2023 (12) TMI 564 - AT - Central Excise

Refund granted for excess duty paid after credit notes issued under Section 11B(2)(d) neutralized tax burden passing

The CESTAT Chennai allowed an appeal for refund of excess duty paid. The appellant cleared goods without duty under a notification but later paid ... Refund of the excess duty paid - principles of unjust enrichment - issuance of credit note by the appellant at a later date to the customer - post-clearance activity or not - section 11B of CEA - HELD THAT:- The question arises whether the incidence of duty which has been passed on to customers can be neutralized by the assessee issuing a credit note so as not to attract the bar of unjust enrichment - the issue has been examined and decided by a Coordinate Bench of this Tribunal in its decision pertaining to COMMISSIONER OF CENTRAL EXCISE, RAIPUR VERSUS IBP LTD. [2013 (10) TMI 263 - CESTAT NEW DELHI]. In the instant case goods were cleared to M/s. Kalpataru Power Transmission Ltd. without payment of duty availing the benefit under Notification No. 108/95-CE dated 28.8.1995. They had paid excise duty to the tune of Rs.6,08,053/- during November 2010 on five consignments made in respect of the additional quantities, due to delayed receipt of amendment certificate. Having subsequently received the certificate which entitles them to duty exemption they have raised a credit note on their customers and sought a refund. In the circumstances it becomes the duty of the Department to facilitate such an assessee caught in difficult circumstances and not to put him to financial hardship especially when he has shown proof of having neutralized the passing of the tax burden. Trade facilitation makes true meaning in sensitive handling of such instances. Only if the Department had evidence to show that in spite of the credit note issued to their customer, the appellant in some other way had unjustly enriched himself in this matter, should the refund have been denied. Otherwise, the provisions of Section 11B (2) (d) of the Central Excise Act stand satisfied. The impugned order is hence set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessee who, after payment of excise duty on clearances, issues credit notes to the buyer (or otherwise neutralizes the price/duty incidence) can satisfy the proviso to section 11B(2)(d) and obtain refund, or whether such post-clearance adjustments are irrelevant to the unjust enrichment inquiry. 2. Whether the presumption that the incidence of duty is passed to the customer (arising under statutory provisions governing invoices/clearances) is irrebuttable for purposes of denying refund, or is a rebuttable presumption capable of being displaced by evidence such as credit notes or subsequent price adjustments. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Relevance of post-clearance credit notes/adjustments to unjust enrichment under section 11B(2)(d) Legal framework: Section 11B(2)(d) permits refund where the duty paid by the manufacturer has not been passed on to any other person. The statutory scheme focuses on whether the incidence of duty has been borne by the manufacturer or shifted to the buyer; unjust enrichment is the operative concern for refund sanction. Precedent treatment: A coordinate tribunal bench and certain High Court decisions have held that evidence of post-clearance neutralization (credit notes, subsequent reduced pricing) rebuts the presumption of passing on and can establish absence of unjust enrichment. Other decisions have taken a stricter view, emphasizing that post-clearance adjustments are post facto and not relevant to the statutory test. The Court follows the line treating the presumption as rebuttable and giving effect to evidentiary neutralization by credit notes or adjusted pricing. Interpretation and reasoning: The Court examined whether issuance of credit notes after clearance is a 'post-clearance activity' irrelevant to section 11B(2)(d). It concluded that such actions are relevant and admissible evidence to show that the incidence of duty was not ultimately passed on. The Court emphasized that where the assessee produces credible proof that the duty burden has been neutralized vis-à-vis the customer (for example, by credit notes and certification by the customer that no input credit was availed), the initial statutory presumption shifts the evidentiary burden to the Revenue to prove continued passage of incidence or that the credit notes were bogus/not acted upon. The Court also noted considerations of trade facilitation and avoidance of financial hardship to an assessee who was compelled to pay duty because of administrative delay in issuance of exemption/amendment certificates. Ratio vs. Obiter: Ratio - Post-clearance issuance of bona fide credit notes or demonstrable subsequent price adjustments are admissible and sufficient evidence to rebut the presumption of passing on, thereby satisfying the proviso to section 11B(2)(d) unless the Revenue shows contrary proof. Obiter - Observations concerning administrative sympathy and trade facilitation are persuasive but ancillary to the legal holding. Conclusions: The Court held that credit notes issued after payment of duty can neutralize the passing on of incidence and are relevant for refund under section 11B(2)(d). Where such evidence is produced, refund must be allowed unless the Department adduces evidence disproving the genuineness/effect of those adjustments. Issue 2 - Rebuttable nature of statutory presumption that duty incidence is passed to the customer Legal framework: Statutory provisions create a presumption that where goods are cleared on payment of duty and the invoice shows an amount as duty, the incidence of that duty has been passed on to the purchaser. The presumption allocates the initial burden of proof. Precedent treatment: Prior appellate and High Court authorities have characterised this presumption as rebuttable; once the assessee produces evidence (credit notes, lower subsequent pricing), the onus shifts to Revenue to disprove the claim. The Court adheres to this line of authorities and applies it to the facts. Interpretation and reasoning: The Court recognized the presumption but treated it as rebuttable. It reasoned that the statutory presumption does not foreclose admission of contemporaneous or subsequent evidence demonstrating that the buyer did not, in fact, bear the duty (e.g., reimbursement reversed by credit notes, buyer's certification of non-availment of input credit). The practical effect is that the presumption raises a burden which the assessee can discharge; once discharged, the Revenue must prove unjust enrichment or that the adjustments are spurious. Ratio vs. Obiter: Ratio - The statutory presumption that duty was passed on is rebuttable; credible post-clearance evidence of neutralization shifts the burden to Revenue and permits refund if Revenue cannot rebut. Obiter - The Court's remarks on the comparative weight of different forms of evidence (e.g., customer certification) are illustrative but not strictly necessary to the holding. Conclusions: The Court concluded that the presumption of passing on is rebuttable by evidence such as credit notes or adjusted pricing, and that a genuine neutralization of incidence satisfies the proviso to section 11B(2)(d) for refund purposes. Cross-reference and operational conclusion Where an assessee paid duty due to administrative delay but subsequently issued bona fide credit notes (or otherwise neutralized the duty incidence) and produced corroborative evidence that the customer did not avail input credit or had been credited, the statutory proviso is satisfied and refund should be granted unless the Revenue adduces specific evidence of unjust enrichment. The burden allocation: initial presumption on passing on ? assessee may rebut by evidence of neutralization ? if rebutted, burden shifts to Revenue to disprove genuineness/effect of neutralization.