ORDER
S. Kalyanam, Vice-President
1. For the reasons stated in the petition, the delay in the presentation of the supplementary appeals are condoned and the appeals are taken up for disposal today on merits.
Appeal
2.’ The appeals are directed against the order of the Collector of Customs (Appeals), Bangalore, dated 18.8.1994 confirming the order of the Assistant Collector of Customs, Aircargo Complex, Bangalore, dated 2.12.1993 and rejecting the appellants claim for refund Under Section 27(1)(b) of the Customs Act, the ‘Act’ for short.
3. Shri Ramesh, the Id. Counsel submitted that the appellant is a joint sector company promoted by the Tamil Nadu Industrial Development Corporation, a Govt. of Tamil Nadu enterprise. The appellants imported a consignment of watch dial crystals from Hong Kong under 8 bills of entry during May to July 90 for captive consumption in the appellants factory for the manufacture of watch dials. Initially, the Customs authorities loaded the value of the goods imported not accepting the value in the declaration filed by the appellants and subsequently the appellants preferred an appeal against such loading of the value by the Department and the appellants appeal by Order No. 50/91 dated 4.3.1991 was allowed by the Collector of Customs (Appeals), Bangalore and in the interregnum appellants were paying duty under protest. After the appellants appeal were allowed as stated above, the appellants preferred a refund claim under the provisions of the Customs Act and the refund claim was rejected by the authorities on the ground of the applicability of the doctrine of unjust enrichment in terms of Section 27(1)(b) of the Customs Act, 1962, the ‘Act’ for short, out of which the present appeals arising.
4. The Id. Counsel submitted that the doctrine of unjust enrichment would be applicable in a situation where the duty and interest if any paid on such duty in relation to which a refund is claimed or was claimed from or paid by the consumers and the incidence of duty had been passed on to the consumers. In the present case, it is not disputed by the Department that the goods imported were captively used by the appellants and therefore, the question of passing of any duty payable thereon to the consumers would not arise. This plea has been accepted by the Madras High Court in similar circumstances in the case of Mis. Indo-Swiss Gem Mfg. Co. Ltd. v. Collector of Customs (Mad.). The Id. Counsel also referred to the ruling of the Bombay High Court in the case of Mis. Solar Pesticides Pvt. Ltd. v. Union of India . The Id. Counsel submitted that the ratio of the rulings of the Madras and Bombay High Courts which is binding on the adjudicating authorities has not been taken note of and a finding given and therefore, the impugned order is not sustainable in law or on facts.
5. Shri Venkatan, the Id. DR submitted that initially if the appellants value as declared was not accepted by the Department and the value of the imported goods was loaded on the basis of which the appellants paid duty under protest, it is but natural that the excess duty paid by the appellants under protest would have been loaded in the cost of price of the goods sold by the appellants and therefore, there would be an excess between the duty paid and the sum collected by way of price from the consumers and in this view the appellants should be deemed to have passed on the incidence of duty to the consumers and therefore would become disentitled to claim refund in terms of Section 27(1)(b) of the Act by application of the principles of doctrine of unjust enrichment. The Id. DR also referred to the considerable difference in the cost construction and the price list filed by the appellants referred to in the impugned order indicating a vast difference.
6. I have considered the submissions made before me. The appellant is held entitled to the claim of refund inasmuch as the price declared by the appellant has been accepted by the Id. Collector (Appeals) in the appeal preferred by the appellants as per the order dated 4.3.1991. The refund claim by the appellants has been negatived by the authorities on application of the principles of the doctrine of unjust enrichment in terms of Section 27(1)(b) of the Customs Act holding that the additional duty which the appellant was called upon to pay by loading the assessable value of the goods imported by them should be deemed to have been passed on to the consumer. Therefore, the question for consideration is whether the evidence on record establishes that the appellant has passed on the incidence of any duty or interest paid on duty to the consumers so as to come within the bar in terms of Section 27(1)(b) of the Act on grounds of doctrine of unjust enrichment. In the present case, the goods imported have been captively utilised in the manufacture of the watched manufactured and cleared by the appellant. The Id. Counsel vehemently contended that whatever was the duty paid on the goods imported the price of the watches manufactured and cleared by the appellant remained the same and in this regard the appellant also produced a certificate of the Chartered Accountant before the adjudicating authority which has not been properly considered. In respect of goods imported by the actual users where the imported goods are captively consumed without being sold, it has been held by the Madras High Court in the case of Mis. Indo-Swiss Gem Mfg. Co. Ltd. cited supra that the bar of unjust of enrichment would not be applicable to those cases. In other words, where there is no sale of goods which are imported and in the absence of any transfer of incidence of taxation directly by the sale of the imported goods as such to the buyer, it is held that the importer would be entitled to claim the benefit Under Section 27(2)(a) & (b) of the Customs Act.
