The doctrine of unjust enrichment applies to taxes paid on raw material and capital goods used in the manufacture of finished goods, and the period of limitation for claiming a tax refund is three years from the date of payment.

JUDGMENT

(Prayer: Writ appeal as against the order dated 09.02.2017 passed in W.P. No. 33151 of 2016)

S. Vaidyanathan, J. & C. Saravanan, J.

1. Learned Government Advocate (T) for the petitioners submits that as of now, the issue is covered as per the decision of the Division Bench of this Court in State of Tamil Nadu and another V. M/s. Everest Industries Limited in W.A. Nos. 1260 of 2017 etc batch vide order dated 31.03.2022.

2. The relevant portions of the judgment of the Division Bench, by which the aforesaid writ appeals were disposed of are as hereunder:

"143. The second question which may possibly arise is, whether "unjust enrichment" would apply to taxes paid on raw material and captively consumed in the manufacture of finished goods within the State. The said question stands resolved by the decision of the Hon-ble Supreme Court in the case of Union of India and others vs. Solar Pesticides Private Limited and another reported in (2000) 2 SCC 705 in which, while holding that the doctrine of “unjust enrichment“ would apply to duty paid on raw materials and captively consumed, it was held that "passing of incidence of duty to any other person may be direct such as when the goods imported are themselves sold and the burden of tax thereon is passed on to the buyer or it may be indirect when the goods imported are captively consumed by importer himself and the duty paid thereon is added to the price of the finished goods which are sold to others". The following passage of the said judgment would make the said position clear:

“20. We are of the opinion that the aforesaid observations would be applicable in the case of captive consumption as well. 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 refund 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.

“ (emphasis supplied)

144. Following the above judgment of the Hon-ble Supreme Court in Solar Pesticides Private Limited, the doctrine of “unjust enrichment“ was applied to capital goods used captively in the case of Commissioner of Central Excise, Chennai vs. Grasim Industries reported in (2015) 14 SCC 1, the relevant paragraph of which is profitably reproduced below:

“10. However, what follows from the reading of the said judgment is that if a particular material is used for the manufacture of a final product, that has to be treated as the cost of the product. Insofar as the 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 [Union of India v. Solar Pesticides (P) Ltd., (2000) 2 SCC 705] 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 therefore 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. We, thus, are of the opinion that the view taken by the Tribunal is not correct in law. “

(emphasis supplied)

145. It is also useful to refer to the Judgment of the