Unjust Enrichment: A Comprehensive Analysis of Recent Judicial Precedents

Introduction

The doctrine of unjust enrichment has emerged as a critical principle in Indian tax jurisprudence, particularly in the context of refund claims under GST, Customs, and Service Tax regimes. This principle, rooted in equity and fairness, prevents taxpayers from claiming refunds where they have not suffered any actual loss or where the burden of tax has been passed on to consumers. However, recent judicial pronouncements have provided nuanced interpretations of this doctrine, clarifying its scope and limitations.

This article examines five significant cases that have shaped the contemporary understanding of unjust enrichment in Indian tax law, offering valuable insights for practitioners and taxpayers alike.

The Doctrine of Unjust Enrichment: Legal Framework

The principle of unjust enrichment in Indian tax law finds its genesis in the fundamental tenet that no person should be allowed to enrich themselves at the expense of another without justification. In the context of tax refunds, this doctrine serves as a safeguard against claims where the economic burden of tax has been shifted to third parties, typically consumers.

Under various tax statutes, the doctrine is codified through specific provisions that mandate taxpayers to demonstrate that they have not passed on the burden of tax to others. The application of this principle, however, has been the subject of extensive judicial scrutiny, leading to several landmark decisions that have refined its scope.

Case Analysis: Recent Judicial Pronouncements

1. Shapoorji Pallonji & Co. Pvt. Ltd. v. State of Andhra Pradesh (Andhra Pradeshn High Court), Citation: TS-873-HC(AP)-2024-GST

In this landmark judgment, the Andhra Pradesh High Court addressed the critical question of whether the principle of unjust enrichment applies to refunds from electronic cash ledgers under Section 49(6) read with Section 54 of the CGST Act.

Key Findings:

• The Court categorically held that the principle of unjust enrichment does not apply to refunds of electronic cash ledger balances
• The rejection of refund claims for leftover TDS accumulated as credit balance in cash ledger was deemed improper
• The Court directed reconsideration of the refund claim, setting aside the original rejection

Legal Significance: This decision establishes a clear distinction between different types of refund claims and limits the application of unjust enrichment to specific scenarios, providing much-needed clarity to taxpayers with accumulated TDS credits.

2. M/s NAM Estates Pvt. Ltd. v. State of Karnataka (Karnataka High Court), Citation: 2025-VIL-39-KAR

This case involved a contract dispute where the respondent had paid advance amounts including GST for goods that were never delivered due to contract cancellation.

Key Findings:

• The Court emphasized that GST is levied on actual transactions, not on failed or cancelled contracts
• In the absence of goods delivery, the GST liability ceases to exist, entitling the purchaser to a full refund
• Section 54 of the CGST Act cannot be used as a tool to deny legitimate refund claims
• The requirement of a Credit Note was deemed unnecessary since no goods were delivered

Legal Significance: This judgment reinforces the principle that tax liability is intrinsically linked to the completion of transactions. It also clarifies that procedural requirements should not become barriers to legitimate refund claims in cases of contract failures.

3. Edelweiss Securities Limited v. Commissioner of Service Tax (CESTAT Mumbai), SERVICE TAX Appeal No. 502/2011 Dated: 31/12/2015

This case dealt with the refund of excess service tax on brokerage services following downward adjustments reflected in credit notes.
Key Findings:

• The Tribunal approved the refund of excess service tax paid on stock-broker services
• The Revenue’s claim of unjust enrichment was dismissed
• Credit and debit notes were recognized as long-standing, enforceable commercial documents
• The Tribunal held that such documents cannot be deemed unreliable merely for being paper-based

Legal Significance: This decision establishes the legal validity of credit/debit notes in commercial transactions and their acceptability as evidence in refund proceedings, while also limiting the scope of unjust enrichment claims.

4. Bajaj Auto Ltd. v. Commissioner of Central Excise (CESTAT Mumbai), Citation: (2017) 347 ELT 519

This case addressed the application of unjust enrichment where refund amounts were shown as receivables from the Department in the company’s balance sheet.

Key Findings:

• The Tribunal held that unjust enrichment provisions are not applicable when the refund amount is shown as receivables in the balance sheet
• This accounting treatment demonstrates that the burden of tax has not been passed on to customers
• The decision was made under Section 27 of the Customs Act, 1962

Legal Significance: This judgment provides crucial guidance on how accounting practices can serve as evidence to counter unjust enrichment claims, establishing that proper accounting treatment of tax burdens can be determinative in refund cases.

5. Finolex Industries Ltd. v. Commissioner of Customs (CESTAT Mumbai), Citation: (2023) 385 ELT 58

This case involved the refund of excess duty paid due to differences between provisional and final assessments.

Key Findings:

• The original authority’s rejection of refund based on unjust enrichment was held to be improper
• The decision was not in accordance with Section 18(2) of the Customs Act, 1962
• The matter was remanded for fresh consideration

Legal Significance: This case highlights the importance of proper application of statutory provisions and demonstrates that unjust enrichment cannot be invoked arbitrarily without proper legal basis.

Practical Implications and Key Takeaways

For Tax Practitioners:

1. Documentation Strategy: Maintain comprehensive records of tax burden allocation, including balance sheet entries and accounting treatments

2. Credit Note Management: Ensure proper documentation of credit/debit notes as they are legally recognized instruments

3. Refund Applications: Clearly distinguish between different types of refund claims and their applicable legal frameworks

For Taxpayers:

1. Electronic Cash Ledger Refunds: Understand that unjust enrichment principles do not apply to electronic cash ledger refunds

2. Failed Transactions: In cases of contract cancellation or non-delivery, full GST refunds are permissible

3. Accounting Practices: Proper accounting treatment of tax liabilities can serve as evidence against unjust enrichment claims

For Revenue Authorities:

1. Selective Application: The doctrine of unjust enrichment should be applied judiciously and only where legally justified

2. Procedural Compliance: Strict adherence to statutory provisions is essential when rejecting refund claims

3. Case-by-Case Analysis: Each refund claim should be evaluated on its individual merits rather than applying blanket principles

Conclusion

The recent judicial pronouncements on unjust enrichment have significantly clarified the scope and limitations of this doctrine in Indian tax law. The courts have consistently emphasized that the principle should not be used as a blanket tool to deny legitimate refund claims. Instead, its application should be limited to specific circumstances where there is clear evidence of the tax burden being passed on to third parties.

These decisions collectively establish several important principles: the distinction between different types of refund claims, the importance of proper documentation and accounting practices, the legal validity of commercial instruments like credit notes, and the necessity of adhering to statutory provisions when applying the unjust enrichment doctrine.

As the Indian tax landscape continues to evolve, these precedents will serve as valuable guidance for taxpayers, practitioners, and revenue authorities alike, ensuring that the principle of unjust enrichment is applied fairly and in accordance with the letter and spirit of the law.
The judicial trend indicates a move towards a more balanced approach that protects legitimate taxpayer interests while preventing abuse of the refund mechanism. This development is crucial for maintaining the integrity of the tax system while ensuring that taxpayers are not unfairly denied their rightful refunds.