CEA/164/2011 of ITC Limited, Vs The Commissioner, on 30 December 2011

COMMON JUDGMENT:

This batch of central excise appeals under Section 130 of theCustoms Act, 1962 (the Act) – except three appeals; is filed by theITC Limited (Agro Business Division), Secunderabad. TheCommissioner for Central Excise, Customs & Service Tax (Appeals)(hereafter, the CCE(A)) as well as the Customs, Excise & ServiceTax Appellate Tribunal, Bengaluru Bench (CESTAT) disposed of thematters by common order and, therefore, it is appropriate to disposeof all these appeals by common judgment.

Brief background

It would be suffice to notice the factual background in CEANo.158 of 2011 filed by ITC Limited. The appellants are in the business of selling and exporting agricultural produce. As perSection 3 of the Agricultural and Processed Food Products (ExportCess) Act, 1985 (the Cess Act), there shall be levy and collection ofcess and duty of customs not exceeding 3% ad valorem value ofexported scheduled products. The appellants entered into exportsale FOB contracts with buyers in Austria, Geneva and Switzerland. After obtaining necessary export documents/licences/permits andpaying all export duties and levies, they paid cess under the CessAct at 0.5% ad valorem. In the invoices relevant to all the shippingbills the value of the export at one composite figure was indicated. These exports were effected in June and July, 2006. The Cess Actwas repealed with effect from 01.6.2006 vide the Cess Loss(Repealing & Amendment) Act, 2006. Despite this, the CustomsOfficials from Kakinada Port insisted for payment of cess and all theappellants paid the cess against the shipping bills after the repeal ofthe Cess Act. The levy and collection, indisputably was notauthorized by law. The appellants filed claims under Section 27 ofthe Act for refund of cess of export of rice consequent on itsabolition. By a speaking order dated 30.10.2006, the AssistantCommissioner of Customs, Division-I, Kakinada having come to theconclusion that “the bar of unjust enrichment clause is not applicable inthe instant case since the incidence of duty has been borne by theagents on behalf of the exporters and had not been passed on to anyother person” refunded the entire cess amount paid against theshipping bills.

In purported exercise of powers under Section 129D of theAct, the CCE, Visakhapatnam called for the records relating to thespeaking order of the Assistant Commissioner. On examining, heauthorized the Assistant Commissioner to file appeals against thespeaking orders in all the matters where refund claims wereallowed. The CCE observed that the adjudicating authority erred inholding that the incidence of duty had not been passed on to any other person in as much as in the shipping bills FOB value isinclusive of the cess; FOB value had been realized by exporters asper the Bank certificates, which disentitled them for refund underSection 27 of the Act.

In obedience to the orders of the CCE, appeals were filedbefore the CCE (A), Visakhapatnam-IV. It was mainly contended thatFOB value of the shipping bills is inclusive of the cess and the FOBvalue was realized by the exporters as certified by the Banks andthat when the incidence of duty had been passed on to the buyersthe principle of unjust enrichment is attracted. The appellants reliedon the shipping bills and Incoterms, 2000 which are InternationalCommercial terms pre-defined by the International Chamber ofCommerce and urged that the FOB value is not inclusive of a cesspaid under the Cess Act. They also submitted that the exportersthemselves incurred the expenditure towards cess and the burdenhad not been passed on to the buyers. The CCE (A) after referringto the Incoterms, inferred that FOB value in the shipping bills isinclusive of cess as the same is mentioned in the shipping bills. Theappeals filed by the department were accordingly allowed.

In their appeals before the CESTAT, the appellants relied onIncoterms and the agreement they entered into with foreign buyers insupport of their plea that the cess paid was not passed on to thebuyers and that there was no unjust enrichment. On considering thisplea, the CESTAT concluded as under.

We find that from the above definition it is notpossible to arrive at a definite conclusion that the FOBvalue includes the cess paid on export of rice especially incases where the contract with the foreign buyer specificallyprovided that the export duty/taxes etc., were to the accountof the seller. In all the cases except in the case of M/s.Al GyasExports Pvt. Ltd., the appellants have furnished copies of therelevant contracts containing the above clause. Unless theDepartment is satisfied on examination of the documentsshowing remittance received by the appellants, the finding in theimpugned order that the FOB value recovered included theimpugned cess cannot be sustained. As it is, there is no reliablefinding in the impugned order to conclude that the disputed cess It appears that in their written arguments departmentalrepresentative raised a plea that when the assessee has notchallenged the assessment order, claim for refund would not lie. Countenancing this plea the CESTAT rejected the appeals observingas under.

As regards the claim that a refund claim for excess dutypaid can be validly made without challenging assessment underthe Act relying on the judgment of the Apex Court in the case ofKarnataka Power Corporation Ltd v CC (Appeals), (2002) 143ELT 482 (SC), we note that a Larger Bench of the Tribunal hadconsidered the ratio of the above decision and the decisions ofthe Apex Court in Flock India case and Priya Blue Industriescase and held that a refund claim was not maintainable unlessthe assessment order in pursuance of which duty paid waschallenged and modified/set aside. In the case of MaharashtraCylinders Pvt. Ltd. v CESTAT, Mumbai & Ors., reported as2011 (183) ECR 0059 (Bom.), the Hon’ble High Court ofBombay has observed as follows:- “8. … … The Apex Court in the case of Priya Blue IndustriesLtd v Commissioner of Customs (Preventive), AIR 2004 SC5115 : 2004 (172) ELT 145 (SC) has held that validity of anassessment cannot be considered while dealing with the refundclaim. The said ratio would apply to the self assessment aswell.”