7. For the purpose of convenience and better understanding, I am extracting the relevant observations of the Madras High Court in this regard as under:
In the supplemental affidavit filed by the petitioner, the petitioner had categorically stated in detail with reference to the manufacture of synthetic gems by the use of silica crucibles and the petitioner made it clear that the petitioner does not sell silica crucibles and does not trade in these silica crucibles. They are meant solely for use in the petitioner’s factory for manufacture of synthetic gems and these crucibles are used as refractory goods which could withstand very high industrial temperatures, which is necessary for the manufacture of synthetic gems. While so, it is manifest that the petitioner had not passed on the incidence of taxation on the customs or buyers. That being the actual position, the ratio of the decision of the Bombay High Court in Solar Pesticides Pvt. Ltd. case (supra) is directly applicable to the present case. The Bombay High Court had in extenso dealt with the effect of the amending provisions. Section 27(2)(a) and (b) of the Act is very clear to the effect that the petitioner is entitled to refund if such amount is relatable’ to the duty paid by the importer (a) if he had not passed on the incidence of such duty to any other person and (b) the duty on imports made by an individual for his personal use. In the instant case, the petitioner had not passed on the incidence of duty to any other person. As explained supra, since the petitioner has not directly passed on the goods as imported to th6 customers or buyers, the question of passing on the incidence of duty does not arise.
It is manifest from the provisions that if the importer had not passed on the incidence of duty to any other person and the duty on imports made by an individual for his own personal use, importer is entitled to refund. The said provisions contemplates a situation that if an importer of the goods, after clearing the goods on payment of duty, sells the same to third parties and that by virtue of such sale the importer passes on the incidence of such duty to any other person, then the importer is not entitled to refund. When the importer made use of the goods for his own personal use, the question of passing on the incidence of such duty does not arise. Hence the importer in such a situation is entitled to refund of duty. It appears that if the importer has made use of the imported goods for the manufacture of end products, the imported goods get mixed with, in the process of manufacturing of end product. It cannot be said that the importer has passed on the incidence of duty to third person, when the end product is sold. Section 27(2)(a) does not contemplate such a situation. In the instant case, the petitioner has made use of. the silica crucibles in the process of manufacture of synthetic gems and the petitioner has not passed on the duty paid on the silica crucibles to third parties. In the judgment of the Bombay High Court in Solar Pesticides case (supra), the Court observed that the import duty paid on copper scrap may become a part of the cost of manufacture of copper oxychloride, but when the copper oxychloride is sold in the market, it is difficult to ascertain how much of the original import duty on copper scrap is passed on to the buyer of oxychloride and in what proportion; nor can there be in such a case the kind of documentation required under the scheme and consequently the buyer of copper oxychloride cannot claim a refund of any part of the duty on copper scrap. In other words, where there is no sale of the goods which are imported and in the absence of any transfer of incidence of taxation directly by the sale of the imported goods as such to the buyer, the importer is entitled to claim benefit under Section 27(2)(a) and (b) of the Act.
8. The Bombay High Court in the case of Mis. Solar Pesticides referred to above dealing with a similar situation has held as under:
Hence the entire scheme is designed for a situation where (1) the importer of goods after clearing the goods on payment of duty, sells these goods to others. In the process either he directly passes on the incidence of duty to his buyer or does not. Only in the latter case will the importer get the refund. Otherwise the refund will go to the buyer or to the Consumer Welfare Fund as per the Sections (2) If the duty is passed on to the buyer, the right to recover the duty is also passed on to the buyer of the imported goods: Provided that the buyer has not in turn, sold these goods and passed on the duty to the next buyer. (3) The converse situation contemplated is whether the importer uses the goods himself. Here there is no question of passing on the incidence of duty to anyone else since the goods imported are not sold to anyone else. Hence he can get the refund.
Therefore the question of unjust enrichment arises under the amended scheme when refund is asked for by a person who has sold the imported goods and in the process directly passed on the burden of duty to the buyer. Clauses (a), (b) and (c) of the proviso to Section 27(2) and the presumption laid down under Section 28D make this very clear.
In the present case the imported copper scrap has not been sold by the petitioners to anybody. They have used the scrap themselves for the manufacture of chemicals. The petitioners have therefore not passed on the duty paid by them on copper scrap to any buyer of copper scrap. Had they done so, the buyer of this imported scrap could have claimed a refund and so on. Since the petitioners have consumed the scrap in the process of manufacturing Copper Oxychloride, they have not passed on the incidence of duty to anybody in the manner envisaged in the scheme. Because the scheme envisages a direct transfer of the burden of duty along with the sale of the same goods which were imported, to the buyer.
