mumbai: February 20, 2018

Mahanagar Gas Ltd. Versus Commissioner Of Central Excise, Mumbai-II

Refund claim – unjust enrichment – Held that: – discount though passed on after removal of the goods but the same was known as per the agreement between appellant and OMCs, therefore discount was deductible from the assessable value – the excise duty paid on such discount was paid in excess which is prima facie liable to be refunded to the appellant.

19. CESTAT Mumbai: December 28, 2017

Mahanagar Gas Ltd. Versus Commissioner Of Central Excise, Mumbai

Price variation clause – Held that: – the trade discount was not known prior to the clearance and thus at the time of clearance, the assessable value can only be ascertained on the basis of trade discount which was known to the buyer – Variation on the transaction value on a subsequent date cannot result in re-determination of assessable value – refund cannot be allowed.

20. CESTAT Mumbai: September 22, 2017

Aplab Ltd Versus Commissioner Of Central Excise, Mumbai-III

Recredit/refund – Re-credit of amount of duty paid in excess through PLA – it was alleged that amount wrongly restored as credit without proper authority – Held that: – identical issue decided in the case of M/s. Pushp Enterprises Versus Commissioner of Central Excise Jaipur I [2015 (10) TMI 1651 – CESTAT DELHI], where it was held that suo moto credit can be taken if duty is paid twice as excess duty paid is not a duty and same is deposit – appeal allowed – decided in favor of appellant.

21. CESTAT New Delhi: December 19, 2017

M/S Indo Alusys Industries Ltd. Versus Cce & St, Alwar

When there is price variation clause, the actual price of goods cannot be ascertained at the time of clearance and in a case where the actual price comes out to be higher than the value on which goods has been cleared then, the Revenue asked for duty on the extra value of the goods. Therefore, on the principle of equity, if any excess duty has been paid by appellant, the Revenue is required to refund to the assessee the excess duty.

The appellant is entitled for refund claim as they have not recovered the said price alongwith duty from the buyers of the goods – appeal allowed.

22. Madras High Court: October 20, 2017

Mrs. Padma Raghavan Sri Vigneswara Textile Printers Versus Assistant Commissioner Of Central Excise, Commissioner Of Central Excise And Customs (Appeals)

Refund claim – unjust enrichment – Held that: – holding that since this was duty paid on demand, there was no question of the petitioner passing on the duty burden to any consumer, and therefore, the petitioner was entitled to refund in its entirety – petition allowed – decided in favor of petitioner.

23. Allahabad High Court: January 17, 2017

Unjust enrichment – refund claim – in the case of UOI Vs. A.K. Spintex 2008 –Raj. it was held that the presumption under Section 12-B is a rebuttable presumption and once the assessee produces evidence in support of his claim of having not passed on the incidence of duty whose refund is claimed to the customers, the burden of proof would shift to the Department to prove that the claim of the assessee is false – rejection of refund claim on the ground of doctrine of unjust enrichment is not legal and proper.

24. CESTAT Mumbai: May 24, 2018

CEAT Ltd. Versus Commissioner Of Central Excise, Mumbai

Unjust enrichment – Held that:- It is the amount of proforma credit which otherwise duty paid by the appellant, it cannot be said it is a pre-deposit. For the reason that for filing appeal in the Supreme Court no need of any pre-deposit, therefore, the amount paid by the appellant cannot be considered as pre deposit. In the absence of statutory provisions, a person cannot claim or retain undue benefit.

In the present case the refund is governed by Section 11B, therefore, the provisions of unjust enrichment is clearly applicable. Even in the case of suo moto re-credit though in principle, the appellant is entitled but subject to test of unjust enrichment.

25. Supreme Court Dated.- February 12, 2014 (301) E.L.T. 161 (Sc)

Commr. Of Central Excise-Iv, Kolkata & Others Versus M/S. Madura Coats Ltd.

Held that: – there was no question of assessee having recovered the excess amount from the consumers. because, the duty payable was under Heading XXXX of the classification where under only basic excise duty was payable. In view of the above, it is obvious that the assessee did not recover any duty from the consumers under Heading No. YYYY. Accordingly, whatever amount was recovered from the assessee by the appellants, could not have been required to be refunded to the consumers – Following decision in Commissioner of Central Excise, Hyderabad vs I.T.C.Ltd. 2004 – SUPREME COURT OF INDIA] – Decided against Revenue.

