Holding

The Court held that the principle of unjust enrichment applies, requiring the respondents to seek a refund and directing the authority to assess any retention of amounts, including those under bank guarantees, for unjust enrichment.

Summary

The State of Uttar Pradesh appealed against Vam Organic Chemicals Ltd., alleging that no payments had been made by the assessee due to stays and bank guarantees, and therefore no refund was due. The respondents filed interlocutory applications asserting that, contrary to the earlier finding, certain cash payments and bank guarantees had actually been made and that they were entitled to a refund. The State contended that even if payments were made, the doctrine of unjust enrichment barred any refund, especially for amounts collected from customers under the bank guarantees. The Supreme Court clarified the principle of unjust enrichment as the retention of a benefit without compensation where compensation is reasonably expected, and held that any amount passed on to customers must be examined under this doctrine. Consequently, the Court directed the respondents to apply to the appropriate authority for a refund, instructing that the authority consider unjust enrichment for both cash payments and amounts related to bank guarantees.

Issues considered

Whether the respondents are entitled to a refund of amounts deposited/payments made despite the earlier finding of no payment.
Whether the doctrine of unjust enrichment applies to the amounts passed on to customers and to amounts covered by bank guarantees.

Subjects

Unjust enrichmentRefundBank guaranteesInterlocutory applicationsSupreme CourtTax litigationRestitution

Judgment

STATE OF U.P. AND ORS. A
v.
VAM ORGANIC CHEMICALS LTD. AND ORS.

OCTOBER 18, 2006

[ARIJIT PASA YAT AND S.H. KAPADIA, JJ.] B

Taxation-Unjust enrichment-Supreme Court while dismissing appeals
by the State, declined refund to assessee on ground that they made no
payments-However certain payments were actually made-Citing such factual
inaccuracy, assessee filed interlocutory applications claiming entitlement to
c
rejimd-State contested the claim by relying upon principles of "Unjust
Enrichment"-Disposing of the applications, Supreme Court directed assessee
to move appropriate authority for refund of the amount deposited by them-
While examining the claim, concerned authority directed to keep in view the
principles of "Unjust Enrichment" in respect of all amounts which have been D
passed on to any customer.

Certain appeals tiled by the State were dismissed by this Court wherein
it was noted that no payment had been made by the Respondents-assessee in
view of various orders of stay passed by the High Court and this Court, but
--.- certain Bank Guarantees were furnished pursuant to the directions of the E
High Court and this Court. In that background this Court noted that there
was no question of any refund as there was no levy permitted in law, and the
question of realization of the amount did not arise.

Respondents have filed the present interlocutory applications stating F
that certain factual inaccuracies have crept in, viz. that in fact certain payments
were made and, therefore, they were entitled to refund.

Appellant-State though admitting that certain payments were actually
made, nevertheless contended that the Respondents were not entitled to any
refund in view of the concept of unjust enrichment. It contended that for the G
amounts covered by the bank guarantees also, the Respondents had collected
various amounts from the customers and by seeking a correction in respect
of the cash payments, Respondents want to avoid the application of the unjust
enrichment policy.

293 H
294 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A Disposing of the applications, the Court

HELD: I. Unjust enrichment is the retention of a benefit conferred by
another, without offering compensation, in circumstances where compensation
is reasonably expected. It is a benefit obtained from another, not intended as
a gift and not legally justifiable, for which the beneficiary must make
B restitution or recompense. Keeping in view the principles of Unjust Enrichment
as highlighted in Mafatlal's case and Solar Pesticides' case the inevitable
conclusion is that whatever has been passed on to the customer by the
respondents has to be tested on the touchstone of the principle of unjust
enrichment. (296-D-F)

c Mafat/al Industries Ltd and Ors. v. Union of India and Ors., (1997) 5
SCC 536 and Union of India v. Solar Pesticide Private Ltd, (2000) 116 ELT
401 (SC), relied on.

State of U.P. & Ors. v. Vam Orgunic Chemicals Ltd. and Ors., (2004) 1
D sec 225, referred to.
2. The l.A.s are therefore disposed of with the following directions:

a. Within a period of four weeks, respondents shall file an application
before the appropriate authority praying for refund of the amount deposited
E by them. (296-G)

b. While examining the claim the concerned authority shall keep in view
the principles of "Unjust Enrichment" in respect of all amounts which have
been passed on to any customer in essence that it has been collected from
him. (296-GI
F
c. Exemption shall not be extracted only in respect of cash payments
and it shall also extend to the period for which the bank guarantees were
furnished. If during the relevant period any collection has been made the
authority shall examine whether by retention of the amount so collected by
the respondent will there· be unjust enrichment so fa_r as the respondents are
G concerned. (296-H; 297-A)

CIVIL APPELLATE JUR1SDICTION : I.A. Nos. 4-12.

