CENVAT credit reversal adjustment and unjust enrichment in refund claims resolved in favour of duty payment and protest deposit treatment

Duty actually paid on disputed clearances could be adjusted against the proposed CENVAT credit reversal under Rule 6, because the payment was not disputed at the relevant time and the credit availed during the period was lower than that duty payment; the penalty was also unsustainable in the absence of intent to evade or wrongly avail credit. Refund amounts paid under protest during investigation were treated as deposits, so the unjust enrichment bar did not apply and remand on that question was unwarranted.

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Issues: (i) Whether the duty paid on the disputed clearances could be adjusted against the proposed CENVAT credit reversal and whether penalty was sustainable. (ii) Whether the refund claim was hit by unjust enrichment and whether the remand to verify unjust enrichment was justified.

Issue (i): Whether the duty paid on the disputed clearances could be adjusted against the proposed CENVAT credit reversal and whether penalty was sustainable.

Analysis: The dispute arose from the demand for reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004 for the relevant period. The duty of Rs. 60,89,453/- paid on the clearances of PMB was not disputed by the department at the relevant time, and the record showed that the credit availed during the period was lower than that duty payment. The amount received through ISD invoices related to an earlier period and did not justify denial of the adjustment of the duty already paid. The penalty also could not stand because the appellant had been regularly paying duty and availing credit in the course of the proceedings, and no intention to evade duty or to wrongly avail credit was established.

Conclusion: The duty paid was required to be adjusted against the demand, the balance demand alone survived, and the penalty was set aside.

Issue (ii): Whether the refund claim was hit by unjust enrichment and whether the remand to verify unjust enrichment was justified.

Analysis: The amount claimed as refund had been paid under protest during investigation after utilising CENVAT credit, and it was reflected in the balance sheet under current assets, supporting the position that the burden had not been passed on. Amounts paid during investigation or pending adjudication are treated as deposits under protest, and the principle of unjust enrichment does not apply to such deposits. On that basis, the remand to examine unjust enrichment was unwarranted.

Conclusion: The refund claim was not barred by unjust enrichment, and the remand order was set aside.

Final Conclusion: The appeal relating to the demand was partly allowed by granting adjustment of the duty paid and by deleting the penalty, while the refund appeal was allowed by rejecting the objection based on unjust enrichment.

Ratio Decidendi: Where duty on the disputed clearances has actually been paid and accepted, that payment can be adjusted against the credit reversal demand, and amounts deposited under protest during investigation are not subject to unjust enrichment.

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