26. BOMBAY HIGH COURT Dated.- August 25, 2015 (323) E.L.T. 431 (Bom.)The Commissioner Of Central Excise, Pune­1 Commissionerate Versus M/S Sandvik Asia Ltd.

Denial of refund claim – Unjust enrichment – Held that:- Tribunal was not concerned with the treatment given to the amount and as deposited in the Assessee’s profit and loss account. It is immaterial and irrelevant for the Tribunal and equally for us as to what the Assessee terms this amount in his Books of Account. Even if it is shown on the ‘expense side’ that does not mean that the presumption that the burden has been passed to the consumer can be raised. – principle in this decision is the same which is to be found and applied by this Court in the case of Suvidhe Ltd. v/s Union of India, reported in 1996 High Court Of Judicature At Bombay.

27. Madras High Court: 2015 (320) E.L.T. 703 (Mad.)

The Commissioner of Central Excise, Coimbatore versus M/S. Pricol Ltd., the Customs, Excise & Service Tax Appellate Tribunal

Denial of refund claim – Unjust enrichment – Held that: – as is evident from the records, it is not a case of refund of duty. It is a pre-deposit made under protest at the time of investigation, as has been recorded in the original proceedings itself. In this regard, it has to be noticed it has been the consistent view taken by the Courts that any amount, that is deposited during the pendency of adjudication proceedings or investigation is in the nature of deposit made under protest and, therefore, the principles of unjust enrichment does not apply. – Refund allowed – Decided against the revenue.

28. Madras High Court Dated.- January 3, 2014: 2014 (302) E.L.T. 45 (Mad.)

M/S. ICMC Corporation Ltd. Versus The Customs, Excise And Service Tax Appellate Tribunal

Held that: – assessee originally availed the Cenvat Credit on service tax for discharging its liability. However, for sound reasons, it reversed the credit. Strictly speaking, in this process, there is only an account entry reversal and factually there is no outflow of funds from the assessee to result in filing application claiming refund of duty – it was not a case of refund of duty and that the assessee was not to comply with the provisions of Section 11B of the Act.

29. BOMBAY HIGH COURT Dated.- March 23, 2011 (267) E.L.T. 599 (Bom.)

Arviva Industries (India) Ltd. Versus Union Of India

Refund claimed – Unjust enrichment – There is no question of applying the principles of unjust enrichment because, the company has not imported the goods under the advance licenses – Goods were imported duty free by the persons to whom the advance licenses were sold – Since the predecessor company had not imported the goods duty free, the question of passing on the duty element to the customers did not arise at all. Since the amount in question did not belong to the consumer the said amount could not be directed to be credited to the Consumer Welfare Fund.

Certificate under the State Goods and Services Tax Act, 2017 (in short “SGST Act”) and the Central Goods and Services Tax Act, 2017 (in short “CGST Act”) in terms of Section 54 of the said Acts

1. M/s. ________(hereinafter referred to as the “Applicant’) is a registered person vide GSTIN…………… and is having its principal place of business at ____________________________________________________ in the State of State. The Applicant has the following additional places of business duly registered in the State of _____:

a. ____________________________________________

b. ____________________________________________

The principal place of business and the additional places of business in the State have been duly registered with effect from_________.

2. The Applicant has filed an application for refund u/s 54 of the CGST / SGST Act, 2017 under the following scenario:

1) 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; *

2) Refund of unutilised input tax credit under sub-section (3); *

3) 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; *

4) Refund of tax in pursuance of section 77; *

5) The tax and interest, if any, or any other amount is paid by the applicant and he has not passed on the incidence of such tax and interest to any other person; *

[*strike whichever is not applicable]

3. We have examined the books of accounts and other relevant documents / records of the Applicant and on the basis of such examination & the information and explanation furnished to us, we hereby certify that, in respect of the refund amounting to Rs. …., the incidence of such tax and interest or any other amount claimed as refund has not been passed on by the Applicant to any other person.

4. This certificate has been issued in terms of Section 54 of the CGST / SGST Acts, 2017 read with Rule 89 (2) of the CGST / SGST Rules, 2017.

For _______________.,

Check points for the Chartered Accountant – 

1) Verify registration particulars with the Registration Certificate.

2) Copy of the refund claim for which the Certificate is sought, to be obtained. Check whether the refund claim has been made within the specified time limit.

3) Ensure that the applicant is not in-eligible for claim of refund under Section 54(3) of the CGST / SGST Act, 2017 and document the basis on which refund claim is sought by the Applicant. Compare the GST rate of inputs and the GST rate on outputs.