In view of these binding authorities, we reject thearguments of the appellants relying on the judgment of the ApexCourt in the case of Karnataka Power Corporation Ltd (supra).

Submissions

M/s.C.R.Sridharan and Raghavan Ramabhadran appearing insupport of the appellants made the following submissions. TheCESTAT having recorded a finding that there is no unjust enrichmentand that the incidence of duty had not been recovered as part ofFOB from the foreign buyer was in error in rejecting the appeals onlyon the ground that the claim for refund without challenging theassessment order would not be permissible. Whether the refundclaims may be made without challenging the assessment order isnot a question which would arise in the appeals. Placing reliance onSection 129D (2) of the Act the Counsel would urge that when the reviewing Commissioner directs an authority to file appeal to theCCE (A) for determination of such points that arise out of thedecision or order as may be specified by the reviewingCommissioner, an appeal could not have been filed on the groundwhich was urged before the CESTAT. According to them thereviewing Commissioner directed the Assistant Commissioner to fileappeal against the speaking order only on the question of unjustenrichment and not on any other ground. Even before the CCE (A)the plea which was raised before the CCE (A) was not authorizedand the appellate authority decided the matter only with reference tothe question whether the appellants are disentitled for refund underSection 27 of the Act on the ground that FOB value is inclusive ofthe cess. The Counsel would further rely on Section 129B(1) of theAct and Rule 10 of the Customs, Excise and Service Tax AppellateTribunal (Procedure) Rules, 1982 and would submit that havingregard to these provisions the CESTAT could not have decided thequestion whether appellants were disentitled to claim refund withoutfiling appeals against the assessment order as the same is not aquestion which was set out in the memorandum of grounds ofappeals of the department. Relying on the decision of the Full Benchof this Court in CIT v Late Begum Noor Bano Alladin[[1]]they wouldcontend that unless the subject matter is one which necessarilyarises out of determination made by the first appellate authority, theCESTAT could not have gone into such questions. In support oftheir submissions, the Counsel also relied on CIT v Scindia Steam Navigation Co. Ltd[[2]]. The Counsel for the appellants submits thatthe speaking order passed by the original authority allowed refund ofclaims; refund was made and therefore question of filing appealagainst the speaking order passed by the Assistant Commissionerunder Section 28(2) of the Act does not arise. Even where anassessment order under Section 17(5) of the Act is passed and the same is in favour of the assessee the question of filing appeal doesnot arise and if need arises the application for refund of customsduty can be made under Section 27 of the Act. They would rely on the decision in Hind Agro Industries Limited v CCE[[3]]. It is nextlycontended that the refund claims by the appellants are not barred byunjust enrichment, though for the purpose of complying with theCess Act it was mentioned in the shipping bills that the cess waspaid. The FOB value did not include the cess as per the agreementbetween the appellants and the buyer. They would urge that theCCE (A) erred in not construing the agreement as sale contract andIncoterms in proper perspective. They would rely on the decisions in Union of India v Solar Pesticides Pvt.Ltd.[[4]],Sahakari Khand UdyogMandal Ltd v CCE[[5]],Contship Container Lines Ltd v D.K.Lall[[6]]andHind Agro IndustriesLimited.

The Senior Standing Counsel for Customs and Central Excisewould submit that the FOB value of the contract as shown in theshipping bills is inclusive of the cess paid under the Cess Act andthe incidence of duty/cess paid by the appellants had been passedon to the buyer and, therefore, refund claims are barred by unjustenrichment. Under Section 28D of the Act the burden of proving thatthe incidence of duty had not been passed on to the buyer is on theassessee and the appellants have not discharged the burden byproducing necessary material. He relies on Mafatlal Industries Ltd vUnion of India[[7]]. Placing reliance on Section 130(9) of the Act, hewould submit that the provisions of the Code of Civil Procedure,1908 (CPC) relating to appeals to High Court would apply to the Actand, therefore, finding recorded by the CESTAT in favour of theappellants that the refund claims were not barred by unjustenrichment can be challenged by the respondent as per Order XLIRule 22 of CPC. It is nextly contended that refund claims are notmaintainable when no appeal is filed against the speaking/

assessment order of the adjudicating authority. The attention of thisCourt is invited to CCE v Flock (India)(P) Ltd[[8]],CIT v Karnataka PowerCorporation Limited[[9]]and Priya Blue Industries Ltd v Commissioner of[10][11]Customs (Preventive). Placing reliance on NTPC v CITandDavangere Cotton Mills Ltd v CCE[[12]]the Senior Standing Counselwould submit that under Section 129B(1) read with Rule 10 of theCESTAT Rules, the Tribunal has all powers of the original authorityand when the ground was specifically taken by the Revenue in thewritten arguments that the FOB value includes cess, the Tribunalcannot be said to be in error in deciding the issue of bar of refundclaim for not availing appellate remedy. Lastly he would submit thatan appeal to High Court under Section 131 of the Act would lie whenthe case involves substantial question of law and these appealswould not involve any substantial question of law and, therefore, theyare not maintainable.

