Unjust enrichment and limitation principles allowed refund of excise duty on captively consumed yarn

Refund of excise duty on captively consumed yarn was not barred by unjust enrichment where departmental cost verification and the cost accountant's report showed that the duty incidence had not been passed on and had been absorbed by the assessee. In the absence of contrary material, captive consumption alone did not defeat the refund claim. The Tribunal also held that limitation could not be used to reject the refund when it was not proposed in the show cause notice or raised before the first appellate authority; the Revenue could not introduce a fresh time-bar objection at that stage. The assessee's refund claims were therefore allowed and the Revenue's objections failed.

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Issues: (i) whether the refund claims arising from duty paid on yarn captively consumed were hit by the doctrine of unjust enrichment; (ii) whether the refund claims could be rejected as time-barred when limitation was not proposed in the show cause notice or raised before the first appellate authority.

Issue (i): whether the refund claims arising from duty paid on yarn captively consumed were hit by the doctrine of unjust enrichment.

Analysis: The refund claims related to duty paid on yarn used captively in the manufacture of fabrics. The departmental cost verification and the Assistant Director (Cost) report recorded that the incidence of duty had not been passed on and that the refund was not hit by unjust enrichment. In the absence of contrary material, and considering the costing data and loss position reflected in the records, the refund could not be denied merely because the goods were captively consumed. The duty incidence was found to have been absorbed by the assessee and not recovered from buyers.

Conclusion: The doctrine of unjust enrichment was held not to bar the refund, and this issue was decided in favour of the assessee.

Issue (ii): whether the refund claims could be rejected as time-barred when limitation was not proposed in the show cause notice or raised before the first appellate authority.

Analysis: The show cause notices proposed rejection only on the ground of unjust enrichment. Limitation was not part of the original adjudicatory controversy and was not raised by the Revenue by cross-objection or otherwise at the relevant stage. On that basis, the Tribunal held that the objection of time bar could not be introduced to defeat the refund claims. The refund relating to the valuation-based claim was also treated as arising from deemed provisional assessment in the light of the cost approval process.

Conclusion: The refund claims were held not to be barred by limitation, and this issue was decided in favour of the assessee.

Final Conclusion: The assessee's appeals succeeded and the Revenue's appeal failed, resulting in grant of refund relief and rejection of the Revenue's objections.

Ratio Decidendi: A refund of excise duty on captively consumed goods is not barred by unjust enrichment when the contemporaneous cost records show that the duty incidence was not passed on, and a limitation objection cannot be sustained when it was not part of the original show cause notice or appellate controversy.

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