VERY IMPORTANT POINT
The principle of unjust enrichment incorporated in Section 27 of the Customs Act would be applicable in respect of imported raw material and captively consumed in the manufacture of a final product. Unless it is proved that incidence of duty was not passed on to another person refund cannot be allowed.

Headnote:Customs Act, 1962-Section 27 r/w Sections 27 and 28-Refund-Condition precedent-Proof that incidence of duty not passed on to other persons-Principles of unjust enrichment-Would be applicable in respect of imported raw material and captively consumed in manufacture of final product-Expression incidence of such duty in relation to its being passed to another person would take it within its ambit not only passing of duty directly to another person but also cases where it is passed on indirectly.
       Section 27 of the Act, in a sense, complete code by itself, dealing with the claim for refund of duty. The procedure provided by Section 27(1) is applicable in case of application for refund being filed after the said section was amended. Sub-section (1) itself requires a person making an application for refund to furnish documents and evidence (including the documents referred to in Section 28C) to establish that the amount of duty, in respect to which refund is claimed, was collected or paid by him and incidence of such duty had not been passed on by him to any other person. (Para 16)
       The use of the words "incidence" of such duty....." is significant. The words "incidence of such duty" mean the burden of duty. Section 27(1) of the Act talks of the incidence of duty being passed on and not the duty as such being passed on to another person. To put it differently the expression "incidence of such duty" in relation to its being passed on to another person would take it within its ambit not only the passing of the duty directly to another person but also cases where it is passed on indirectly. This would be a case where the duty paid on raw material is added to the price of the finished goods which are sold in which case the burden or the incidence of the duty on the raw material would stand passed on to the purchaser of the finished product. It would follow from the above that when the whole or part of the duty which is incurred on the import of the raw material is passed on to another person then an application for refund of such duty would not be allowed under Section 27(1) of the Act. (Para 17)
       Section 27(2) of the Act, as already noticed, deals with the cases where application for refund had been made prior to the amendment of the Act in 1991. Sub-section (a) of the proviso is similar to the provisions contained in Section 27(1) of the Act i.e refund of duty paid by the importer will be allowed if he had not passed on the incidence of such duty to any other person. Section 28C of the Act, would have reference to those goods which are cleared and would undoubtedly have no application to the cases of the captive consumption. It is in respect of those goods which are cleared that Section 28C requires a person clearing the goods to indicate the amount of duty paid thereon which will form part of the price at which such goods are to be sold. It is not possible to accept the contention that because Section 28C of the Act cannot be applied in the cases of goods imported for captive consumption, therefore, the principle of unjust enrichment would not be applicable in such cases. As we have already indicated, Section 27 of the Act has been re-cast with the amendments made in 1991 and the said section does not necessarily have to be read in conjunction with Sections 27C and D of the Act. If the incidence of duty paid on the imported raw material has not been passed on to any other person, then by virtue of proviso to Section 27(2) of the Act in the case where application for refund had been made prior of 1991, refund due on the duty paid would be given to the applicant. (Para 18)
       To claim refund of duty it is immaterial whether the goods imported are used by the importer himself and the duty thereon passed on to the purchaser of the finished product or that the imported goods are sold as such with the incidence of tax being passed on to the buyer. In either case the principle of unjust enrichment will apply and the person responsible for paying the import duty would not be entitled to get the because of the plain language of Section 27 of the Act. Having passed on the burden of tax to another person, directly or indirectly, it would clearly be a case of unjust enrichment if the importer/seller is then able to get refund of the duty paid from the Government notwithstanding the incidence of tax having already been passed on to the purchaser. Difficulty in proving that the incidence of the duty borne by the importer has not been passed on to the purchaser of the finished product can be no ground for interpreting Section 27 differently. It is not possible that in no case will an importer not be able to prove that the incidence of the duty imposed on the imported raw material has not been passed on to any other person. Even in cases of captive consumption, it should be possible for the importer to show and prove before the authorities concerned that the incidence of duty on the raw material, in respect of which refund is claimed, has not been passed on by the importer to any body else. (Paras 20 and 21)
       Therefore, the principle of unjust enrichment incorporated in Section 27 of the Customs Act would be applicable in respect of imported raw material and captively consumed in the manufacture of a final product. (Para 24)

JUDGMENT

Kirpal, J.-Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product is the question which arises for consideration in these appeals.

2. In order to decide the aforesaid issue, we need refer to the facts in the case of Civil Appeal No. 921 of 1992 filed by the Union of India against Solar Pesticide Private Limited (hereinafter referred to as the respondent ). The respondent imported copper scrap for use as a raw material in the manufacture of copper oxychloride. At the time of import of copper scrap the respondent sought exemption from payment additional customs duty (also known as countervalling duty or CVD) which was available under the Customs Notification No. 35/81 CE dated 1.3.1981. At the time of clearance this duty was paid, subsequently, the respondent filed an application for refund of additional customs duty paid by it at the time of import of copper scrap claiming benefit under the aforesaid exemption Notification of 1.3.1981. The Assistant Collector of Customs, by order dated 16.2.1985, rejected the claim and held that the imported copper scrap was correctly assessed to CVD @ Rs. 3,300/- per M.T.

3. Three years after the rejection of the said claim, a writ petition was filed by the respondent in the Bombay High Court. It was claimed therein that the aforesaid exemption Notification gave complete exemption from payment of excise duty of copper for use in the manufacture of chemicals. Hence, when copper scrap was imported for use in the manufacture of chemicals, additional customs duty (countervailing duty) could not be levied on copper scrap so imported.

4. The High Court accepted this contention and came to the conclusion that the refund application of the respondent had been wrongly rejected. The High Court then considered the contention raised on behalf of the customs authorities that the claim for refund will have to be decided keeping in view of the amendments which had been carried out in 1991 to the Customs Act, 1962 (hereinafter referred to as "the Act"). It was submitted that with the introduction of sub-section 2 of Section 27 of the Act, a claim for refund could be entertained if the importer was able to prove that he had not passed on the incidence of such duty to any other person. In other words, the submission was that the refund of duty, the incidence of which has already been passed on to other person, would result in unjust enrichment and in view of the amendments made in the Act, such unjust enrichment is not permissible.

5. The amendments which were made in the Act, inter alia, sought to provide that the manufacture or importer of goods shall not be entitled to refund of duty of excise or, as the case may be, the duty of customs, if he has already passed on the incidence of such duty to the buyer. The burden of proof that the incidence of the duty has not been passed on to the buyer shall be on the person claiming the refund. The High Court, on interpreting Sections 27, 28C and 28D of the Act, came to the conclusion that the question of unjust enrichment would not arise in the case of captive consumption of the imported raw material. According to it, the question of unjust enrichment would arise under the amended act when refund is asked for by a person who has sold the imported goods and, in the process, had directly passed on the burden of duty to the buyer. This, according to the High Court was clear from clauses (a), (b) & (c) of the proviso to Section 27(2) read with the presumption contained in Section 28D of the amended Act.

6. In this appeal, there is no dispute with regard to the question as to whether the respondent was entitled to get the benefit of the exemption notification with regard to the payment of the countervailing duty. We, therefore, proceed on the assumption that the decision of the High Court that the respondent was entitled to the said benefit was correct and it would, normally be ent

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2000 Supreme(SC) 289

Cases Referred (3)