Holding

The bar of unjust enrichment applies; a refund under Section 11‑B(2)(e) is permissible only if the duty was not passed on, and payment under protest does not exempt the claimant from complying with Section 11‑B.

Summary

The Supreme Court examined whether the doctrine of unjust enrichment bars a refund claim when excise duty was paid under protest. Birla Corp Ltd, a cement manufacturer, had paid duty under protest and later sought a refund, arguing that the duty was not passed on to customers. The CEGAT had held that the bar of unjust enrichment does not apply to such cases and set aside the refund order. The Court held that Section 11‑B(2)(e) of the Central Excise Act allows a buyer to claim refund only if the duty incidence was not passed on, and that payment under protest is still subject to the provisions of Section 11‑B, not Rule 9‑B. Consequently, the CEGAT’s order was untenable and the matter was remitted to the Assistant Collector to determine factually whether the duty was passed on. The appeals were disposed of without costs.

Issues considered

Whether the bar of unjust enrichment applies to refund claims where duty was paid under protest.
Interpretation of Section 11‑B(2)(e) of the Central Excise Act, 1944 in relation to Rule 9‑B.
Whether the duty incidence was passed on to the customers, a factual issue.
Whether a buyer’s right to claim refund is distinct from a manufacturer’s right under the Act.

Legislation cited

Central Excise Act, 1944s. 11-B(1), s. 11-B(2)(e), s. 11-B(3), s. 4
Central Excise Rules, 1944s. Rule 9-B

Subjects

Central ExciseRefundUnjust enrichmentSection 11-BPayment under protestBuyer vs manufacturerConsumer Welfare FundRule 9-BLimitation period

Judgment

A COMMISSIONER OF CENTRAL EXCISE
lo
MIS. B!RLA CORPORATION LTD. & ANR.

JANUARY 25, 2007

B [DR. ARlJJT PASA YAT AND S.H. KAPADIA, JJ.]

Central Excise Act, 1944-S. l I B(2)(e)-Unjust enrichment-Bar of-
Held, applicable to claim for refund where orir,inal payments of duty were
C made under protest.

The question which arose for consideration in the present appeal is
whether CEGAT was justified in holding that the bar of unjust enrichment
does not apply to claim for refund in cases where original payments of duty
were made under protest.
D Disposing of the appeal, and remitting the matter to Assistant Collector,
the Court

HELD: I.I. Section ll-B(2)(e) of Central Excise Act, 1944 conferred a
right on the buyer to claim refund in cases where he proved that he had
E not passed on the duty to any other person. The entire scheme of
Section 11-B showed the difference between the rights of a manufacturer to
claim refund and the right of the buyer to claim refund as separate and
distinct. Moreover, under Section 4 of the said Act, every payment by the
manufacturer whether under protest or under provisional assessment was on
his own account. The accounts of the manufacturer are different from the
F accounts of a buyer (distributor). In view of this, the order of CEGAT cannot ,.--
be maintained. [Paras 7 & 81 [17-E-Gj

1.2. But the crucial question !s whether the duty element had been passed
on to the customer. This is to be factually adjudicated. [Para 9[ [17-Hj

G
Commissioner of Central Excise, Mumbai II v. Allied Photographies,
12004] 4 sec 34, followed.

Ma.fat/al Industries Ltd. v. UOI, (1997) 89 ELT 247 SC; Sinkhai

H 12
.(
I

COMMNR. OF CENTRAL EXCISE r. BJRLA CORPN. LTD (PASA YAT, J] 13
Synthetics & Chemicals (P) ltd. v. Collector of Central Excise, A urangabad, A
12002] 9 SCC 416 and Commissioner of Central Excise, M;anbai v. Allied
Photog•aphics India Ltd., 12004] 4 SCC 55, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1983-1984 of
2004.
B
From the Final Order Nos. 263-264/2002-C dated 5.12.2002 of the Customs,
Excise & Gold (Control) Appellate Tribunal, West Block, New Delhi in Appeal
No. E/2009/01-C & E/1654/01-C.
>-
Mohan Parasaran, A.S.G., K. Swami, Rekha Pandey and B. Krishna
Prasad for the Appellant. C
Harish N. Salve, Ashok Sagar and Meera Mathur for the Respondent
No.2.

S.K. Bagaria, Praveen Kumar for the Respondent No. l.
D
The Judgment of the Court was delivered by

DR. ARIJIT PASAYAT, J. I. Challenge in these appeals is to the judgment
.< rendered by the Customs, Excise and Gold (Control) Appellate Tribunal, New
Delhi, (for short 'CEGA T'). By the impugned judgment the CEGAT held that
the bar of unjust enrichment does not apply to claim for refund in cases where E
original payments of duty were made under protest. Accordingly, the orders
passed by the Central Excise Authorities were set aside.