Points for consideration

The two broad issues that would fall for consideration are bar ofrefund claims by unjust enrichment and consequences of bar of notfiling appeals against the speaking orders.

Bar of refund claims

An application for refund of any duty paid by a person inpursuance of an assessment or borne by him shall be made to thejurisdictional Assistant/Deputy Commissioner of Customs. Everysuch application shall ordinarily be made before the expiry of oneyear/six months from the date of payment of duty and interest if anypaid on such duty, as the case may be. Further every suchapplication for refund shall be accompanied by documentary or other evidence including the documents referred to in Section 28C of theAct to establish that the amount of duty in relation to which refundclaim is made was paid by the person and the incidence of duty hadnot been passed by him to any other person.

Section 28D of the Act contains fiction to the effect that everyperson who has paid the duty on any goods under the Act shall bedeemed to have passed on the full incidence of the duty to the buyerof the goods. This presumption is rebuttable by the person whoclaims refund of the duties. Therefore every person claiming refundunder Section 27 of the Act has to demonstrate by relevant evidencethat he is not benefited by unjust enrichment as visualized bySection 72 of the Contract Act, 1872. If the incidence of duty paid isborne by another person the law bars refund claim.

In Mafatlal Industries Limitedthe Supreme Court considered theeffect of various in pari materia provisions in Central Excise Act,1944 and the Customs Act, 1962 as they stood amended by theCentral Excise and Customs Law (Amendment) Act, 1991 (CentralAct No.40 of 1991). The leading majority opinion delivered byJeevan Reddy,J (as his lordship then was) contains as many astwelve propositions. The Senior Standing Counsel relies onproposition Nos.(iii) and (iv) which we extract hereunder.

(iii) A claim for refund, whether made under the provisionsof the Act as contemplated in Proposition (i) above or in a suit orwrit petition in the situations contemplated by Proposition (ii)above, can succeed only if the petitioner/plaintiff alleges andestablishes that he has not passed on the burden of duty toanother person/other persons. His refund claim shall beallowed/decreed only when he establishes that he has notpassed on the burden of the duty or to the extent he has not sopassed on, as the case may be. Whether the claim for restitutionis treated as a constitutional imperative or as a statutoryrequirement, it is neither an absolute right nor an unconditionalobligation but is subject to the above requirement, as explainedin the body of the judgment. Where the burden of the duty hasbeen passed on, the claimant cannot say that he has sufferedany real loss or prejudice. The real loss or prejudice is sufferedin such a case by the person who has ultimately borne theburden and it is only that person who can legitimately claim itsrefund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the otherreason, it is just and appropriate that that amount is retained bythe State, i.e., by the people. There is no immorality orimpropriety involved in such a proposition.

The doctrine of unjust enrichment is a just and salutarydoctrine. No person can seek to collect the duty from both ends.In other words, he cannot collect the duty from his purchaser atone end and also collect the same duty from the State on theground that it has been collected from him contrary to law. Thepower of the Court is not meant to be exercised for unjustlyenriching a person. The doctrine of unjust enrichment is,however, inapplicable to the State. State represents the peopleof the country. No one can speak of the people being unjustlyenriched.

(iv) It is not open to any person to make a refund claim onthe basis of a decision of a court or tribunal rendered in the caseof another person. He cannot also claim that the decision of thecourt/tribunal in another person's case has led him to discoverthe mistake of law under which he has paid the tax nor can heclaim that he is entitled to prefer a writ petition or to institute asuit within three years of such alleged discovery of mistake oflaw. A person, whether a manufacturer or importer, must fighthis own battle and must succeed or fail in such proceedings.Once the assessment or levy has become final in his case, hecannot seek to reopen it nor can he claim refund withoutreopening such assessment/order on the ground of a decision inanother person's case. Any proposition to the contrary not onlyresults in substantial prejudice to public interest but is offensiveto several well-established principles of law. It also leads tograve public mischief. Section 72 of the Contract Act, or for thatmatter Section 17(1)(c) of the Limitation Act, 1963, has noapplication to such a claim for refund.

Before us the applicability of the above propositions is notdisputed. The CESTAT in paragraph 8.1 of its order held that thefinding of the appellate Commissioner that FOB value recoveredincluded the impugned cess is unsustainable. The appellants,therefore, would contend that in view of the finding of fact and in theabsence of a cross-appeal or appeal by the Revenue the questioncannot be reagitated in the appeal under Section 130 of the Act. Asnoticed supra the Senior Standing Counsel for the department relieson Section 130(9) of the Act and Order XLI Rule 22 of CPC andwould submit that the finding of the CESTAT against the departmentcan be challenged by the department.

Order XLI Rule 22 of CPC as it stands after 1976 CPC

Amendment enables the respondent to challenge any adverse finding even if the decree is in his favour, with or without filing cross-objections to the judgment in appeal. In[13]Banarsi v Ram Phalthe Supreme Court considered the scope ofOrder XLI Rule 22 of CPC as it existed before and after CPCAmendment, 1976 and held that, “to the extent to which the decree isagainst the respondent and he wishes to get rid of it he should haveeither filed an appeal on his own or taken cross-objection failingwhich the decree to that extent cannot be insisted on by therespondent for being interfered, set aside or modified to his advantage”. Excerpting the relevant placetum from Banarsi may be beneficial.

