Refund of excess duty paid - applicability of principle of unjust enrichment

PJ/Case Laws/2012-13/1043

Case: SOLARIS CHEMTECH LTD vs. COMMISSIONER OF C. EX., MANGALORE-3

Citation: 2011 (273) E.L.T. 191 (Kar.)

Issue: - Refund of excess duty paid – whether principle of unjust enrichment will be applicable when differential price not collected from buyer?

Brief Fact: - Respondent is a manufacturer of caustic soda falling under Chapter 28 of Central Excise Tariff Act, 1985. They filed a refund claim of 1,63,652/- being excess duty paid on caustic soda supplied to M/s. Mysore Mills Ltd. Bhadravathi, during the period 18-6-2002 to 27-7-2002. Initially Clearances were made by adopting higher rate i.e., Rs. 10,800/- per MT., and later the contract for the supply was finalized at a lesser price in July 2002 effective from 15-6-2002.

Show-cause notice dated 29-8-2003 was issued to reject the refund claim and the claim was rejected by the Adjudicating Authority. Aggrieved by the same, the respondent preferred an appeal. The First Appellate Authority allowed the refund claim on the ground that the credit notes issued by the respondent to the buyers makes it clear that the price adopted at the time of clearance were provisional. It was only an adjustment in the running account with the buyer. The buyer had not availed MODVAT credit, which is evident from the certificate issued by the jurisdictional Superintendent. The discounted price had to be treated as the transaction value and therefore, it held that refund of excess duty was admissible.

Aggrieved by the said order, the Revenue preferred an appeal before the Tribunal. Taking note of the Chartered Accountant's Certificate submitted by Respondent, the Tribunal held that the assessee had discharged the burden of showing that the duty had not been passed on to the customers by producing Chartered Accountant's Certificate and mere issue of credit note was not sufficient of discharge the burden on the customer. The said fact was verified by the Commissioner (Appeals). Therefore, it was held that the refund claim was not hit by the provisions of unjust enrichment. In view of the evidence produced by the Assessee and the same being accepted by the Commissioner (Appeals), the Tribunal found no reason to interfere in the order. Accordingly, the appeal filed by the revenue came to be rejected.

Aggrieved by the same, the revenue is in appeal before the High Court. The following question was raised:

Whether the Commissioner (Appeals) and the Tribunal have committed an error of law holding that the respondent is entitled for refund as there was no unjust enrichment, since credit note has been issued by ignoring the law laid down by the Hon'ble Supreme Court in the case of M/s. MRF Ltd. v. Commissioner of Central Excise, Madras [1997 (92) E.L.T. 309 (S.C.)] wherein it was held that the duty was chargeable on the price prevailing on the date of actual removal as shown by the assessee and the subsequent reduction in the price could not create a right in favour of the Assessee?

Respondent contention: - Respondent produced Chartered Accountant's Certificate which clarified that no excise duty was indicated in the invoice, it was not actually recovered from the said customer and the adjustment was made in the books of accounts.

Reasoning of Judgment: -The High Court examined the material on record as well as the finding recorded by the two appellate authorities. It was held that from the same it is clear that the excise duty has not been passed on to the customer. It is a case of mere adjustment of accounts by issue of credit note. Section 11B provides for refund of excise duty paid under the Act. In the circumstances, it is set out in proviso to sub-section (2) of Section 11B that when the excise duty paid by the manufacturer, if he had not passed on the incidence of such duty to any other person i.e., his customer, the duty paid is refundable. In the instant case, when the duty at a higher rate was paid by the manufacturer to the Department is not collected from the customer, in other words, if the higher duty is not passed on to the customer and the customer has not paid the said amount, the assessee is entitled to refund of that excess amount paid at a higher rate. That is precisely what the two fact finding authorities have concurrently held. The said findings recorded by the authorities are based on legal evidence on record. Keeping in mind the aforesaid legal provisions, it was held that the said finding do not suffer from any legal infirmities which calls for interference. No merit in appeal. Hence, the substantial question of law is answered against the revenue and in favour of the Assessee.

Decision: - Appeal dismissed.

Comment:- This is landmark decision. The department audit parties as well as adjudication officers does not agree on the same normally. They maintain that when the duty has been shown on the face of invoice then the incidence has passed on. But the High Court has clearly said that when the higher duty is not paid by the buyer then concept does not apply.

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PJ/Case Laws/2012-13/1043

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