Presentation on Unjust Enrichment

A STUDY ON UNJUST ENRICHMENT

CHIRAG KAGZI13 April 2015

What is unjust?Unjust can be defined as something which is not in accordance with the accepted standards of fairness or justice and which is also unfair.

What is enrichment?When a person gains something from another, then it is said that the person is enriched. This enrichment can be both just and unjust. A student receives graduation present from his parents for the graduation; it is also an enrichment which is just. When a person wrongfully uses others property at the expense of other, then it is unjust.

What is Unjust Enrichment?According to Wikipedia, Unjust enrichment is where one person is unjustly or by chance enriched at the expense of another, and an obligation to make the restitution (restoration of something lost or stolen to its proper owner) arises, regardless of liability for wrongdoing.

What is Unjust Enrichment?


Meaning of Unjust EnrichmentAccording to Black Law Dictionary:“The retention of a benefit conferred by another, without offering compensation, in circumstances where compensation is reasonably expected.A benefit obtained from another, not intended as a gift and not legally justifiable for which the beneficiary must make restitution”.

According to Encyclopaedic Law Lexicon:“The principle of unjust benefit implied that the person having passed on the burden of tax to another, directly or indirectly, would not be entitled to get the refund, even if such refund is permissible. Having passed on the burden of tax to another person, directly or indirectly, it would be clearly a case of unjust enrichment if the importer/seller is then able to get the refund of the duty paid from the government notwithstanding the incidence of tax having already been passed to the purchase”.


Meaning of Unjust EnrichmentAccording to Oxford Law Student Dictionary:“A cause of action developed at the common law and equity, whereby, roughly, a person who is unjustly enriched, either by receipt of value from the plaintiff in circumstances where he or she ought to return it, or by profiting from a wrong done to the plaintiff, is required to pay over the value of that enrichment to the plaintiff”.

So the basic meaning is that it would be unjust to allow one person to retain a benefit received at the expense of another person. There is a legal maxim also that Nemo Debet Locupletari ex Aliena Jactura which means that no one should grow rich out of another person’s loss. The unjust enrichment has been stated to have three things:

• That the defendant has been enriched by the receipt of benefit;• He must have been enriched at the expense of plaintiff;• Allowing defendant to keep the benefit will be unjust.


Unjust Enrichment and Indirect TaxationIntroductionA general equitable principle that no person should be allowed to profit at another's expense without making restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained.

Section 11B of Central Excise Act, 1944:While claiming any refund, applicant have to prove that burden of such duty paid had not been passed on by him to any other person.

Section 12B of Central Excise Act, 1944:“Presumption that the incidence of duty bas been passed on to the buyer: Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods”.


http://www.cbec.gov.in/excise/cx-act/cx-act-ch2a.htm

Doctrine of Unjust EnrichmentThe doctrine of unjust enrichment is applicable for the case of granting the refund. In the context of refund in Central Excise/Service Tax, the principle of unjust enrichment is the first and foremost principle which is kept in mind by the sanctioning authorities.

The assessee having passed on the incidence of duty/tax to his customers has no locus standi to claim refund of duty having wrongly paid. Refund of duty should, therefore, be paid to the customer who has borne the burden of duty. Since it is practically not feasible to identify such customers on individual basis, the amount of refund is credited to "Consumer Welfare Fund" in accordance with Section 12C of the Central Excise Act, 1944. The principle of unjust enrichment has been held as valid and constitutional by the Apex Court in the famous case of Mafatalal Industries Ltd Vs. UOI , 1997. Wherein Jeevan Reddy, J. in para 99 in Mafatlal Industries Ltd.’s case has observed as follows:"….No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from the State on the ground that it has been collected from him contrary to law. The power of the Court is not meant to be exercised for unjustly enriching a person. The doctrine of unjust enrichment is, however, inapplicable to the State. State represents the people of the country. No one can speak of the people being unjustly enriched." A STUDY ON UNJUST ENRICHMENT


Doctrine of RestitutionThe juristic basis of the obligation is not founded upon any contract or tort but upon a third category of law, namely, quasi-contract or the doctrine of restitution.