The CPC amendment of 1976 has not materially orsubstantially altered the law except for a marginal difference.Even under the amended Order 41 Rule 22 sub-rule (1) a partyin whose favour the decree stands in its entirety is neitherentitled nor obliged to prefer any cross-objection. However, theinsertion made in the text of sub-rule (1) makes it permissible tofile a cross-objection against a finding. The difference which hasresulted we will shortly state. A respondent may defend himselfwithout filing any cross-objection to the extent to which decree isin his favour; however, if he proposes to attack any part of thedecree he must take cross-objection. The amendment insertedby the 1976 amendment is clarificatory and also enabling andthis may be made precise by analysing the provision. Theremay be three situations:

(i) The impugned decree is partly in favour of the appellantand partly in favour of the respondent.

(ii) The decree is entirely in favour of the respondent thoughan issue has been decided against the respondent.

(iii) The decree is entirely in favour of the respondent and allthe issues have also been answered in favour of the respondentbut there is a finding in the judgment which goes against therespondent.

11. In the type of case (i) it was necessary for therespondent to file an appeal or take cross-objection against thatpart of the decree which is against him if he seeks to get rid ofthe same though that part of the decree which is in his favour heis entitled to support without taking any cross-objection. The lawremains so post-amendment too. In the type of cases (ii) and (iii)pre-amendment CPC did not entitle nor permit the respondent totake any cross-objection as he was not the person aggrieved bythe decree. Under the amended CPC, read in the light of theexplanation, though it is still not necessary for the respondent totake any cross-objection laying challenge to any finding adverse to him as the decree is entirely in his favour and he may supportthe decree without cross-objection; the amendment made in thetext of sub-rule (1), read with the explanation newly inserted,gives him a right to take cross-objection to a finding recordedagainst him either while answering an issue or while dealing withan issue.

In view of the finding of the CESTAT on the question of unjustenrichment is concerned, we are afraid, the department cannotreagitate in these appeals without filing separate appeals underSection 130 (1) of the Act or without filing cross-objections. Nevertheless as the parties before us debated on the issue for aconsiderable time we may briefly deal with this aspect as it involvesthe question of interpreting the sale contract between the appellantand the foreign buyer.

The appellants exported long grain rice under various shippingbills. The cess paid for each consignment is not separately shownthough it is prominently mentioned in each of the shipping bills forexport with cess. A perusal of these would show that the invoicevalue and FOB value are the same. The Revenue would rely onSection 28C of the Act which mandates that every person liable topay the duty on any goods shall prominently indicate in all thedocuments the amount of duty which will form part of the price atwhich the goods are sold. The cess paid is not separatelymentioned. In such an event Section 28D of the Act comes intooperation and it shall be deemed that the incidence of duty is passedon to the buyer. The non-mention of the cess in the shipping billsfor each consignment and the invoice value and FOB value are thetwo factors which are strongly relied on by the appellants to supporttheir plea that the cess was borne by them and that it was notpassed on to the foreign buyer. They also place reliance on the salecontract and Incoterms. There is no dispute that they are the officialrules of International Chamber of Commerce of trade terms intendedto facilitate conduct of international trade and are binding on all those who are engaged in International trade. After perusing these as wellas the shipping bills we are convinced that FOB value (invoice) doesnot and could not have included the cess paid by the appellants andthat the appellants did not pass on incidence of duty to the buyer. Inthe absence of any such material, the equitable principle of unjustenrichment does not bar refund claims under Section 27 of the Act. We would elaborate the reasons as follows.

[14] The description in Stock v Englisthat in FOB contract theseller is bound at his expense to place the goods free on board aship for transmission to the buyer, has undergone lot of changes inthe business world. An FOB contract is described as flexibleinstrument. Benjamin’s Treatise on ‘Sale of Goods’ describes therelative duties of buyer and seller in ‘the classic FOB contract’ and additional duties as follows.

20–002 The “classic” f.o.b. contract: relative duties of buyer andseller. The “classic” f.o.b. contract was described in Wimble, Sons[15]Co v Rosenberg. Its essential features are that the seller must athis own expense put the goods on board a ship which has to benominated or designated by the buyer. The seller is not bound toreserve shipping space in advance nor to bear any expense ofshipment which arises after the goods have been put on board. When these features are said to be the mark of a “classic” f.o.b.contract, stress is placed on the relative duties of buyer and seller inrelation to ship.

