2024 (4) TMI 819 - AT - Central Excise

Excess duty refund allowed after provisional assessment despite revenue's unjust enrichment claims

CESTAT Bangalore upheld refund of excess duty claimed after provisional assessment finalization. Revenue argued duty burden was passed to consumers under ... Refund of Excess duty, claimed pursuant to finalisation of provisional assessments - duty burden has already been passed on to the ultimate consumer at the time of clearance of goods or not - principles of unjust enrichment - HELD THAT:- In the respondent’s own case PRINCIPAL COMMISSIONER OF CENTRAL TAX VERSUS M/S. VIKRANT TYRES LTD, [PRESENTLY KNOWN AS JK TYRES AND INDUSTRIES – PLANT-I] [2021 (10) TMI 586 - KARNATAKA HIGH COURT], the Hon’ble High Court Karnataka considering more or less similar arguments and scrutiny of the claims from the angle of applicability of unjust enrichment and the refund sanctioned by the Revenue to the respondent from time to time, held that The authorities have admitted that the credit notes were issued by the assessee to their dealer representing various discounts which have been actually passed on, in accordance with marketing circulars/policies. It is also observed that on verification of sample depot invoices at the time of completion of provisional assessment, that the assessee has not issued any cenvatable invoice from the depot which are prescribed document for availment of cenvat credit under Cenvat Credit Rules, 2004. Thus, it cannot be held that the assessee has not subjected to the test of unjust enrichment. The said judgment of the Hon’ble High Court is binding on all concerned being the judgment of the jurisdictional High Court in view of the judgment of the Larger Bench of the Tribunal in J.K. TYRE & INDUSTRIES LTD. VERSUS ASST. COMMR. OF C. EX., MYSORE [2016 (11) TMI 911 - CESTAT BANGALORE]. Besides, the aforesaid judgment of the Hon’ble Karnataka High Court has been accepted by the Revenue. The impugned order of Learned Commissioner(Appeals) is upheld and the Revenue’s appeals being devoid of merit are dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether refunds claimed pursuant to finalisation of provisional assessments are subject to the test of unjust enrichment, i.e., whether the claimant has established that the incidence of duty refunded was not passed on to any other person. 2. Whether the statutory presumption that duty paid is passed on to the buyer (under the relevant provision of the excise statute) and the proviso to the applicable rule (relating to refunds) operate to bar refund where the claimant has issued credit notes to dealers after clearance from factory to depot. 3. Whether decisions addressing 'normal' refunds (post-payment, not tied to finalisation of provisional assessment) are binding or distinguishable when applied to refunds arising from finalisation of provisional assessments. 4. Whether the Revenue is estopped or precluded from selectively challenging certain assessment years when identical refunds for other years have been accepted and attained finality. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Applicability of unjust enrichment test to refunds after finalisation of provisional assessment Legal framework: The statutory scheme requires that a claimant seeking refund must show that the duty refunded was paid by it and that the incidence of such duty was not passed on to any other person; administrative instructions govern refunds arising out of finalisation of provisional assessments. Precedent treatment: Higher-court authority in an earlier decision on normal refunds held that a claimant must prove non-passage of incidence to obtain refund. However, the jurisdictional High Court has considered and distinguished that ratio when claims arise from finalisation of provisional assessment, applying administrative guidance and facts. Interpretation and reasoning: The Tribunal accepts that the sine qua non for refund in the ordinary course is proof that the duty incidence was not passed on. Nevertheless, where refunds follow finalisation of provisional assessment after issuance of credit notes and adjustments at depot level, the factual matrix and administrative instructions governing such adjustments are material. The Tribunal relies on the jurisdictional High Court's analysis that the apex-court ratio concerned 'normal' refunds and is distinguishable when provisional-assessment finalisation and credit-note mechanisms are in play. Ratio vs. Obiter: The Tribunal treats the High Court's distinction as a binding ratio for refunds tied to finalisation of provisional assessment within the jurisdiction; the apex-court pronouncement on normal refunds is treated as ratio for ordinary refunds but not controlling for provisional-assessment adjustments in this factual