Unjust enrichment and Rule 6 reversal: incidental by-product gas did not trigger the 8% payment, and refund was allowed.

Rule 6(3)(b) of the Cenvat Credit Rules applies only where inputs on which credit has been taken are used in the manufacture of exempted final products and separate accounts are not maintained; it was found inapplicable to blast furnace gas generated incidentally as a by-product or waste in sponge iron manufacture, so the 8% payment was not payable. The refund claim was also not barred by unjust enrichment, because the presumption under Sections 12A and 12B is rebuttable and the documentary record showed that buyers had not actually borne the disputed amount. The refund rejection was therefore unsustainable and relief followed.

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Issues: (i) Whether the amount calculated at 8% under Rule 6(3)(b) was payable in respect of blast furnace gas generated incidentally in the manufacture of sponge iron. (ii) Whether the refund claim was barred on the ground of unjust enrichment because the incidence of the amount was alleged to have been passed on to customers.

Issue (i): Whether the amount calculated at 8% under Rule 6(3)(b) was payable in respect of blast furnace gas generated incidentally in the manufacture of sponge iron.

Analysis: The applicable scheme under Rule 6 of the Cenvat Credit Rules and the earlier Rule 57AD permits reversal of credit or payment of a prescribed percentage only where inputs on which credit has been taken are used in the manufacture of exempted final products and the manufacturer does not maintain separate accounts. The blast furnace gas was found to arise incidentally in the manufacturing process as a by-product or waste, not from a separate use of inputs for its manufacture. On that footing, the statutory condition for application of the 8% payment mechanism was not satisfied.

Conclusion: The 8% amount under Rule 6(3)(b) was not payable; this issue was decided in favour of the assessee.

Issue (ii): Whether the refund claim was barred on the ground of unjust enrichment because the incidence of the amount was alleged to have been passed on to customers.

Analysis: The presumption under Sections 12A and 12B is rebuttable. The price shown in invoices is not immutable and may be altered by subsequent credit notes, debit notes, or revised invoices. On the facts, the documentary material showed that the buyers had not actually borne the disputed amount, and mere issue of supplementary invoices did not establish passing on of incidence.

Conclusion: The bar of unjust enrichment did not apply; this issue was decided in favour of the assessee.

Final Conclusion: The refund rejection could not be sustained, and the assessee was entitled to relief.

Ratio Decidendi: A payment under the exemption-related reversal mechanism is not attracted where no inputs on which credit was taken are used in the manufacture of the exempted product, and the presumption of passing on duty incidence can be rebutted by evidence showing that the buyer did not actually bear the amount.

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