Modvat credit on common inputs and unjust enrichment in refund claims where excisable by-products are cleared without duty.

Where a dutiable final product and an excisable by-product arise from the same manufacturing process, Modvat credit on the common input was treated as fully available and no reversal or differential recovery was required merely because the by-product was cleared without duty. The note also states that a refund claim for amounts paid under Rule 57CC or Rule 57AD(2) was rejected, because payment under protest did not by itself displace the doctrine of unjust enrichment and the incidence of duty was not shown to have been borne by the assessee.

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Issues: (i) Whether Modvat credit taken on the entire quantity of sulphuric acid used in manufacture was liable to reversal or proportional recovery when the final product was dutiable and the by-product was cleared without payment of duty. (ii) Whether the amount paid under Rule 57CC or Rule 57AD(2) towards the clearances of the by-product was refundable on the ground that it was paid under protest and therefore not hit by unjust enrichment.

Issue (i): Whether Modvat credit taken on the entire quantity of sulphuric acid used in manufacture was liable to reversal or proportional recovery when the final product was dutiable and the by-product was cleared without payment of duty.

Analysis: The final product was cleared on payment of duty, and the by-product emerging in the same manufacturing process was held to be an excisable by-product. On the settled position that credit is not deniable in relation to such by-product, the input duty credit on the entire quantity of sulphuric acid was available. In that situation, no part of the credit already taken could be required to be reversed merely because the by-product was cleared without duty.

Conclusion: The demand for reversal or differential recovery of Modvat credit was not sustainable and was rejected.

Issue (ii): Whether the amount paid under Rule 57CC or Rule 57AD(2) towards the clearances of the by-product was refundable on the ground that it was paid under protest and therefore not hit by unjust enrichment.

Analysis: The refund claim rested on the plea that payment under protest excluded the bar of unjust enrichment. The claim was rejected because the incidence of duty had not been shown to have been retained by the assessee, and payment under protest by itself was held to be irrelevant to the application of unjust enrichment.

Conclusion: The refund claim was not maintainable and was rejected.

Final Conclusion: The Revenue failed in its challenge to the credit issue, while the assessee also failed in its refund claim, and all connected appeals stood dismissed.

Ratio Decidendi: Where the final product and the by-product are both excisable, credit on common inputs cannot be reversed merely because the by-product is cleared without duty, and payment under protest does not by itself displace the doctrine of unjust enrichment in refund matters.

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