IN

H Civil Appeal Nos. 5416-5424 of2000.
STATEOFU.P. v. VAMORGANICCHEMICALSLTD. (PASAYAT . .I.] 295

From the Final Judgment and Order dated 3.4.2000 of the High Court A
of Judicature at Allahabad in C.M.W.P. Nos. 297/2000, 331/1982, 625/1993,
696/1994, 537/1995, 299/1996, 198/1997, 221/1998 and 428/1999.

WITH

I.A. Nos. 2, 13-21 in C.A. No. 5425/2000, I.A. Nos. 29-46 in C.A. Nos. B
5427-5435/2000 and I.A. No. 2 in C.A. No. 8382/2003.

Dinesh Dwivedi, R.N. Trivedi, S.W.A. Qadri, Rajeev Dubey, Kamlendra
Mishra, Ashok K. Srivastava, P. Vinay Kumar, Sneha Bhaskaran and D.
Bharathi Reddy for the Appellants.
c
D.A. Dave, Sanjeev Sen, R.N. Karanjawala, Nandini Gore, Pragya Singh
Baghel, Manik Karanjawala, Sunita Sharma, D.S. Mahra, S. Wasim A. Qadri,
B.V. Balaram Das and Ravindra Kumar for the Respondents.

The Judgment of the Court was delivered by
D
ARIJIT PASA YAT, J. These applications are filed by respondents, in
the appeals filed by the State of Uttar Pradesh i.e. Civil Appeal Nos. 5416-
5424 of 2000. State's appeals were dismissed by a judgment of this Court
reported in State of U.P. & Ors. v. Vam Organic Chemicals Ltd. and Ors.,
[2004] l SCC 225. In paragraph 46 of the judgment it was noted that no
payment had been made by the respondents in view of various orders of stay E
passed by the High Court and this Court and in fact certain Bank Guarantees
were furnished pursuant to the directions of the High Court and this Court,
In that background this Court noted in the said paragraph that there was no
question of any refund as there was no levy permitted in law, and the
question of realization of the amount did not arise. These interlocutory F
applications have been filed stating that certain inaccuracies factually have
crept in. In fact, certain payments were made and, therefore, the respondents
in the Civil Appeals were entitled to refund.

In response, learned counsel for the appellant-State submitted that
though it is factually correct that certain payments were made, but this Court G
has rightly held that the respondents were not entitled to any refund. The
well known concept of unjust enrichment as highlighted by this Court in
Mafat/a/ Industries Lid. and Ors. v. Union of India and Ors., [1997] 5 SCC
536 were pressed into service. It was also pointed out that though the prayer
of the respondents appears to be innocuous, it is really not so. On the
H
296 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A contrary, for the amounts covered by the bank guarantees also the respondents
had collected various amounts from the customers. By seeking a correction
in respect of the cash payments, respondents want to avoid the application
of the unjust enrichment policy. Reliance was placed on a decision of this
Court in Union of 117dia v. Solar Pesticide Private Limited, [2000] 1I6 EL T 40 I
B SC.
By way of reply learned counsel for the respondents-applicants
submitted that correction is needed in respect of cash payment made and can
in no way be related to collections, if any made, which were covered by the
bank guarantees furnished.
c Though respondents have no objection to adjudication of the issue of
unjust enrichment so far as the deposits made in cash are concerned, it is
stated that same cannot be a ground to reopen a closed issue relating to bank
guarantees which were furnished, even if it is conceded for the sake of
argument that for the concerned period certain collections were made.
D
Unjust enrichment is the retention of a benefit conferred by another,
without offering compensation, in circumstances where compensation is
reasonably expected. It is a benefit obtained from another, not intended as a
gift and not legally justifiable, for which the beneficiary must make restitution
or recompense.
E
Keeping in view the principles of Unjust Enrichment as highlighted in
Mafatlaf's case (supra) and Solar Pesticides' case (supra) the inevitable
conclusion is that whatever has been passed on to the customer by the
respondents has to be tested on the touchstone of the principle of unjust
enrichment.
F
We, therefore, dispose of the I.As with the following directions:

I. Within a period of four weeks, respondents shall file an application
before the appropriate authority praying for refund of the amount
deposited by them;
G
2. While examining the claim the concerned authority shall keep in
view the principles of "Unjust Enrichment" in respect of all
amounts which have been passed on to any customer in essence
that it has been collected from him;
3. Exemption shall not be extracted only in respect of cash payments
H
STATEOFU.P. v. YAM ORGANIC CHEMICALS LTD. [PASAYAT,J.] 297

and it shall also extend to the period for which the bank guarantees A
were furnished. If during the relevant period any collection has
been made the authority shall examine whether by retention of
the amount so collected by the respondents will there be unjust
enrichment so far as the respondents are concerned.

The applications are accordingly disposed of. B
B.B.B. Applications disposed of.