20–007 F.o.b. contract with additional duties. An f.o.b. contractmay impose on a seller duties in addition to those undertaken by himunder a “classic” f.o.b. contract. Thus it may impose on him liabilityfor expenses beyond those of putting the goods on board (such asdock and harbour dues and port rates) as well as the duty of findingshipping space or of doing his best to that end, or of effectinginsurance. In such cases the seller’s duties in relation to shipmentand insurance are analogous to those of a c.i.f. seller; but thecontract is distinguishable from a c.i.f. contract in that the costs offreight and insurance are for the buyer’s account. This will be soeven if the seller is under the contract of carriage or of insuranceliable to pay these sums to the carrier or to the underwriter or toboth. As between the parties to the contract of sale the buyer bearsthe ultimate responsibility for these payments, and he takes the riskof any variation in, for example, freight rates which may occurbetween the time of sale and the making of the contract ofaffreightment. (Internal quotations omitted)

International Chamber of Commerce created Incoterms in

1936. The purpose of these official ICC Rules for interpretation oftrade terms to facilitate conduct of International trade and to providea set of rules for the interpretation of the most commonly used tradeterms for foreign trade and minimize inconsistent interpretation indifferent countries (see Foreword and Introduction to Incoterms,2000). Para 14 of the Introductory chapter is relevant and reads as under.

14. Customs clearance

The term “customs clearance” has given rise tomisunderstandings. Thus, whenever reference is made to anobligation of the seller or the buyer to undertake obligations inconnection with passing the goods through customs of thecountry of export or import it is now made clear that thisobligation does not only include the payment of duty and othercharges but also the performance and payment of whateveradministrative matters are connected with the passing of thegoods through customs and the information to the authorities inthis connection. Further, it has – although quite wrongfully –been considered in some quarters inappropriate to use termsdealing with the obligation to clear the goods through customswhen, as in intra-European Union trade or other free trade areas,there is no longer any obligation to pay duty and no restrictionsrelating to import or export. In order to clarify the situation, thewords “where applicable” have been added in the A2 and B2,A6 and B6 clauses of the relevant Incotermsin order for themto be used without any ambiguity where no customsprocedures are required.

It is normally desirable that customs clearance is arranged bythe party domiciled in the country where such clearance shouldtake place or at least by somebody acting there on his behalf. Thus, the exporter should normally clear the goods for export,while the importer should clear the goods for import.

(emphasis supplied)

In the chapter FOB of Incoterms 2000 seller’s obligations are defined as under.

A1 Provision of goods in conformity

The seller must provide the goods and the commercial invoice,or its equivalent electronic message, in conformity with thecontract of sale and any other evidence of conformity whichmay be required by the contract.

A2 Licences, authorizations and formalities The seller must obtain at his own risk and expense any exportlicence or other official authorization and carry out, whereapplicable, all customs formalities necessary for the export of the goods.

A3 Contracts of carriage and insurance

a)Contract of carriage

No obligation

b)Contract of insurance

No obligation

A4 Delivery

The seller must deliver the goods on the date or within theagreed period at the named part of shipment and in the mannercustomary at the port on board the vessel nominated by thebuyer.

A5 Transfer of risks

The seller must, subject to the provisions of B5, bear all risks ofloss of or damage to the goods until such time as they havepassed the ship’s rail at the named port of shipment.

A6 Division of costs

The seller must, subject to the provisions of B6, payAll costs relating to the goods until such time as they havepassed the ship’s rail at the named port of shipment; andWhere applicable, the costs of customs formalitiesnecessary for export as well as all duties, taxes and othercharges payable upon export.

(emphasis supplied)

(A7 to A9 are omitted here as not necessary)

Thus it shall be the duty of seller to place the goods fortransmission by bearing all the expenses of shipment includingcustoms duties before the goods are put on board and if any transitduties are levied by the Customs authorities they shall be for theseller’s account only.

Like in other contracts, clause 15 of the sale contract dated27.4.2006 between the appellant (in CEA No.158 of 2011) and the buyer reads as under.

15. Taxes/Duties: All export duties, taxes, levies are on cargopresent or future, in country of origin, shall be for seller’saccount. All import duties, taxes, levies etc present or future incountry of destination, shall be for buyer’s account. Alltaxes/duties on freight and vessel is to buyer’s vessel owner’saccount.

As per the above clause all export duties, taxes, levies etc., on cargo present or future in India shall be for seller’s account andall import duties, taxes, levies etc., present or future in the countryof destination shall be for buyer’s account. Further all taxes/dutieson freight and vessel is to vessel owner’s account. Buyer’sobligations are found in Part B of FOB contract. As per point B2 read with B6 the buyer mustobtain any import license where applicable and pay all customsformalities for the import of goods and where necessary for theirtransit through any country. From a perusal of the FOB contractterms in Incoterms, there cannot be any doubt that it is always theduty and obligation of the seller to bear the costs of customsformalities as well as the duties, taxes and charges payable uponexport.

In these appeals, the invoice value is also FOB value. Therefore it cannot be said to include the duty paid under the CessAct and, therefore, the presumption under Section 28D of the Actstands rebutted by the appellants. The CCE (A) went utterly wrongin construing the point A6 ignoring paragraph 14 of Incoterms as wellas the sale contract between the appellant and buyer. Therefore theCESTAT was justified in holding that the finding of CCE (A) that FOBvalue included the cess is unsustainable. We accordingly hold thatthe principle of unjust enrichment does not bar the refund claimsunder Section 27 read with 28D of the Act and the point isaccordingly answered in favour of the appellants.

Bar of refund claims for not appealing against speaking orders This point needs to be adverted to in two parts separately. Thfirst one is when the appeal is restricted only to the question of unjuenrichment whether it was competent to CESTAT to determine question which does not arise out of the order as contemplated und Section 129B(1) of the Act. If the answer to the first one is negativthe next question would be, in the facts and the circumstances of thcase, non-filing of appeal against the speaking/assessment order wou bar refund claim.