Undoubtedly, the import duty paid on copper scrap may become a part of the cost of manufacture of Copper Oxychloride. But when Copper Oxychloride is sold in the market, it is difficult to ascertain how much of the original import duty on copper scrap is passed on to the buyer of Copper Oxychloride and in what proportion. Nor can there be in such a case the kind of documentation required under the scheme. So that the buyer of Copper Oxychloride cannot claim a refund of any part of the duty on Copper scrap. Where there is no sale of the goods which were imported and no direct transfer of the burden of duty to the buyer of the imported goods, the case falls under Clause (a) or (b) of the proviso to Section 27(2).
In other words Clause (a) also covers all cases where the importer has not sold the imported goods in the same form in which they were imported, but has used or consumed the goods himself. This would include his using up or consuming the imported goods in the manufacture of a different commercial commodity. Clause (b) of the proviso brings out this aspect clearly in the case of an individual.
The Statement of Objects and Reasons relating to the Central Excise and Customs Laws (Amendment) Act, 1991 is also relevant as throwing light on the circumstances that brought about the amendment. It is stated in the Statement of Objects and Reasons.
The question of “unjust enrichment” in cases of goods subject of duty of excise or customs has been the subject-matter of discussion for quite sometime now. The concept of “unjust enrichment”, in so far as it relates to the said duties, is that any refund of these duties made to any manufacturer or importer, who may have initially paid these duties but had passed on the same to the buyers, would be in the nature of a windfall gain to such manufacturer or importer.
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3. The Bill aims at giving effect to the aforesaid recommendation of the Committee and proposes the following main amendments in the said Acts, namely:
(a) the manufacturer or importer of goods shall not be entitled to refund of the 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;
(b) 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;
(c) every person, who is liable to pay duty of excise or, as the case may be, the duty of customs on any goods, shall be under an obligation to prominently indicate, at the time of clearance of the goods, in all the documents relating to assessment, etc., the amount of duty which will form part of the price at which such goods will be sold;
(d) the refund of any of the said duties is proposed to be made only to the person who has ultimately borne the incidence of such duty;
(e) XX XX
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(f) XX XX
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(g) it is also proposed to provide that where any manufacturer or importer of goods has collected any amount in any manner from the buyer as representing the duty of excise or, as the case may be, the duty of customs, he shall pay the said amount to the credit of the Central Government and the said amount shall be utilised in adjusting the duty payable by the manufacturer or importer on finalisation of assessment. The surplus, if any, will be dealt with in accordance with the aforesaid provisions of Section 1 IB of the Central Excises & Salt Act, 1944 and Section 27 of the Customs Act, 1962.
This doctrine of unjust enrichment, which is the genesis of the amendment, has no application in cases where the imported goods are either consumed by the importer or are used by him in the manufacture of other products. In the case of the imported product the customs duty paid on it becomes a part of the cost of manufacture of the new item or items in which the imported component is an ingredient. In such cases the doctrine of unjust enrichment is not invoked. In the case of HMM Ltd. and Anr. v. The Administrator Bangalore City Corporation, Bangalore and Anr. the Supreme Court has dealt with this aspect of the doctrine of unjust enrichment. In the case before the Supreme Court, the Court dealt with the payment of octroi duty on milkfood powder imported in bulk in drums in the city of Bangalore on which octroi was paid at the time of import. The milkfood powder was repacked in small packs and bottles of various sizes and sent to various places outside Bangalore, except a small quantity of which was sold in Bangalore City proper. The manufacturer claimed refund of octroi for the quantity of milkfood powder which was sent outside Bangalore after repacking and/or rebottling. One of the contentions which was raised before the Supreme Court was that refund of octroi cannot be given because there was possibility of unjust enrichment of the claimants. Negativing this contention, the Supreme Court observed that the octroi in the case before it was a duty on the entry of the raw material, for coming in.
It is the duty on the coming in of the raw materials which is payable by the producer or the manufacturer. It is not the duty on going out of the finished products in respect of which the duty might have been charged or added to the costs passed on to the consumers. In such a situation, no question of ‘undue enrichment’ can possibly arise in this case.
In the present case the additional duty of customs is levied on raw material which is being imported. It is not an additional duty on any finished product which is going to be sold to the consumer and to whom the incidence of the additional duty of customs can be passed on directly. Since the additional duty of customs has not been directly passed on by the petitioners to any third party by selling the imported goods, they are entitled to claim refund of this amount under proviso (a) to Section 27(2) of the amended Section 27.
9. Since the above rulings were not brought to the notice of the adjudicating authority and therefore not considered and since the same has also not been brought to the notice of the Id. Collector (Appeals) either and therefore not considered in the order of the original authority as well as the impugned order and since in the facts and circumstances of the case a factual verification may be called for to appreciate the plea of the appellants in the light of the applicability of the ratio of the rulings of the High Courts cited supra, I am inclined to think that the impugned order has to be set aside and the matter remitted for reconsideration in accordance with law after affording the appellants a reasonable opportunity of being heard. In the result, the impugned order is set aside and the appeals are remanded for the reasons stated above.
(Pronounced in open Court)