4) Obtain a declaration from the suppliers to the effect that they have not claimed refund or drawback on the supplies made i.e. this proviso forming part of 54(3) of the CGST / SGST Act, 2017 – to ensure that there is no double refund / revenue loss to Government.

5) Obtain documentary evidence from the applicant for ensuring that there is no unjust enrichment of the refund amount claimed [Section 54 (4) (b) of the CGST / SGST Act, 2017].

6) Ensure that the refund claimed is recorded as receivable in books and tallies with ledger balances. Also test check the tax invoices and flow of accounting entries recorded in books for such supplies and related taxes.

7) Ensure compliance with provisions of Section 54(10) of the CGST / SGST Act, 2017 with respect to default in furnishing any returns, non-payment of tax, interest or penalty etc.

8) This certificate is required to be issued only if the aggregate value of the refund claim exceeds rupees two lakhs (Rule 40 (1)(d) of the CGST / SGST Rules, 2017)

9) This certificate is to be suitably modified wherever applicable. The names of the registered persons, dates, addresses etc. are only illustrative and needs to be modified in each case. Any resemblance to any person / place is purely unintentional.

10) This certificate is to be issued in respect of a person who has made a claim of refund u/s 54 of the CGST / SGST Act, 2017

11) Ensure that the certificate issued is in accordance with the Guidance note on Reports and Certificates for special purpose issued by the ICAI.

12) Ensure that a letter of representation is taken from the management for the details and information provided by them.

13) Ensure that a declaration is taken from the Applicant with regard to non-availability of tax invoices and reasons for the same.

Section 77: Tax wrongfully collected and paid to Central Government or State Government.

77. (1) A registered person who has paid the Central tax and State tax or, as the case may be, the central tax and the Union territory tax on a transaction considered by him to be an intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of taxes so paid in such manner and subject to such conditions as may be prescribed.

(2) A registered person who has paid integrated tax on a transaction considered by him to be an inter-State supply, but which is subsequently held to be an intra-State supply, shall not be required to pay any interest on the amount of central tax and State tax or, as the case may be, the central tax and the Union territory tax payable.

S. N. Particulars
1. CESTAT Hyderabad February 15, 2018

Commissioner Of Central Tax, Medchal – Gst Versus M/S Saraca Laboratories Ltd.

Refund claim – unjust enrichment – case of Revenue is that the ground of unjust enrichment having not been considered by the First Appellate Authority in it is correct prospective – Held that: – the First Appellate Authority has come to a correct conclusion as to satisfaction of unjust enrichment by the respondent herein – the Chartered Accountant has categorically stated that the respondent (assessee) has been carrying on an amount of ₹ 6,80,974/- in the balance sheet under the “excise duty receivable” – the First Appellate Authority was correct in holding that the respondent herein has satisfied the condition of there is no unjust enrichment – refund allowed

2. CESTAT New Delhi: September 12, 2017

Swastika Suitings Ltd. Versus Commissioner Of Central Excise, Jaipur-II

Refund of excess duty paid – rejection on the ground of unjust enrichment – Held that: – affidavit issued by the buyer of the goods indicates that they have not paid the excess duty claimed by the appellant in its invoice – the Chartered Accountant has also issued the certificate, certifying that the incidence of duty has not been passed on by the appellant to any other person and the incidence of such amount has been borne by it – the doctrine of unjust enrichment is not applicable – refund allowed.

The Certificate of the Chartered Accountant based on Unjust Enrichment is subject to verification by the Department. Therefore adequate documentation shall be kept by the CA to prove the claim that the incidence of the Tax has not been passed onto any other person.

The certificate is silent about the refund arising out of issue of credit note for post-supply discount made in terms of a prior agreement or policy of the supplier for giving of discount.

I express my gratitude to the taxmanagementindia.com for making me available the ratio of some judgments cited in the article

Compiled by: CA LALIT MUNOYAT, B.Com.(Hons.),CS,FCA, DISA, @ munoyat@gmail.com # 98201 93508

Disclaimer: The views offered by the Author are his personal views meant for academic interest only. Before proceedings on the above views the readers are advised to take a professional opinion.  

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One response to “Refund under GST Act for Post Supply Discount Given”

  1. N Ramesan says:

    Dear Sir,
    Kindly forward the above notes on the Refund under GST Act for Post Supply Discount given in the following mail ID:
    neco_calicut@yahoo.com

    rameshcwrdm@gmail.com

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