(i) Scope of appeal before the CESTAT

We may quote Section 129(1) of the Act and Rule 10 of th CESTAT Rules, 1982.

129. Appellate Tribunal.—(1) The Central Government shallconstitute an Appellate Tribunal to be called the Customs,Excise and Service Tax Appellate Tribunal consisting of asmany judicial and technical members as it thinks fit to exercisethe powers and discharge the functions conferred on theAppellate Tribunal by this Act.

Rule 10. Grounds which may be taken in appeal.—Theappellant shall not, except by leave of the Tribunal, urge or beheard in support of any grounds not set forth in thememorandum of appeal, but the Tribunal, in deciding the appeal,shall not be confined to the grounds set forth in thememorandum of appeal or those taken by leave of the Tribunalunder these rules:

A plain reading of the above two provisions would show that thCESTAT may pass such orders thereon as it thinks fit confininmodifying, annulling the decision or order appealed against or may refthe case back to the lower authority. Rule 10 clarifies that ordinarCESTAT shall not allow new grounds which are not taken in thmemorandum of appeal unless specifically permitted to do so. Sectio254(1) of the Income Tax Act, 1961 read with Rule 11 of the Income TaAppellate Tribunal Rules, 1963, is in similar language. These provisionare similar provisions in the repealed enactment that have come up fconsideration before the Courts. We may briefly refer to a couple them. In Scindia Steam Navigation Co. Ltd a Constitution Bench of thSupreme Court considered the scope of Section 66 of the Income TaAct, 1922, which is similar to Section 256(1) of the Income Tax Ac1961. After noticing the divergence of opinion among various HigCourts with regard to the meaning of the words “any question of laarising out of” the Bench unanimously summed up the legal position a follows.

(1) When a question is raised before the Tribunal and is dealtwith by it, it is clearly one arising out of its order.

Conclusion

(2) When a question of law is raised before the Tribunal but theTribunal fails to deal with it, it must be deemed to have beendealt with by it, and is, therefore, one arising out of its order.

(3) When a question is not raised before the Tribunal but theTribunal deals with it, that will also be a question arising out of itsorder.

(4) When a question of law is neither raised before the Tribunalnor considered by it, it will not be a question arising out of itsorder notwithstanding that it may arise on the findings given by it.

The Supreme Court also categorically held that it is only question of law that has to be raised before the Tribunal that could b held out of such order. In Hukumchand Mills Ltd v CIT[[16]]a three JudgBench of the Supreme Court held that, “the word ‘thereon’ restricts thjurisdiction of the Tribunal to the subject matter of the appeal”. A FBench of this Court in Begum Noor Banu Alladin considered the questiowhether the Income-tax Appellate Tribunal has jurisdiction to grant relion consideration of an additional ground raised before it by thassessee for the first time although such ground related to an item assessment which was not disputed at any earlier stage. After referrinto the case law the Full Bench held that, “the jurisdiction of the Tribunal necessarily restricted to the subject matter of the dispute before the fiappellate authority and the Tribunal cannot allow the assessee or thDepartment to dispute new items or entertain new claims for deduction f the first time”.

The Senior Standing Counsel for Central Excise relies on NTPa n d Davangere Cotton Mills. We may briefly advert to these twdecisions. I n N TPC a three Judge Bench of the Supreme Couconsidered the scope of Section 254 of the Income-tax Act. ThIncome-tax Appellate Tribunal referred the question to the SupremCourt as to whether the Tribunal has jurisdiction to examine additionground which has a bearing on the tax liability of the assesseeObserving that there is no reason to restrict the power of the Tribununder Section 254 of the Income-tax Act only to decide the ground which arise from the order of the CIT, the Supreme Court held that thTribunal should not be prevented from considering the question of laarising out of the appeal although not raised earlier and that the Tribunwill have the discretion to allow or not to allow a new ground when it necessary to consider the question in order to correctly assess the taliability of an assessee.

In Davangere Cotton Mills, the question arose whether the thirdmember of the Customs, Excise and Gold (Control) AppellateTribunal (CEGAT, for brevity) to whom the case was referred ondifference of opinion between the Bench of two members couldpermit an additional ground to be raised under Rule 10 of theCustoms, Excise and Gold (Control) Appellate Tribunal (Procedure)Rules, 1982. The Supreme Court held that the Tribunal has got widepower to hear and consider a new ground and decide the appeal.

The relevant observations are as follows.

Rule 10 of the 1982 Rules allows the parties to urgegrounds not taken in the appeal provided the Tribunal grantsleave to the parties to do so. The Tribunal has also been given awide power to decide the appeal on grounds not taken in thememorandum of appeal. The only limitation on this power of theTribunal is that the party affected must be given an opportunityof being heard in respect of the new grounds sought to be urged.According to M/s Davangere Cotton Mills Ltd., the issue hadbeen raised originally before the Tribunal and again before thethird member when it was referred to the third member on adifference of opinion. Revenue had ample opportunity of dealingwith the submission. Besides, it was submitted, that the issuewas in any event being agitated in the matter of M/s CoatsViyella (India) Ltd. and there was no question of taking theRevenue by surprise.

