Doctrine of Unjust Enrichment Inapplicable to Refunds Arising Out of Finalization of Provisional Assessments

The respondent (assessee) imported five old ships for ship-breaking between 1992 and 1996.

The bills of entry were assessed provisionally under Section 18 of the Customs Act, 1962, pending clarification on the classification of movable gears and ship stores.

After a prolonged litigation history involving a final assessment in 1999 and subsequent remands, the Assistant Commissioner passed a fresh assessment order on October 26, 2006.

This order reduced the demanded differential duty from Rs. 12,05,840 to Rs. 6,15,635.

The CESTAT ruled in favor of the assessee, holding that since the duty was paid in 2004—long after the goods were imported—there was no scope for the burden to have been passed to customers.

1. Whether a refund application under Section 27 is mandatory for refunds arising from the finalization of provisional assessments under Section 18.

2. Whether a refund claim arising under Section 18(2)(a) must pass the test of "unjust enrichment" as prescribed under Section 18(5).

3. Whether the presumption under Section 28D—that the incidence of duty has been passed on to the buyer—is applicable to such cases.

The doctrine of unjust enrichment is generally not applicable to provisional assessments upon finalization as per Commissioner of Central Excise v. Allied Photographics India Ltd. and Commissioner of Customs v. Oriental Exports.

Recoveries or refunds consequent upon adjustment under Rule 9B (analogous to Section 18 of the Customs Act) are not governed by the restrictive conditions of Section 11B (analogous to Section 27 of the Customs Act) unless the refund arises from a separate challenge after finalization.

The Court noted that the Hon’ble Supreme Court in Commissioner of Customs v. Hindustan Zinc Ltd (2023) had recently resolved conflicting views by reaffirming the Allied Photographics ratio.

The Court agreed with the Tribunal’s factual finding that because the payment occurred years after the ships were cleared and likely broken/sold, the assessee could not have passed that specific tax burden to the customers.

The court held that the legal presumption of passing on the duty (Section 28D) was rebutted by the timeline of the case and the specific nature of provisional assessment finalization under Section 18.

The assessee is entitled to the refund of Rs. 5,90,205 suo motu without being barred by the principle of unjust enrichment.