2011 (3) TMI 527 - AT - Central Excise

Provisional assessment excess duty set-off against short-paid duty denied; refund claim u/s 11B required, unjust enrichment applies

Whether excess duty paid on provisional assessment finalisation can be adjusted against short-paid duty without a refund claim, and whether unjust ... Adjustment of excess payment towards the short payment of duty ascertained at the time of finalization of provisional assessment - Principle of unjust enrichment - levy of penalty - discharge of the burden as specified under proviso to sub-rule (6) of Rule 7 read with Section 11B - expression 'adjustment' found in Rule 9B - Held that:- The contention that applicability of principle of adjustment would arise only in case of refund claim and since the assessee does not claim refund, question of applicability of such principle would not arise, is totally devoid of substance. As already seen, occasion to consider whether any amount therefrom is actually refundable to the assessee or not can arise only after specific claim in that regard is being made by the assessee and not otherwise. Being so, there is no option left to the assessee but to approach the Excise Officer with an application for refund, in accordance with provisions of law and within the time prescribed. Once such a claim is made, obviously the principle of unjust enrichment will get attracted. It is true that sub-rule (5) of Rule 9B uses the expression 'adjustment'. However, such expression was used with reference to adjustment of duty provisionally assessed against the duty finally assessed. It is not in relation to actual payment of duty by an assessee or in relation to any right of the assessee to get the excess payment being adjusted towards short payment. Sub-rule (5) of Rule 9B is very clear in that regard. Once the authority on finalization of assessment finds any amount of money having been paid in excess of the duty liability ascertained in the final assessment, the excess amount so ascertained would become refundable to the assessee. Such excess amount can certainly be adjusted towards any other duty liability of such assessee underline Excise Act, 1944 and Rules made thereunder, however, such adjustments are subject to the applicability of the principle of unjust enrichment. Therefore, before grant of adjustment, the authority will have to ascertain whether such excess amount is to be actually refunded to the assessee or is liable either wholly or partly to be credited to the account of consumer benefit fund and only thereafter make an order of adjustment to the extent the amount is found to be actually refundable and not liable to be credited to the account of consumer benefit fund. Needless to say, that the burden of proof in this regard would lie upon the assessee. The point for consideration is therefore answered accordingly. Issues: Whether an assessee is entitled to adjust an excess payment of excise duty made during provisional assessment against a short payment ascertained on finalisation of the provisional assessment, without being required to first obtain a refund or without being subject to the principle of unjust enrichment.Analysis: The Bench examined sub-rules (3), (4), (5) and (6) of Rule 7 of the Central Excise Rules, 2001 together with earlier Rule 9B (Central Excise Rules, 1944), Rule 173-I and statutory provisions under Sections 4, 11, 11A and 11B of the Central Excise Act, 1944. Sub-rule (3) governs finalisation of provisional assessment and is the trigger for consequences under sub-rules (4)(6). Sub-rule (5) recognises entitlement to refund when duty paid provisionally exceeds duty finally assessed, and sub-rule (6) requires crediting refunds to the Consumer Welfare Fund unless the assessee proves non-passing on of duty. The statutory scheme therefore contemplates ascertainment of the refundable quantum after finalisation of assessment and requires an assessee to make a claim and discharge the onus to avoid crediting the amount to the Fund. The concept of interest under sub-rule (4) and interest/refund provisions in Section 11B/11BB are distinct and would be frustrated if a notional adjustment during finalisation were allowed without determining whether the excess is actually refundable. The Bench held that Rule 9B(5)'s reference to 'adjustment' relates to adjustment between provisional and final assessed duty amounts and does not directly create a right to adjust actual excess payments against unrelated liabilities without first ascertaining refundability. Consequently, any adjustment of an excess payment towards another duty liability is permissible only after the authority determines the amount is refundable to the assessee and not liable to be credited to the Consumer Welfare Fund; the assessee bears the burden to establish non-passing on (the unjust enrichment bar) before adjustment can be made.Conclusion: The assessee is entitled to have any excess duty payment adjusted against other duty liabilities only after finalisation of the provisional assessment and after the authority has ascertained that the excess amount is refundable to the assessee and is not liable to be credited to the Consumer Welfare Fund; such adjustment is subject to the principle of unjust enrichment and the assessee bears the burden of proof to establish entitlement to refund/adjustment.