Manufacturer entitled to excise duty refund under compounded levy scheme, unjust enrichment doctrine not applicable

CESTAT Allahabad allowed the appeal regarding refund of excise duty paid under compounded levy scheme. The tribunal held that doctrine of unjust enrichment is not applicable to manufacturers under compounded levy scheme since duty is paid based on number of machines irrespective of production or sales. Under compounding scheme, duty cannot be treated as manufacturing expense and must be deducted from revenue operations as per Companies Act 2013. The refund amount of Rs. 6,95,52,000 earlier credited to Consumer Welfare Fund was ordered to be credited to appellant's account, setting aside the impugned order.

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Issues Involved:
1. Sanctioned refund credited to the Consumer Welfare Fund.
2. Payment of CENVAT duty on a compounding basis.
3. Classification and applicable rates.
4. Applicability of unjust enrichment.

Issue-wise Comprehensive Details:

1. Sanctioned refund credited to the Consumer Welfare Fund:
The appeal arises from an order where the sanctioned refund was credited to the Consumer Welfare Fund under erstwhile Section 12B of the Central Excise Act, 1944. The Appellant, a manufacturer of Branded Chewing Tobacco, claimed a refund of Rs. 6,95,52,000/- which was initially denied on the grounds of unjust enrichment.

2. Payment of CENVAT duty on a compounding basis:
The Appellant was discharging excise duty under the erstwhile compounded levy scheme as per Section 3A of the Central Excise Act, 1944. This scheme required the Appellant to file a declaration of production parameters, based on which the Annual Capacity of production was determined by the Jurisdictional Assistant Commissioner. The duty was to be paid in advance, irrespective of actual production or clearance.

3. Classification and applicable rates:
The dispute involved the classification of the product as Branded Chewing Tobacco versus Jarda Scented Tobacco, which affected the applicable rates of duty. The Tribunal's final order, which settled the classification issue, was accepted by the revenue, leading to the Appellant's refund claim.

4. Applicability of unjust enrichment:
The Appellant argued that the duty paid in advance under the compounding scheme was not recoverable from buyers, as it was a fixed duty unrelated to actual production. The Tribunal noted that the excise duty liability was fixed based on the number of machines, and the company was liable to pay this duty even without production. The Tribunal concluded that the principle of unjust enrichment did not apply because the duty was not passed on to the customers.

Conclusion:
The Tribunal found that the refund amount was not shown as a current asset in the balance sheet for FY 2015-16 because the refund claim was made only after the final order was passed in 2022. The Tribunal held that the doctrine of unjust enrichment was not applicable in this case and directed that the refund amount appropriated to the Consumer Welfare Fund be credited to the Appellant's account. The appeal was allowed, and the impugned order was set aside.

Pronounced in open court on 22.11.2023.

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