We are of the view that the Tribunal did err in refusing tohear the appellant only on the ground that the ground had notbeen raised earlier. Rule 10 was sufficiently widely framed toallow the Tribunal to do so. Having regard to the fact that theTribunal was itself considering the issue on a contested (sicconnected) hearing there was no reason why the appellantshould have been shut out from pleading its case on the samebasis.

In view of the above precedent law, we are of the consideredopinion that the CESTAT was not precluded from hearing and considering a new ground which related to the subject matter of thedispute before them. The question whether a refund claim underSection 27 of the Act would lie when the assessee did not file appealagainst the speaking/ assessment order is certainly a questionrelating to subject matter of the suit and therefore the CESTATcannot be denied jurisdiction to consider the question raised by theRevenue during the course of the arguments.

(ii) Consequence of non-challenge of assessment order Section 27 of the Act confers a right on any person to claimrefund. Section 12 of the Act is the charging section under whichduties of customs shall be levied at the rates specified in theCustoms Tariff Act, 1975 on goods imported into, or exported fromIndia. “Exporter” as defined in Section 2(20) of the Act, “importer”as defined in Section 2(26) of the Act, and export/import agent asregulated by the Customs House Agents Licensing Regulations,2004 are liable to pay the customs duties or tariffs as charged underSection 12 of the Act. Any such person has right to claim refund ifsuch amount is (i) paid by such person in pursuance of an order ofassessment; or (ii) borne by him which means the amount mighthave been paid by the customs agent or a consultant or a banker butthe actual amount gets debited to the importer/exporter as the casemay be. An application has to be made to jurisdictionalAssistant/Deputy Commissioner of Customs before expiry of oneyear in the case of import by an individual for his personal use or byGovernment or by educational/research/charitable institution/hospitaland in other cases before expiry of six months from the date ofpayment of duty and interest. Further, every such application shallhave to be accompanied by documentary proof or other evidenceincluding documents under Section 28C of the Act, to establish thatthe amount of duty has actually been paid by such person and theincidence of duty has not been passed on to any other person.

When the language in a taxing provision is plain, reading somethingwhich is not explicit is impermissible. However the scheme ofSection 27 of the Act would itself suggest that a refund claim wouldalways arise in pursuance of an order of assessment and if the orderof assessment is adverse to a person, as long as such adverseorder stands, refund claim may not lie because adverse order doesnot confer any right and, therefore, to come within the scope ofSection 27(1) of the Act such a person has to necessarily avail theremedy of appeal before the hierarchy of authorities i.e., before theCommissioner (Appeals) under Section 128 of the Act, before theCESTAT under Section 129A of the Act, before the High Court underSection 130 of the Act, before the Supreme Court under Section130E of the Act if it is a case of classification of goods for thepurpose of specified rate of customs tariff.

In case an exporter/importer or a customs agent parts withcustoms duty under an Act which is no more in force or the duty ispaid excessively than at required rate or duty is paid wrongly, isthere any necessity for the person to file an appeal. In case hemakes an application for refund under Section 27 of the Act andcustoms officials themselves find merit in the claim and allow, is itnecessary to file appeal against such order which has beenaccepted as one where excess amount of duty is paid? In ourconsidered opinion there is no such necessity to file an appeal andwithout there being an appeal, refund claim is maintainable and if thepersons make out a case such refund claim ought to be allowed. The customs officials or the CESTAT cannot deny the refund whenthere is nothing adverse to the person who paid the customs tariff. We are supported in this view by the decisions of the Supreme Courtin Flock India and Priya Blue on which the Senior Standing Counselalso placed reliance.

Flock India was the manufacturer of jute Hessian flocked withnylon flocks. They claim that the said product comes under tariff item 22A of the Central Excise Act, 1944. The Assistant Collectorpassed an order classifying the product under item 22B whichattracted the duty of 25% ad valorem. The order became final. Nonetheless the manufacturer filed an application under Rules 11and 173B of the Central Excise Rules, 1944 for refund of dutypleading wrong classification under tariff item 22B. The refund claimwas rejected by the Assistant Collector. On appeal, the Collectorallowed and remanded the matter to the original authority directing toreconsider classification aspect. This order was unsuccessfullyassailed by the Revenue before the CEGAT. Before the SupremeCourt it was urged that the order of the Assistant Collector havingnot been challenged and allowed to become final, the application forrefund of duty would not be maintainable. Considering Rule 11 of theCentral Excise Rules which conferred a right on the person torefund, the Supreme Court held that the right of appeal is asubstantive right and if the same is not availed against an order ofassessment and is allowed to become final, the application forrefund would not lie now and the appealable order cannot bechallenged in the proceedings for refund. The relevant observationsare as under.

