Refund of reversed Modvat credit: unjust enrichment, unpleaded depreciation, and lack of proof of reversal cannot defeat the claim.

Refund of reversed Modvat credit cannot be denied on unjust enrichment where the credit was reversed only due to a departmental objection and the assessee ultimately established eligibility to the credit; in that setting, the reversal is not treated as ordinary duty payment requiring proof of incidence pass-through. A refund claim also cannot be rejected on a ground such as alleged depreciation that was never raised in the show-cause notice or original objection. Where the notice itself admits reversal of credit, the department cannot later insist on separate documentary proof of that reversal as a refund condition. The operative principle is that refund denial must rest on pleaded and substantiated grounds, and consequential relief follows when those grounds fail.

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Issues: (i) whether refund of reversed Modvat credit was barred by unjust enrichment; (ii) whether refund could be denied on the ground that depreciation might have been availed without any such allegation in the show-cause notice; and (iii) whether refund could be rejected for want of documentary proof of reversal when reversal was already ed in the notice.

Issue (i): whether refund of reversed Modvat credit was barred by unjust enrichment.

Analysis: The credit had been reversed only because of departmental objection, though the assessee ultimately succeeded on the merits of eligibility to credit. In such a situation, the reversal was not a payment of duty in the ordinary sense requiring proof that the burden had not been passed on. Since the assessee could have retained the credit or taken it back after succeeding, the concept of unjust enrichment did not apply to deny the refund.

Conclusion: The objection of unjust enrichment was rejected in favour of the assessee.

Issue (ii): whether refund could be denied on the ground that depreciation might have been availed without any such allegation in the show-cause notice.

Analysis: The alleged availment of depreciation was neither part of the show-cause notice nor the original departmental objection. A refund claim cannot be defeated on a ground that was never put to the assessee in the adjudicatory process.

Conclusion: This ground for rejection was not sustainable and was decided in favour of the assessee.

Issue (iii): whether refund could be rejected for want of documentary proof of reversal when reversal was already accepted in the notice.

Analysis: The show-cause notice itself acknowledged that the credit had been reversed. After having proceeded on that admitted factual basis, the Revenue could not insist years later on separate documentary proof of reversal as a precondition to refund.

Conclusion: This ground for rejection was unsustainable and was decided in favour of the assessee.

Final Conclusion: The refund rejection was held to be unjustified on all three grounds, and the assessee became entitled to consequential relief.

Ratio Decidendi: Where credit reversal is made only during dispute and the assessee ultimately establishes eligibility to the credit, refund cannot be denied on unjust enrichment or on new grounds not raised in the show-cause notice, especially when the foundational fact of reversal is already admitted by the department.

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