The principle of unjust enrichment means that no one should be unjustly enriched at the expense of another. It also means that no person should take advantage of the position of another person which causes some loss to one party and gain to another party.
1. Impact of Unjust Enrichment under GST
The unjust enrichment principle is a part of the GST legislation so as to avoid unjustified claims for a refund by taxpayers. While the term ‘unjust enrichment’ is not used anywhere in the CGST Act, the principle is inbuilt within section 54(5) and section 54(8). Every claim of refund made must pass the test of unjust enrichment. The test of unjust enrichment will not be applicable only in the following cases as specified in section 54(8):
- The refund is claimed in respect to:
- Tax paid in making outward zero-rated supplies
- Tax paid on inputs used in making outward zero-rated supplies
- The refund of the unutilised balance of input tax credit lying in the electronic ledger due to:
- Zero-rated outward supplies being made without payment of tax
- Inverted duty structure (i.e., the tax rate on inputs is higher than the tax rate on output supplies)
- The refund is in respect to tax paid on a supply which was not made either partially or wholly (no invoice issued) or where a refund voucher is issued
- The refund is claimed in regard to tax wrongly paid to the Central/State Government/Union Territory (including integrated tax)
- Where it is demonstrated that the incidence of tax and interest has not been passed on to another person
- Where the incidence of tax and interest has been passed on to persons as may be specified by the government
2. What are the Proofs Required in Case the Principle of Unjust Enrichment Applies?
The principle of unjust enrichment would apply only if the revenue has cogent evidence that the incidence of tax has been passed on to another person. The incidence of tax is deemed to be passed on to another person if the said tax has been recovered from another person.
Where the amount of refund claimed is more than Rs 2 lakh, Rule 89(2) of the CGST Rules 2017 makes it mandatory to attach a certificate in Annexure 2 of Form GST RFD-01. The Annexure 2 should be issued by a Chartered Accountant or a Cost Accountant stating that the incidence of tax, interest or any other amount claimed as refund has not been passed on to any other person needs to be submitted.
3. What Happens If Unjust Enrichment is Proved?
As per section 57 of the CGST Act 2017, the concerned refund amounts will be transferred to the Consumer Welfare Fund, when the claim of refund does not pass the test of unjust enrichment. Such an amount will now be out of reach of the taxpayer and will be used by the government for the welfare of consumers in the prescribed manner.