Captive consumption valuation and unjust enrichment must be examined before refund of excess excise duty is granted.

For staple fibre yarn cleared only to a sister unit for captive consumption, the correct assessable value had to be determined under the valuation rules applicable to captive clearances, and an earlier sale price could not be adopted without examining the proper basis. A refund claim for alleged excess duty paid under mistake of law also required scrutiny of the statutory refund mechanism under Section 11B and the bar of unjust enrichment, including whether the duty burden had been passed on. The refund could not be granted straightaway on the approach adopted by the Commissioner (Appeals); both issues were remitted for fresh consideration after hearing the parties.

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Issues: (i) what was the proper assessable value for staple fibre yarn cleared to a sister unit for captive consumption during the relevant period; (ii) whether refund of the alleged excess duty could be granted on the basis of mistake of law and without examining the bar of unjust enrichment and the applicability of Section 11B of the Central Excise Act, 1944.

Issue (i): what was the proper assessable value for staple fibre yarn cleared to a sister unit for captive consumption during the relevant period

Analysis: The clearances were made only to the sister unit during the material period and there were no contemporaneous sales to independent buyers. In such circumstances, valuation had to be examined under the rules governing captive consumption, and the lower appellate authority's approach of adopting an earlier sale price without addressing the correct valuation basis was not sustained.

Conclusion: The valuation issue could not be finally affirmed on the basis adopted by the Commissioner (Appeals), and it required fresh consideration.

Issue (ii): whether refund of the alleged excess duty could be granted on the basis of mistake of law and without examining the bar of unjust enrichment and the applicability of Section 11B of the Central Excise Act, 1944

Analysis: The lower appellate authority relied on authorities dealing with refund of duty paid under mistake of law, but the dispute also required examination of whether the amount could be claimed after clearance and whether the duty burden had been passed on. The applicability of unjust enrichment and the statutory refund mechanism was therefore material and had not been adequately examined.

Conclusion: The refund could not be straightaway allowed on the reasoning adopted by the Commissioner (Appeals), and the issue had to be reconsidered afresh.

Final Conclusion: The order allowing refund was set aside and the matter was remitted to the Commissioner (Appeals) for fresh decision after affording an effective opportunity of hearing.

Ratio Decidendi: Where duty is claimed to have been paid in excess on clearances for captive consumption, the correct valuation basis and the statutory bar of unjust enrichment must be examined before refund can be granted.

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