Unjust Enrichment Vs. RefundSection 11B of the Central Excise Act which was introduced with effect from 17-11-1980, and was amended on 20-9-1991, sets out the conditions subject to which refund can be claimed. Apart from requiring that claim be filed within the time allowed under the provisions of Act which is six months from the relevant date; that the application be in the prescribed form that it be accompanied by document or other evidence to establish that the amount of duty of excise in relation to which refund is claimed was collected from or paid by the claimant and incidence of such duty had not been passed on by the claimant to any other person; the claimant is also required to rebut the presumption contained in Section 12B of the Act which provides that it shall be presumed unless contrary is proved that the incidence duty had been passed on to the buyer.


AnalysisThe language used in law is not capable of being construed as having reference to the ultimate consumer of the product. What has to be demonstrated by the claimant is that the burden of the duty paid had not been passed on by him to any other person. The passing on will occur only if the person who claims refund of duty as shifted the burden to another. There can be no passing on of the incidence of the duty if he merely reduces his burden by receiving the refund. The possibility that the dealer who has obtained goods from the manufacturer may charge to his buyer the full amount of the duty ignoring the refund received by the manufacturer cannot be a ground for denying refund to the manufacturer.The primary object of the provision which is intended to deter or prevent unjust enrichment is to prevent enrichment of the person who has paid duty and who seeks refund of the same. It is not directed at the buyer who has entered into arms length transactions with manufacturer and has sold the goods to sub-dealers, retailers or consumers.The word 'buyer' used in Section 12B also cannot be construed as referring to the ultimate consumer. The buyer referred to therein in the normal circumstances is the buyer who buys the goods from the person who has paid duty.


Background of Unjust EnrichmentSection 11B of the Central Excise Act, 1944 inherited the concept of "unjust enrichment" during 1991. This is based on the equitable principle that, when the incidence of duty had been originally passed on to the buyers/customers (by way of collecting the duty through the invoices), then in the event of refund of any such duty, it shall not be given to the assessee who has paid it to the Government, but in turn, shall be given to the person who has really borne the incidence of such duty. But this concept of "unjust enrichment" has been caught in a legal labyrinth (maze) and seems to have thoroughly lost its direction, purpose and object.Section 12 B of the CE Act creates a legal fiction that the manufacturer, has deemed to have passed on the full incidence of duty to the buyer, unless the contrary is proved. In other words, the buyer of the goods is deemed to have borne the incidence of the duty paid by the manufacturer. This legal fiction creates two crucial bottlenecks in many cases, namely, who is the "buyer" under Section 12 B of the Act and what would be the status of the "refunds" in case of "Post-clearance adjustments!““Post-clearance adjustments can be either by way of raising a credit note, issuing a cheque or by way of adjusting the running account to the extent of the duty. By doing so, the manufacturer is reclaiming the duty incidence back from the buyer and thus appears to qualify for the refund, negating the doctrine of "unjust enrichment”.


Consumer Welfare FundSection 12C of Central Excise Act, 1944:(1) There shall be established by the Central Government a fund, to be called the

Consumer Welfare Fund;(2) There shall be credited to the fund, in such manner as may be prescribed:

(a) the amount of duty of excise referred to in sub section (2) of section 11B or subsection (2) of Section 11C or sub-section (2) of Section 11D;

(b) the amount of duty of customs referred to in sub-section (2) of section 27 or sub-section (2) of Section 28A, or sub-section (2) of Section 28B of the Customs Act, 1962;

(c) any income from investment of the amount credited to the fund and any other monies received by the Central Government for the purpose of this Fund;

(d) The surplus amount referred to in sub-section (6) of Section 73A of the Finance Act, 1994.

Section 12D of Central Excise Act, 1944:Utilisation of the Fund: Any money credited to the Fund shall be utilised by the

Central Government for the welfare of the consumers in accordance with such rules as that Government may make in this behalf.




Departmental Circular/Clarification:Departmental Circular,Clarification.docx


By:-Chirag Kagzi

Presentation on Unjust Enrichment

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