May-2015

TAXATION
present case, we are addressing this issue. To answer this issue, we
may draw some sustenance from the judgment of this Court in
the case of Indian Farmers Fertiliser Coop.Ltd. vs. C.C.E.Ahmedabad
(1996 (86) ELT 177 (S.C.) = 2002-TIOL-146-
SC-CX. Though that case is concerned with the exemption of
Raw Naptha was used to produce ammonia which is used in
effluent treatment plant. Notification No.187/61-CE provided
for exemption to such Raw Naptha as is used in the manufacture
of ammonia provided such ammonia is used elsewhere in
the manufacture of fertilizers. The question was as to whether
the ammonia used in the off-site plants is also ammonia which
is used elsewhere in the manufacture of fertilizers. The court
answered the question in the affirmative thereby holding that
exemption provided under Notification 187/61-CE shall be
available to the assessee.
9. However, what follows from the reading of the said judgment
is that if a particular material is used for manufacture of
a final product, that has to be treated as the cost of the product.
Insofar as cost of production is concerned, it may include capital
goods which are a part of fixed cost as well as raw material
which are a part of variable cost. Both are the components which
come into costing of a particular product. Therefore it cannot be
said that the principle laid down by the Court in Solar Pesticides
would not extend to capital goods which are used in the
manufacture of a product and have gone into the costing of the
goods. In order to come out of the applicability of the doctrine of
unjust enrichment, it therefor becomes necessary for the assessee
to demonstrate that in the costing of the particular product, the
(tax) cost of capital goods was not taken into consideration. We,
thus, are of the opinion that the view taken by the Tribunal is
not correct in law”.
In the other case of M/S SESCOT SHEET METAL
WORKS LTD VS CESTAT - 2015-TIOL-1048-HC-
MAD-CX, the Madras High Court grappled with the
following issues of law:
“i) Whether in the facts and circumstances of the case, the
1st respondent Tribunal is right in holding the appellant
is not a "State"?
ii) Whether the doctrine of "unjust enrichment" is applicable
to "State undertaking" which also managed,
controlled and administered by the State Government
under the Policy and Programme evolved by the State
Government?"
The High Court answered both questions against the
Revenue. It pointed out that the appellant was a state
government entity and was engaged in supplying things
to the state public distribution system and it was funded,
managed and monitored by the State and that under such
circumstances it cannot be said that the entity is unjustly
enriching itself to the detriment of the people. The
Court cited the stirring observation of the Apex Court in
the MAFATLAL INDUSTRIES VS UNION OF IN-
DIA- 1997 (89) E.L.T. 247 (S.C.):
“The doctrine of unjust enrichment is a just and salutary
doctrine. 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."
The Madras High Court judgment adds a new dimension
to the status of state government undertakings especially
when these are engaged in welfare activities or
in supporting the state governments’ systems for public
welfare.
Justice for the interregnum between
denial and restoration
It is often the case that the tax department would amend
some provision in the nature of an exemption form tax
or some tax benefit. There would be hue and cry at the
injustice and the department would mollify the taxpayers
by restoring the tax benefit. The wheels of government
do not grind fast when it comes to tax justice and there
would be a gap of time between the original denial and
the subsequent restoration. The tax departments would
generally not refrain from collecting the tax for the intervening
period. In such cases, the taxpayers would be
affected. In the instructive case of M/s RALSON (IN-
DIA) LTD Vs COMMISSIONER OF CENTRAL
EXCISE, CHANDIGARH-I - 2015-TIOL-32-SC-
CX, the Supreme Court had to intervene to bring about
justice for the interregnum. The Court held that such restoration
is of a clarificatory nature and hence retrospective
in effect by relying on its own decision in M/s WPIL
LTD, GHAZIABAD Vs COMMISSIONER OF CEN-
TRAL EXCISE, MEERUT - 2005-TIOL-51-SC-CX-
LB. This kind of matter does not deserve to consume the
precious time of the Apex Court of the country and it
is not understandable as to what prevents the tax babus
from gently conceding in the notification itself that they
are restoring the benefit for the interregnum between the
original damage and the rectification. The taxpayers are
not responsible for the gap of time.
40 the MANAGEMENT ACCOUNTANT MAY 2015
www.icmai.in