Assumption of passing burden of duty not applicable when price of product is controlled by the government.

PJ/CASE LAW/2014-15/2446

Case:-INDIAN OIL CORPORATION LTD. VERSUS COMMISSIONER OF C. EX., NASHIK

Citation:-2014 (308) E.L.T. 753 (Tri. - Mumbai)

Brief facts:- Brief facts of the case are that the appellant is engaged in manufacturing and distribution of petroleum products. Prior to 31-12-2002, the appellant was procuring duty-paid Ethanol and have not taken credit thereon and the same is mixed with motor spirit. After mixing, the said product is called Ethanol Blended Motor Spirit (EBMS). The contention of the appellant is that as they have not availed Cenvat credit on Ethanol at the time of procurement and cleared EBMS on payment of duty therefore they paid duty twice on Ethanol. Therefore, they are required to be refunded the duty paid on ethanol by them at the time of clearance of Ethanol mixed with motor spirit for the period 1-2-2002 to 31-12-2002. As Notification No. 62/2002-CX, dated 31-12-2002 made the EBMS duty-free therefore, on analyzing the notification, it was held by the lower authorities that the activity of blending of Ethanol with Motor Spirit amounts to manufacture. Therefore, the appellants are not entitled for refund of the duty paid at the time of clearance of EBMS on the content of Ethanol. It was further observed by the lower authorities that the appellants have failed to pass unjust enrichment therefore, refund claim is not admissible. Aggrieved by the order, the appellants are before tribunal.

Appellant’s contention:- Ms. Padmavati Patil, learned Advocate appearing on behalf of the appellants submits that before commencing the activity of blending, the appellants have sought permission for blending of Ethanol with motor spirit from the department and vide their letter, dated 21-11-2002, it was informed to them that their activity does not amount to manufacture therefore, the appellants are not entitled to take Cenvat credit on duty-paid Ethanol. In this set of facts, they did not take Cenvat credit on duty-paid Ethanol and started their activity of blending Ethanol with motor spirit. As the price was fixed and the rate of duty on EBMS was fixed by the Govt. of India, they paid Central Excise duty on the price of clearance of EBMS. As they have paid duty twice on Ethanol contents in EBMS therefore, they are entitled for refund of duty content on Ethanol in EBMS or they are entitled for Cenvat credit on Ethanol at the time of procurement. It is also contended that as per Notification 62/2002-C.E., dated 31-12-2002 it was held that the activity amounts to manufacture. In the circumstances, they are entitled for Cenvat credit on procurement of Ethanol which they could not take as per the terms of permission granted by the Revenue vide letter dated 21-11-2002. Therefore, as duty cannot be demanded twice on the same product therefore they are entitled for refund claim of either Cenvat credit or duty paid on Ethanol at the time of clearance of EBMS.
On the issue of unjust enrichment the learned Advocate relied on the decision of their own case reported in 2011 (263)E.L.T.698 (Tri.). Therefore, the learned Advocate prays that the impugned order be set aside and the appeals be allowed with consequential relief.

Respondent’s contention:- The learned A.R. appearing for the Revenue opposes the contention of the learned Advocate and submits that the letter issued by the Range Superintendent has not been challenged by the appellants therefore they are not entitled for refund claim in the light of the judgment of Hon’ble Apex Court in the case of Priya Blue- 2004 (64) RLT 321 (SC) = 2004 (172)E.L.T.145 (S.C.). He further submits that in the light of Notification 62/2002, dated 31-12-2002, their activity amounts to manufacture and their product has become exempt from duty from the said date therefore, if they had paid duty on the inputs they are not entitled for credit of the same. In these circumstances, they are not entitled for refund claim. The learned A.R. further submits that the appellants have not challenged the order of the adjudicating authority rejecting their refund claim and challenged the same on some other grounds. Therefore, there is no infirmity in the impugned order and the same is to be upheld.

Reasoning of judgment:- In this case, the fact is that the appellants have paid duty on Ethanol and did not take credit thereof. It is also not in dispute that the appellants cleared EBMS on payment of duty at the rate fixed by the Govt. of India. The fact that the duty has been paid twice on Ethanol is also not in dispute. The dispute in this case is on issuance of letter by the department on 21-11-2002 wherein their activity on blending was held that the same does not amount to manufacture. If, at that time, the appellants were told that their activity amounts to manufacture, the dispute could not have arisen as on today. In this context of that it cannot be said that the appellants are required to pay duty twice. As the appellants have claimed refund of excess duty paid on Ethanol portion at the time of clearance of EBMS or they are entitled for Cenvat credit at the time of procurement of Ethanol, the consequence will be the same as they are entitled to get the refund of excess duty borne by them. As the facts of double payment of duty on Ethanol is not in dispute at any stage and the dispute has been arisen on the wrong understanding of the Revenue while granting them permission for blending the Ethanol with MS. Therefore, following the principles of natural justice they hold that the appellants are entitled for refund claim for duty paid on Ethanol.
With regard to the contention of the learned AR that the appellants have accepted the findings of the adjudicating authority and the same has not been challenged, they have gone through the records and on perusal of the records they find that the appellants have challenged the findings of the adjudicating authority before the learned Commissioner (Appeals) and the same has not been appreciated by the learned Commissioner (Appeals) in his order.
Now they come to the issue of unjust enrichment, the issue came before this Tribunal in the appellants own case (supra) where in para 9 of the said order the Tribunal has observed as under :-
“9. The next issue is appeal filed by the appellants relating to refund claim filed by them. The refund claim has been rejected on the ground of unjust enrichment and on the ground that the duty on MS had not been paid before blending and hence exemption is not available. We have already held that appellant is eligible for exemption. As regards, unjust enrichment, in view of the fact that price of MS and Petroleum products is being fixed by the Government in the APM regime, it cannot be said that the clause of unjust enrichment would be applicable. We find that decision of the Tribunal in the case of Karnataka Antibiotics & Pharmaceuticals Ltd. v. CCE, Bangalore - 1996 (83)E.L.T.114 (Tri.) is relevant. In that case, it was held that bar of unjust enrichment not applicable when maximum retail price is fixed by the Drug Controller statutorily, question of manufacturer passing on the incidence of duty to the customers does not arise. Similarly, decision of the Tribunal in the case of Southern Petrochemical Industries Corporation Ltd. v. Commissioner of Customs, Chennai - 2001 (45) RLT 811 (CEGAT-Chennai.) is also relevant. In this case, it was held that where the sale price of end product is controlled by the Government, assumption that assessee would have passed on the incidence of duty to the customer, is neither reasonable nor logical. Under these circumstances, we find that the appellant is eligible for the refund claimed by them.”
In view of the above, they hold that unjust enrichment is not applicable to the facts of this case.
In the result, they hold that the appellants are entitled for refund claim. Accordingly, appeals are allowed with consequential relief by setting aside the impugned orders.

Decision:- Appeals allowed.

Comment:- The analogy of the case is that when the fact of double payment of duty is not disputed, the refund of excess duty is admissible to the appellant. Further, another analogy drawn in this case is that when the price of a product is controlled by government, it cannot be presumed that the burden of duty has been passed on to the customer. Accordingly, it was concluded that the clause of unjust enrichment is also not applicable in the said refund claim.

Prepared by:- Monika Tak

Comments

PJ/CASE LAW/2014-15/2446

Post a Comment

Query