2. Background facts in a nutshell are as follows:-

3. Respondent no. I was formerly known as M/s. Birla Jute & Industries F
Ltd. unit Chittor Cement Works. It was engaged in the manufacture of
Cement which is classifiable under Chapter 25 of the Schedule to the Central
Excise Tariff Act, 1985 (in short 'Tariff Act'). It claimed the benefit of rebate
of central excise duty under Notification No.36/87-CE dated 1.3.1987 which
was denied by the Department. Thereafter, respondent no. I paid duty at the G
applicable rates under protest during the period between March I 987 to
March 1990. Initially, the respondent no. I was held to be entitled to the
benefit of the notification in terms of the order dated 14.5.1991 passed by the
Collector (Appeals), Central Excise. Respondent no. I by letter dated 29 .5 .1991
requested the jurisdictional Assistant Collector to grant refund in compliance
H
14 SUPREME COURT REPORTS (2007] 2 S.C.R.

A of the order passed by the Collector (Appeals). Being aggrieved by the order
of the Collector (Appeals), Revenue preferred an appeal before the CEGAT
which was dismissed. Authorities were of the view that respondent no. I had
passed on duty to the customers and, therefore, notice was issued on 29.4.1994
to show-cause as to why the amount of refund should not be credited to the
Consumers Welfare Fund. By order dated 20.12.1994, the Assistant Collector,
B Central Excise Division, Udaipur, sanctioned the refund claimed but directed
that only a part of it was to be paid to respondent no. I. The remaining
amount was ordered to be credited to the Consumer Welfare Fund. It is to
be noted that the total claim of refund was Rs.9,70,25,847.60 which consists
of the following items:-
c (i) Excise duty under refund Rs.1,08,60,620.00
charged/realized from the
purchasers.

(ii) Excise duty under refund Rs.8,60,52,179.00
D not charged/realized from
the purchasers.
(iii Excise duty under refund Rs. I, 13,048.00
borne by the unit

E 4. The Assistant Collector, inter alia, held that the respondent no. I had
failed to prove that the duty incidence had not been passed on to the
customers. Respondent no. I filed an appeal before the Commissioner
(Appeals), which was dismissed placing reliance on the decision of this Court
in Mafatlal Industries Ltd v. UOI, (1997) 89 EL T 247 SC. It was held that
principle of unjust enrichment would apply to the present case, since
F respondent no. I had passed on the incidence of duty to its customers.
Appeals were filed before the CEGA T by respondent No. I which relying on
the decision of this Court in Sinkhai Synthetics & Chemicals (P) Ltd v.
Collector of Central Excise, A urangabad, (2002] 9 SCC 416 held that the
principle of unjust enrichment was not applicable as amount had been paid
under protest. Accordingly, the appeals were allowed. In these appeals the
G primary stand of the appellant is that the decision in Sinkhai's case (supra)
has been held to be not properly decided by a three-Judge Bench in
Commissioner of Central Excise, Mumbai-I/ v. Allied Photographies India
Ltd, [2004] 4 sec 34.

H 5. Learned counsel for respondent no. I on the other hand submitted
COMMNR. OF CENTRAL EXCISE v. BIRLA CORPN. LTD [PASAYAT. J.] 15
that the amount was paid provisionally under Rule 9-B of the Central Excise A
Rules, 1944 (in short the 'Rules'). The amendment to Section 11-B of Central
Excise Act, 1944 (in short the 'Act') was made on 20.9.1991. In view of
position prior to amendment, Section l l-B(3) of the Act, was applicable and
refund was to be granted without an application.

6. Learned counsel for the respondent no.2 has submitted that pursuant B
to the orders passed by the Appellate Authority For Industrial & Financial
Reconstruction, New Delhi (in short 'AAIFR') adjustments have been made
,>- and if the order of the Tribunal is interfered with that may disturb the
arrangements made. It has been stated by the respondents that the incidence
was not passed on the customers and it has been borne by the assessee and, C
therefore, Section 11-B of the Act has no application.

7. By order dated 13.11.2003 as reported in Commissioner of Central
Excise, Mumbai v. Allied Photographies India Ltd, [2004] 4 SCC 55, doubting
the correctness of the view expressed in Sinkhai's case (supra) reference was
made to a three-Judge Bench. The three Judge Bench in Commissioner of D
Central Excise, Mumbai II v. Allied Photographies (speaking through one of
us Kapadia; J.) [2004] 4 SCC 34 held as follows:-

"(l) Section 11-B was inserted in the Act w.e.f. 17-11-1980. Under
Explanation (B)( e) to Section 11-B(l), where assessment was made
provisionally the relevant date for commencement of limitation of six E
months was the date of adjl)stment of duty as final assessment.
Entitlement to refund would thus be known only when duty was
finally adjusted. Explanation (B)(e) referred to limitation in cases
covered by Rule 9-B which dealt with duty paid under provisional
assessment. The said rule started with a non obstante clause. Rule 9- F
B was a complete code by itself. On compliance with the conditions
therein, the proper officer was duty-bound to refund the duty without
requiring the assessee to make a separate refund application. The said
rule, therefore, provided for making of refund. On the other hand,
Section 11-B(l) dealt with claiming of refund by the person who had
paid duty on his own accord. In this connection, Section 4 of the Act G
is relevant. It dealt with assessment which means determination of tax
liability. Under the Act, duty was payable by the manufacturer on his
own account. Hence, under Section 11-B( I), such a person had to
claim refund by making an application within six months from the
relevant date except in cases where duty was paid under protest in H
16 SUPREME COURT REPORTS (2007] 2 S.C.R.

