Hurdles in ITC's victory lap

Judgement in JK White Cement case to determine whether ITC actually gets back its excise duty.

You could call it the biggest irony of the ITC excise duty case. For, immediately after the mix-up over the judgment after Justice Ruma Pal read it out, guess where ITC's lawyer Ravinder Narayan went.

To the Customs Excise and Service Tax Appellate Tribunal (CESTAT) to complete his arguments in the JK White Cement case that, in many ways, is very similar to the ITC matter.

The judgment in the JK White Cement case has been reserved and is expected any time. Its ruling could be important in the ITC case, as it could determine whether ITC actually gets back the excise duty paid by it.

While one would normally expect ITC to get its money back automatically now that the Supreme Court has ruled it not guilty of excise evasion, in almost no case have the excise authorities refunded money automatically.

Says Sukumar Mukhopadhyay, a retired member (Budget and Customs) of the Central Board of Excise and Customs, "The department uses the plea of 'unjust enrichment' in each case to deny refunds ... it is an illogical law, and makes getting your money back from the government a litigator's paradise."

Adds former Attorney-General Soli Sorabjee, "I do not know if unjust enrichment has been argued in this case, but the fact is that it is enshrined in the law, in Section 11B."

ITC's lawyer could not be reached for comments despite leaving several messages.

Between 1984 and 1992, in the JK White Cement case, the excise authorities had a dispute on what classification applied to the company's products, and it was asked to pay an additional Rs 33 crore. The company appealed against this at the CESTAT (then known as the CEGAT) but lost the case, and then went to the Supreme Court where it won.

So, in 1998, the company went back to the assistant commissioner to get its money. This was rejected because the appeal was time-barred. Later, after the appellate commissioner said the appeal could be considered, the assistant commissioner rejected it again, on grounds of "unjust enrichment".

Under the law, and a Supreme Court ruling in what was called the Mafatlal case, since a company that has paid the disputed taxes would have recovered these taxes from its customers, and that there was no way it could refund this money to those customers who had paid the extra taxes, the best solution would be to put the money in the consumer welfare fund.

JK White then went to get the Rajasthan High Court to prevent the money from being put in the welfare fund, and also appealed for its money to the CESTAT in May this year.

Several tax experts, however, are of the view that since ITC paid the money after it was ordered to by the CESTAT, this was a case of a 'pre-deposit' and so the 'unjust enrichment' case may not apply.

In 1997, for instance, the Supreme Court upheld the Bombay High Court's 1996 ruling in the Suvidhe case that unjust enrichment did not apply to pre-deposits.