2013 (10) TMI 263 - AT - Central Excise

Refund justified when duty neutralized through credit notes: burden on Revenue to disprove.

The Tribunal affirmed that once duty incidence is neutralized through credit notes, the refund is justified, making the Doctrine of unjust enrichment ... Eligibility for Refund - Provisional Assessment - manufacture of explosives - Whether in view of subsequent issue of credit notes neutralising the higher price along with higher duty earlier charged, the respondent would be eligible for refund - Held that:- If the credit notes were genuine and had been acted upon, resulting in neutralising the higher incidence of duty earlier passed on, the refund claim would no longer be hit by the principle of unjust enrichment - The impugned order was set aside and the matter was remanded to the original adjudicating authority for de novo adjudication keeping in view the observations and also keeping in view the judgments of UNION OF INDIA Versus A.K. SPINTEX LTD. [2008 (11) TMI 89 - RAJASTHAN HIGH COURT] COMMISSIONER OF C. EX., LUDHIANA Versus BHARAT BOX FACTORY LTD. [2007 (3) TMI 167 - HIGH COURT, PUNJAB AND HARYANA] - Though Section 12B provided for the presumption that once the goods have been cleared on payment of duty under invoice which mentions some amount charged as duty, it shall be presumed that the incidence of duty has been fully passed on by the assesse to the customer, this was a rebuttable presumption and if the assesse produced evidence showing that by the issue of credit note to the customer subsequently or by charging lesser price in respect of subsequent clearances, the incidence of higher duty earlier charged had been neutralized, burden would then shifted to the Revenue to prove that the claim of the assesse was not correct and if the assesse’s claim was found to be correct, the refund claim would be admissible. Issues Involved:1. Eligibility for refund when the incidence of duty has been passed on to customers and subsequently neutralized through credit notes.2. Applicability of the Doctrine of unjust enrichment.3. Rebuttable presumption under Section 12B of the Central Excise Act, 1944.Issue-wise Detailed Analysis:1. Eligibility for Refund When the Incidence of Duty Has Been Passed on to Customers and Subsequently Neutralized Through Credit Notes:The respondents, engaged in the manufacture of explosives, supplied them to Coal India Limited at provisional prices, paying duty accordingly. Upon finalization of prices, which were lower in some cases, they claimed refunds for the excess duty paid. The Assistant Commissioner allowed these refunds, but the Commissioner reviewed and directed appeals, arguing that the refund was inadmissible since the incidence of duty had initially been passed on to customers. The Commissioner (Appeals) dismissed the Revenue's appeals, relying on Tribunal judgments that held credit notes neutralizing higher duty incidence made the Doctrine of unjust enrichment inapplicable. The Tribunal affirmed this view, emphasizing that once the incidence of duty is neutralized through credit notes, the refund is justified.2. Applicability of the Doctrine of Unjust Enrichment:The Revenue contended that once duty incidence is passed to customers, subsequent credit notes do not alter the situation, citing the Tribunal's judgment in Sangam Processors (Bhilwara) Ltd. and the Larger Bench's decision in Grasim Industries. However, the Commissioner (Appeals) and the Tribunal found that the Doctrine of unjust enrichment does not apply when credit notes neutralize the duty incidence. The Tribunal referenced the Rajasthan High Court's ruling in Union of India v. A.K. Spintex Ltd., which held that issuance and effectuation of credit notes mean the duty burden is not passed on to the purchaser, thus not invoking unjust enrichment.3. Rebuttable Presumption Under Section 12B of the Central Excise Act, 1944:Section 12B presumes that duty incidence is passed to the customer unless proven otherwise by the assessee. The Tribunal noted that this presumption is rebuttable. If the assessee can demonstrate through credit notes or other means that the duty incidence was neutralized, the burden shifts to the Revenue to disprove this. The Rajasthan High Court in A.K. Spintex Ltd. emphasized that once credit notes are issued and acted upon, the burden of proof shifts, and the presumption under Section 12B is rebutted. The Tribunal also cited similar views from the Karnataka High Court in Sudhir Papers Limited v. CCE, Bangalore-I.Conclusion and Remand:The Tribunal concluded that the Commissioner (Appeals) did not adequately verify the genuineness and effectuation of the credit notes. Therefore, it set aside the impugned order and remanded the case for de novo adjudication, instructing the original adjudicating authority to consider the observations and relevant judgments, including those from the Rajasthan High Court in A.K. Spintex Ltd. The Tribunal directed that if the credit notes are genuine and have been acted upon, neutralizing the higher duty incidence, the refund claim should be allowed, provided it is not hit by the principle of unjust enrichment.(Order pronounced in the open court on 29-11-2012)