… … there is little scope for doubt that in a case where anadjudicating authority has passed an order which is appealableunder the statute and the party aggrieved did not choose toexercise the statutory right of filing an appeal, it is not open to theparty to question the correctness of the order of the adjudicatingauthority subsequently by filing a claim for refund on the groundthat the adjudicating authority had committed an error in passingits order. If this position is accepted then the provisions foradjudication in the Act and the Rules, the provision for appeal inthe Act and the Rules will lose their relevance and the entireexercise will be rendered redundant. This position, in our view,will run counter to the scheme of the Act and will introduce anelement of uncertainty in the entire process of levy andcollection of excise duty. Such a position cannot becountenanced. The view taken by us also gains support fromthe provision in sub-rule (3) of Rule 11 wherein it is laid downthat where as a result of any order passed in appeal or revisionunder the Act, refund of any duty becomes due to any person,the proper officer may refund the amount to such person withouthis having to make any claim in that behalf. The provision indicates the importance attached to an order of the appellate orrevisional authority under the Act. Therefore, if an order which isappealable under the Act is not challenged then the order is notliable to be questioned and the matter is not to be reopened in aproceeding for refund which, if we may term it so, is in the natureof execution of a decree/order.

Priya Blue is a case which arose out of proceedings for refundunder Section 21 of the Customs Act. The said company imported aship for breaking purposes. The amount of duty payable wasassessed based on the entry and the duty was paid under protest. They then filed claim for refund which was rejected. The appeal tothe Commissioner (Appeals) as well as further appeal to CEGATwere dismissed following Flock India. Both these authorities held thatas no appeal had been filed against the order of assessment, theclaim for refund would not be maintainable. Before the SupremeCourt, it was contended that if the assessment is not correct theparty could file a claim for refund and the correctness of theassessment order can be examined considering the claim for refund,even though no appeal had been filed against the assessment order. This submission was not accepted by the Supreme Court and it washeld as follows.

Once an order of assessment is passed the duty wouldbe payable as per that order. Unless that order of assessmenthas been reviewed under Section 28 and/or modified in anappeal, that order stands. So long as the order of assessmentstands the duty would be payable as per that order ofassessment. A refund claim is not an appeal proceeding. Theofficer considering a refund claim cannot sit in appeal over anassessment made by a competent officer. The officerconsidering the refund claim cannot also review an assessmentorder. … … The words “in pursuance of an order ofassessment” only indicate the party/person who can make aclaim for refund. In other words, they enable a person who haspaid duty in pursuance of an order of assessment to claimrefund. These words do not lead to the conclusion that withoutthe order of assessment having been modified in appeal orreviewed a claim for refund can be maintained.

Thus as held by the Supreme Court in Flock India and PriyaBlue, the assessment order, which became final without there being a challenge in the appeal, that must be given effect to. Conversely ifthe assessment order itself enables refund, the law does not expectnor it would be logical to hold - the person to file appeal – that itwould be inferred an empty formality. In the case of self-assessment if the declaration made by the person liable to duty isaccepted and such return also mentions about the refund of duty tobe made, there would not be any necessity to file appeal before thedepartmental appellate authority or the statutory tribunal.

In these cases all the appellants are exporters. By the timethey exported the rice to foreign buyer under various shipping billsseparately, as required under Section 28C of the Act, the amount ofduty/cess was paid. Then the Cess Act was no more on the statutebook. There is no dispute that the cess was paid under protest. Butshipping bills were accepted and there was no assessment order. When the appellants moved the Assistant Commissioner underSection 27 of the Act, speaking orders/assessment orders werepassed on 30.10.2006 accepting their plea that the appellants areeligible for refund in view of the abolition of the cess under variousshipments. The speaking order itself is in favour of the appellantsand, therefore, the question of filing appeals does not arise. A feeblesubmission is sought to be made by the Revenue that the shippingbill itself is an assessment order. The same cannot be accepted. Section 2(2) of the Act defines “assessment” as to includeprovisional assessment, reassessment or any order of assessmentin which duty assessed is ‘nil’. In these cases the department hasnot placed before us any assessment order. Therefore we cannotcountenance the submission. We hold that the appellants cannot bedenied refund on the ground that they have not availed the remedy ofappeal and further appeal to CESTAT especially when there has hadbeen no occasion for the appellants to go against the speaking orderdated 30.10.2006 passed by the Assessment Commissioneraccepting their plea on the question of cess having regard to the Cess Laws (Repeal & Amendment) Act, 2006.

In the result, for the above reasons, the appeals mustsucceed. Accordingly these appeals are allowed setting aside theorders of the CESTAT as well as the orders-in-appeal. There shallbe no order as to costs.

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(V.V.S. RAO, J)

December 30, 2011Pln/Ys

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(SANJAY KUMAR, J)

Note: LR copy be marked. (By order) Pln/ys [1](1993) 204 ITR 166 (AP)

[2](1962) 1 SCR 788

[3]2008 (221) ELT 336 (Delhi)

[4](2000) 2 SCC 705

[5](2005) 3 SCC 738

[6](2010) 4 SCC 256

[7](1997) 5 SCC 536

[8](2000) 120 ELT 285 (SC) : (2000) 6 SCC 650

[9]2002 (143) ELT 482 (SC) : (2002) 9 SCC 571

[10]2004 (172) ELT 145 (SC) : (2005) 10 SCC 433

[11]1998 (99) ELT 200 (SC) : (1997) 7 SCC 489

[12]2006 (198) ELT 482 (SC) : (2006) 9 SCC 443

[13](2003) 9 SCC 606

[14](1884) 12 QBD 564

[15](1913) 1 KB 279 at p.164

[16](1967) 63 ITR 232 (SC) : AIR 1967 SC 455