A terms of the proviso. However, even in such cases, the person claiming
refund had to pay the duty under protest in terms of the prescribed
rules. Thus, Section 11-B( 1) refers to claim for refund as against
making of refund by the proper officer under Rule 9-B.

(2) On 20-9-1991Section11-B underwent a drastic change v1de Central
B Excises and Customs Laws (Amendment) Act 40 of 1991 (for short
"the Amendment Act"). By the Amendment Act, the concept of
unjust enrichment as undeserved profit was introduced.

(3) According to Statement of Objects and Reasons for enacting the ""
Amendment Act, the Public Accounts Committee had recommended
c introduction of suitable legislation to amend the Act to deny refunds
in cases of unjust enrichment. By the Amendment Act, Section 11-
B(3) was amended and clause (e) to Explanation (B) was substituted
by a new clause (e). However, although clause (e) as it stood prior to
20-9-1991 dealt with the limitation period in cases of refund of duty
paid under provisional assessment, the substantive provision for
D
provisional assessment of duty was Rule 9-B. Therefore, even with
the deletion of old clause (e), Rule 9-B continued during the relevant
period. Therefore, Section 11-B (as amended) applied to claiming of
refunds where the burden was on the applicant to apply within time
and prove that the incidence of duty had not been passed on whereas
E Rule 9-B covered cases of ordering of refund/making of refund, where
on satisfaction ·of the conditions, the officer concerned was duty-
bound to make the order of refund and in which case question of
limitation did not arise and, therefore, there was no requirement on the
part of the assessee to apply under Section 11-B. Lastly, Rule 9-B
referred to payment of duty on provisional basis by the assessee on
F his own account and, therefore, in cases where the manufacturer is )'

allowed to invoke this rule and refund accrues on adjustment under
Rule 9-8(5) that refund is on the account of the manufacturer and not
on the account of the buyer. If one reads Section 11-B on one hand
and Ru le 9-B on the other hand, both indicate payment by the assessee
G on his own account and refund becomes due on that account alone.

(4) The Bench found no merit in the stand that payment of duty under
protest and payment of duty under provisional assessment are both
"on-account" payments under the Act. There is a basic difference
between duty paid under protest and duty paid under Rule 9-B. The
H duty paid under protest falls under Section 11-B whereas duty paid
COMMNR. OF CENTRAL EXCISE v. BIRLA CORPN. LTD [PASAYAT, J.] ]7

under provisional assessment falls under Rule 9-B. That Section 11- A
B deals with claim for refund whereas Rule 9-B deals with making of
refund, in which case the assessee has not to comply with Section
11-B. Therefore, Section 11-B and Rule 9-B operate in different spheres.
Therefore, the respondent was bound to comply with Section 11-B.
Jn any event, the application dated 11-2-1997 fell in the category of
refund claim being made after finalization of assessment ofNIIL and, B
therefore, Section I 1-B had to be complied with in terms of para 104
of the judgment in Mafatlal Industries Ltd v. Union of India, [ 1997]
.. 5 SCC 536. Since there was failure to comply with Section 11-B, the
respondent was not entitled to refund.

The basis on which a manufacturer claims refund is different from C
the basis on which a buyer claims refund. The cost of purchase to
the buyer consists of purchase price including taxes and duties
payable on the date of purchase (other than the refund which is
subsequently recoverable by the buyer from the Department).
Consequently, it is not open to the buyer to include the refund D
amount in the cost of purchase on the date when he buys the goods
as the right to refund accrues to him at a date after completion of the
.J,
purchase depending upon his success in the assessment. Lastly, as
already stated, Section 11-B dealt with the claim for refund of duty.
It did not deal with making of refund. Therefore, Section Il-B(3)
stated that no refund shall be made except in terms of Section 11-8(2). E
Section l l-B(2)(e) conferred a right on the buyer to claim refund in
cases where he proved that he had not passed on the duty to any
other person. The entire scheme of Section 11-B showed the difference
between the rights of a manufacturer to claim refund and the right of
the buyer to claim refund as separate and distinct. Moreover, under p
Section 4 of the said Act, every payment by the manufacturer whether
under protest or under provisional assessment was on his own
account. The accounts of the manufacturer are different from the
accounts of a buyer (distributor)."

8. In view of what has been stated above, the order of CEGAT cannot G
be maintained.

9. But the crucial question is whether the duty element had been passed
on to the customer. This is to be factually adjudicated. We, therefore, remit

H
18 SUPREME COURT REPORTS [2007) 2 S.C.R.

A the matter to the Assistant Collector to decide this matter. The parties shall
be pemiittcd to place materials in support of their respective stand. We make
it clear that we have not expressed any opinion as to the effect of the
adjudication to be made by the Assistant Collector in the proceedings before
the AAIFR.

B I 0. The appeals are accordingly disposed of without any order as to
costs.

D.G. Appeal disposed of.