2023 (9) TMI 288 - AT - Central Excise

Tribunal allows appeal on refund eligibility under Central Excise Act, emphasizing 'unjust enrichment' proof.

The Tribunal allowed the appeal by M/s Indian Oil Corporation Ltd, setting aside the order that disallowed refund under the Central Excise Act. The ... Refund claim - goods used for captive consumption - Applicability of principles of unjust enrichment - HELD THAT:- With disposal of appeal by the Tribunal, the MODVAT credit utilized was rendered legal and the other debit being moneys paid other than as duty. That the duty so legalized may be presumed to have been passed on with the value of the goods cleared is not in issue. The issue concerns the payment made again on 7th August 2000 and could neither have been ‘expense’ of 2000-01 nor ‘duty’ of 2000-01. The conclusion that recognition as ‘income’ in the year of sanction, which it undoubtedly was, does not automatically turn that into ‘expense’ of earlier years. In UNION OF INDIA VERSUS SOLAR PESTICIDE PVT. LTD. [2000 (2) TMI 237 - SUPREME COURT] it was held that evidence of duty incidence not having been passed on cannot be claimed to be unavailable and, therefore, entitling claimant to exclusion from the onus of section 11B of Central Excise Act, 1944 does not bar the test of unjust enrichment. Appellant has furnished certification from Chartered Accountant that amount was not debited against any particular clearance. Without evaluation of the pricing practice of the appellant for ‘lubricant’, discard of the certification on supposition of it having been treated as ‘expense’ and, therefore, built into the manufacturing cost of products cleared after 2000 is neither logical nor consistent with obligation of appellate authorities to restrict fact finding only upon evidence. In a departmental appeal, that should have been preferred as a ground of appeal on the basis of computation; a finding without such factual evaluation, in circumstances of that onus resting on the reviewing authority, cannot sustain. The certification by Chartered Accountant, considering the contents therein, suffice for discharging obligation to demonstrate that incidence of such duty has not been passed on - impugned order set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the test of 'unjust enrichment' is applicable to a refund claim under section 11B of the Central Excise Act in respect of amounts remitted as 'deposits' (debited to Personal Ledger Account) during pendency of adjudication/investigation. 2. Whether debit in the Personal Ledger Account (PLA) of amounts previously claimed as CENVAT/MODVAT credit constitutes payment of duty on the same goods such that refund of the debited amount would result in unjust enrichment. 3. Whether accounting treatment (recognition as 'income' in later years or a Chartered Accountant's certificate) and absence of specific debit against particular clearances can discharge the onus under section 11B to show that the incidence of duty was not passed on to buyers. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of the 'unjust enrichment' test to refunds of deposits under section 11B Legal framework: Section 11B permits provisional collection and refund procedures; proviso(s) carve out cases involving credit of duty. The doctrine of unjust enrichment requires that a claimant who has not borne the incidence of the duty (i.e., the duty has been passed on to customers) should not recover the amount. Precedent treatment: The Supreme Court's decision in the Solar Pesticides line of authority establishes that refunds of duties wrongly collected are subject to the unjust enrichment test; evidence regarding passage of incidence is relevant and onus lies on claimant to show non-passage. Interpretation and reasoning: The Court observed that the unjust enrichment test is applicable to refunds even where the refund arises from amounts deposited during investigation, because the policy preventing recovery where the duty burden has already been passed on is equally relevant to deposits substituted for duty during adjudication. The first appellate authority misapplied Solar Pesticides by treating the accounting disclosure as conclusively negating the unjust enrichment enquiry. Ratio vs. Obiter: Ratio - The unjust enrichment test applies to refund claims under section 11B even when the refunded amount comprises deposits made during investigation/adjudication (debited to PLA). Conclusions: The Court affirmed that unjust enrichment is a valid bar to refund in such cases and must be examined before sanctioning refund under section 11B. Issue 2 - Legal effect of PLA debit of amounts originally obtained as CENVAT/MODVAT credit Legal framework: Utilisation of MODVAT/CENVAT credit for payment of duty and subsequent debiting of PLA during dispute must be examined to determine whether two payments discharged the same duty liability or whether one payment merely substituted for an earlier irregular credit. Precedent treatment: Tribunal authority has held that refund of credit of duty paid on inputs is permitted under proviso to section 11B(2)(c) where admissibility of credit is established; certain tribunal decisions accepted refunds where the credit claim was substantiated. Interpretation and reasoning: The Court analysed the chronology and found that MODVAT credit had been utilised to discharge duty on clearances; subsequently, during the dispute, an amount (Rs. 1,74,13,087) was debited to PLA well after clearances. Consequently, for the period of dispute there existed payment by utilisation of credit and later debit to PLA such that to that extent the same duty was effectively paid twice. Once the Tribunal validated the MODVAT credit utilization, that utilisation became lawful duty discharge, and the separate PLA debit could not be treated as duty of the earlier period. The consequence is potential unjust enrichment if the PLA amount were refunded without inquiry into passage of incidence. Ratio vs. Obiter: Ratio - Where disputed MODVAT credit was eventually validated, a subsequent PLA debit that effectively resulted in double payment of duty on the same clearances can constitute a deposit not representing duty and hence is subject to the unjust enrichment inquiry before refund. Conclusions: The Court held that the PLA debit could not automatically be equated with duty of the earlier period and that its refund requires proper consideration of whether the duty incidence was passed on; this fact pattern justifies applying the unjust enrichment test. Issue 3 - Sufficiency of accounting treatment and Chartered Accountant's certificate to rebut the onus under section 11B Legal framework: Section 11B places the onus on the claimant to show that the incidence of duty has not been passed on; evidence may include accounting records, pricing practice, and other documentary proof. Precedent treatment: Solar Pesticides emphasises that claimants cannot avoid the onus simply by asserting unavailability of evidence; affirmative proof is required to negative passage of incidence. Interpretation and reasoning: The Court found that the first appellate authority failed to properly evaluate evidence. A later-year accounting recognition as 'income' does not retroactively convert the 2000 PLA debit into an expense of 2000-01 or into duty paid in that year. Conversely, the Chartered Accountant's certificate stating that the amount was not debited against particular clearances, together with the absence of evidence that the amount was passed on in pricing, is adequate to discharge the initial evidentiary obligation in this departmental appeal context when considered with the record. The Court emphasized that a finding should rest on fact-finding about pricing practice and documentary verification, and that dismissal of thecertification without such factual evaluation was impermissible in a departmental appeal where the reviewing authority bears the onus of evaluation. Ratio vs. Obiter: Ratio - A Chartered Accountant's certificate and absence of specific debit against clearances can suffice, in appropriate factual circumstances, to discharge the claimant's onus under section 11B to show non-passage of incidence; the appellate authority must evaluate pricing and factual records rather than presume passage of incidence from later-year accounting entries. Conclusions: The Court held that the certificate and record warranted acceptance that incidence of duty had not been passed on (absent contrary factual findings), and that the first appellate authority's failure to evaluate pricing/other facts rendered its denial of refund unsustainable. Cross-reference and overall result The Court reconciled applicability of unjust enrichment (Issue 1) with the evidentiary sufficiency of accounting/certification (Issue 3) in the factual matrix where MODVAT credit was later validated (Issue 2). Applying these principles, the Court set aside the impugned order denying refund on the ground of unjust enrichment and allowed the appeal, concluding that the claimant had discharged the onus to the requisite degree and that the prior appellate fact-finding was not supported by proper evaluation of evidence.