Whether issue of credit notes sufficient to overcome unjust enrichment?

PJ/Case law/2014-15/2221

Case:- COMMISSIONER OF CENTRAL EXCISE, BBSR-I Versus I.O.C.L.

Citation:- 2014 (302) E.L.T. 67 (Tri. - Kolkata)

Brief facts:-Briefly stated the facts of the case are that the Appellants had filed refund claim on account of excess duty paid by them during the period March, 2006 to August, 2009 in respect of bulk supply of explosives to M/s. Coal India Ltd. The refund arose due to the fact that the Appellant cleared explosives to M/s. Coal India Ltd. (A Govt. of India Undertaking) on a provisional price, as per contract, on payment of appropriate Central Excise duty. On finalization of the price, at a lower rate, the Appellants claimed refund of differential duty, accordingly. The adjudicating authority though sanctioned the refund of duty, but directed to transfer the same to Consumer Welfare Fund observing that the Appellants had failed to establish that the incidence of duty had not been passed on to their customer, M/s. Coal India Ltd. Aggrieved, the Appellants preferred appeal before the ld. Commissioner (Appeals). The ld. Commissioner (Appeals) after considering the evidences on record, allowed their appeal. Hence, the Revenue is in appeal.

Appellant’s contentions:-The ld. A.R. for the Revenue has submitted that the ld. Commissioner (Appeals) has failed to take note of the fact that even though the excess amount of duty has been returned to their customer M/s. CIL through Credit Notes, subsequently, but, the incidence of duty, initially passed on, cannot be neutralized by way issuance of Credit Notes subsequently, and thus the principle of unjust enrichment is attracted. He has further submitted that C.B.E. & C. in the Circular No. 317/33/97-CX, dated 18-6-1997, has clarified that by issuance of Credit Notes, in post clearance scenario, would not entitle the assessee to get over the bar of unjust enrichment.

Respondent’s contentions:- The ld. Advocate for the Respondent, on the other hand, has submitted that it is not case of mere issuance of Credit Notes after clearance of the goods by the Appellants to its sole customer M/s. Coal India Ltd., who consumed the goods and not sold it further. It is his submission that the credit notes were issued for adjustment against future liability and also for settlement of their accounts with M/s. CIL. The ld. Advocate has referred to and relied upon the following decisions in support of his submission that bar of unjust enrichment is not attracted : (i) CCEx., Nagpur v. Solar Capitals Ltd. - 2006 (205)E.L.T.403 (Tri.-Mumbai); (ii) Special Blasts Ltd. v. CCEx., Raipur - 2005 (192)E.L.T.331 (Tri.-Del.); (iii) CCEx., Mangalore v. Keltech Energies Ltd. - 2008 (232)E.L.T.306 (Tri.-Chennai); (iv) K.J.V. Alloys Conductors P. Ltd. v. CCEx., Hyderabad - 2012 (275)E.L.T.90 (Tri.-Bang.).

Reasoning of judgment:- Heard both sides and perused the records. Undisputedly, the Appellants are entitled to refund of the Central Excise duty paid in excess during the relevant period. The only issue needs determination is whether the Appellants could be able to discharge the burden in establishing the fact that the incidence of duty had not been passed on to their customer, M/s. Coal India Ltd. and consequently eligible to the refund amount. They find that the ld. Commissioner (Appeals) had discussed in detail the issue, in particular on the purpose and object of the Credit Notes issued by the Appellants to its customer, and then recorded a categorical finding that it is only with an intention for settlement and payment and against future liability. Distinguishing the use of Credit Notes in the sense as mentioned in the Circular issued by the Board, the ld. Commissioner (Appeals) had recorded the finding at Para 12, as follows :
“12. I find that in the course of final assessment in some period the price was finalized at a higher side and in those cases, appellant was made to pay excess duty. Similarly, in some period (as in the present case), the price was finalized at a lower side and since the appellant initially cleared at a higher price with higher duty claimed refund. The higher duty collected from M/s. Coal India Ltd., which was not supposed to be collected were computed and intimated in a document called credit note which is actually in the format of a Tax invoice and Coal India since paid higher duty, adjusted the amount against their future payments. Thus, they got back the money/amount paid in excess earlier. Coal India in the form of a certificate stated that, (Ref No. MCL/SBP/GM(F)EXP/10-11, dated 21-2-2011 submitted during appeal) they have deducted the amount from the running Bills of IOC, which arose out of price reduction. Therefore, it can be concluded that, the excess duty amount initially paid by IOC has not been passed on to the buyer Coal India. Further Coal India has not also taken any Cenvat credit on the duty paid on explosives and those were consumed by them. With regard to the “Credit Notes”, it is to be stated that, the document said to be credit notes is actually a tax invoice showing the amount excess collected to enable Coal India to adjust it with the future payments. It is not similar to the “Credit Notes” referred in the Board’s Circular, Further, it is a settlement of price either higher or lower side, in the course of finalization of provisional assessment, and not a price reduction subsequent to sale as envisaged in the Board’s Circular.”
They agree with the aforesaid reasoning of the ld. Commissioner (Appeals). Besides, the ld. Commissioner (Appeals) has also referred to several decisions of this Tribunal viz. CCEx., Nagpurv. Solar Capital Ltd. reported in 2006 (205)E.L.T.403 (Tri.-Mum.) and Special Blasts Ltd. v. CCEx., Raipur reported in 2005 (192)E.L.T.331 (Tri.-Del.),wherein, under similar circumstances, it has been held that bar of unjust enrichment is not attracted. The ld. A.R. for the Revenue could not produce any decision contrary to the ones referred to by the ld. Advocate as well as relied upon by the ld. Commissioner (Appeals) in his Order. Hence, they do not see any merit in the appeals filed by the Revenue. Consequently, the orders of the ld. Commissioner (Appeals) are upheld and the Revenue’s Appeals against the said orders are dismissed.

Decision:- Appeal dismissed.

Comment:- The substance of the case is that the assessee is entitled to refund of excess duty paid on account of downward revision of price. The incidence of duty, initially passed on to customer Coal India, was neutralized by issuance of credit note to them in form of tax invoice showing excess amount collected, for adjustment against future payments. The said fact was also confirmed by Coal India in form of certificate stating said excess amount deducted from running bills of assessee. As such, it was sufficiently proved that the burden of excess duty was not passed on and the refund was rightly sanctioned.

Prepared by:- Monika Tak

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PJ/Case law/2014-15/2221

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