A few weeks ago, after ITC won its excise case in the Supreme Court, yours truly did a piece saying the company would find it difficult to get its money back because the excise officials would argue the case of what's called "unjust enrichment".

Shorn of the jargon, that means the excise officials would argue ITC had already recovered the excise duty by charging its customers, and so any refund would be an "unjust enrichment" since the company could not possibly return this money to the customers who'd paid the duty in the first place.

The letter of the law

The piece cited legal precedents to this effect including, ironically, the case of JK White Cement, which ITC's lawyer Ravinder Narain rushed to argue before the Cestat tax tribunal immediately after winning the ITC case -- in this case, JK White had paid a higher excise duty under protest, appealed and won the case, but the taxmen are refusing to refund the money arguing the principle of "unjust enrichment"!

Several lawyers and tax consultants have argued since that the "unjust enrichment" case would not apply to ITC because this was a "pre-deposit" made by the company on the instructions of the Cestat tax tribunal, and there were circulars of the finance ministry saying "unjust enrichment" didn't apply to "pre-deposits".

Apart from the fact that there are over 30 such cases of "pre-deposit" where the taxmen are citing the "unjust enrichment" angle, I've just come across this case of a power company called Tanir Bari, which puts every other case to shame.

Indeed, it reminds you of the case of the poor Shah Alam, one of the last emperors of the dying Mughal dynasty, about whom it was said "Saltanate e Alam, e Dilli te Palam" (the empire of Shah Alam extends from Delhi, then defined as Red Fort, to the Palam area, which was around 15-20 kilometres away) as in this case too, no one's really listening to the diktats of the modern-day emperor, the finance ministry. But first, the Tanir Bari story.

Between December 2000 and February 2002, Tanir Bari Power Company Private Limited imported what's called a Barge-Mounted Power Plant under the usual project-import rules, had a dispute with the customs on the additional duty to be paid, and so paid it under protest.

Anyway, and this itself is the subject of another story, in the Budget of 2002, the government gave a retrospective duty relief for barge-mounted power plants imported, to quote from the Finance Act, "within the period commencing from the 8th of December 2000 and ending with the 28th February, 2002" and went on to say that barge-mounted plants imported during this period "shall be deemed to be, and always to have been, exempted from the said additional duty of customs as if the exemption given by this sub-section had been in force at all material times."

It then goes on to say "refund shall be made of all such additional duty of customs which have been collected but which would have not been so collected if the exemption … had been in force at all material times."

Very curious, you'd say as a customs/excise official, for the government to give such a relief in retrospect to one company (this was the only such import in the country in that period), but if that's the law, then so be it. Right?

Not quite. While various customs commissioners refunded the duty paid to the company, a sum of around Rs 5 crore (Rs 50 million) was held back as "unjust enrichment" since the customs argued that some part of the duty, for the period the plant was being commissioned, had been passed on to the Karnataka Power Transmission Corporation Limited, which was the buyer of the power produced by Tanir Bari. This was done after complicated calculations involving the life of the plant.

While there can prima facie be no argument with this logic, the problem was that KPTCL sent various letters saying under its agreement with Tanir Bari, the company had to pass on any duty benefits it got. So, logically, there was no issue of "unjust enrichment", presuming KPTCL was telling the truth.

Indeed, in December 2002, the Central Board of Excise and Customs examined the matter and wrote to all customs commissioners saying they needn't go into complicated calculations of the life of the plant to calculate the extent of the "unjust enrichment", but just needed to check if Tanir Bari's agreement with KPTCL had a clause that mandated it to pass on all duty benefits to KPTCL.

Since this presumably didn't cut much ice (as poor Shah Alam's firmaans), the ministry sent another letter to the various commissioners all over again, this time in September 2003, saying the board had examined the issue and in the light of Tanir Bari's agreement with KPTCL the issue of "unjust enrichment" did not apply and "all concerned are advised that wherever the refunds are held up to go ahead with the sanctioning of the refunds."

Well, in November 2003, the commissioner of customs (appeals) in Bangalore dismissed Tanir Bari's plea for a refund despite these letters from the finance ministry, and went on to say "the principle of unjust enrichment is a principal (sic) of tax equity, which has been upheld by the Hon'ble Supreme Court" and that this principle, like the "basic structure of the constitution cannot be suspended or amended at any time".

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