context. Conclusion: The unjust-enrichment test applies, but its application must account for the special regime of provisional assessment finalisation; on the facts and following the High Court's binding view, the claimant satisfied the unjust-enrichment test for the refunds in question. Issue 2 - Effect of statutory presumption that duty is passed on and the proviso to the refund rule Legal framework: The statutory provision creates a presumption that a person who pays excise duty has passed its full incidence to the buyer unless contrary is proved. The refund rule contains a proviso addressing circumstances for refund and may require proof that incidence was not passed on. Precedent treatment: Authorities have relied on the statutory presumption to deny refunds where a claimant has not rebutted the presumption. Administrative instructions and High Court interpretation, however, have recognized distinctions in provisional-assessment contexts. Interpretation and reasoning: The Revenue argued that issuance of goods from factory to depot implies incidence was passed to final customers at clearance time and that subsequent credit notes to dealers do not rebut the statutory presumption as they operate only at dealer stage. The Tribunal (following the High Court) finds that where provisional assessments were adopted because discounts rendered assessable value indeterminate at clearance and where credit notes were issued and reflected in finalised assessments, the claimant can rebut the presumption by producing documentation and by the regulatory framework for provisional-assessment adjustments. Ratio vs. Obiter: The conclusion that the proviso and presumption do not automatically defeat refund claims arising from finalisation of provisional assessments is treated as ratio for such cases within the jurisdiction; broad propositions about the presumption's applicability to all refunds remain part of the general law for ordinary refunds. Conclusion: The statutory presumption is rebuttable and, in the context of finalisation of provisional assessments with documented credit notes and no evidence of passage of incidence beyond dealers, the presumption does not preclude refund. Issue 3 - Distinguishing decisions on normal refunds from refunds after provisional assessment finalisation Legal framework: Judicial decisions are to be applied to the factual and statutory context in which they arose; administrative instructions specifically address refunds following provisional-assessment finalisation and may differ from rules for ordinary refunds. Precedent treatment: The apex-court decision concerning normal refunds has been applied by Revenue in support of denying refunds. The jurisdictional High Court examined the same apex-court reasoning and held it distinguishable when refunds arise from finalisation of provisional assessments; that High Court decision is binding within the jurisdiction. Interpretation and reasoning: The Tribunal adopts the High Court's differentiation: the apex-court's holding about normal refunds does not automatically govern refunds that are the product of post-clearance adjustments made under provisional-assessment mechanisms and consistent administrative directions. The factual finding that credit notes were issued and that depot invoices lacked cenvatable invoices supports distinguishing the precedent relied upon by Revenue. Ratio vs. Obiter: The High Court's ruling that apex-court law on normal refunds is distinguishable in provisional-assessment finalisation cases is treated as binding ratio in the jurisdiction; the apex-court rule remains applicable to ordinary refund claims. Conclusion: The earlier apex-court authority on normal refunds is distinguishable and does not operate to deny refund claims arising from finalisation of provisional assessments where the claimant has met the relevant factual and procedural tests. Issue 4 - Preclusion of Revenue from selectively challenging certain years (estoppel/consistency) Legal framework: Doctrine precluding a party from accepting and giving finality to decisions in some years while challenging identical decisions in others where facts and legal issues are the same. Precedent treatment: Higher authority has held that Revenue, having accepted Tribunal/authority decisions for some years, cannot pick and choose to challenge other years of identical nature. Interpretation and reasoning: The Tribunal notes that refunds for multiple assessment years were allowed and reached finality; Revenue's selective challenge of discrete years after accepting others of identical character amounts to impermissible cherry-picking and militates against disturbing the accepted years and like-situated years. Ratio vs. Obiter: The application of estoppel/consistency to prevent selective challenge is treated as ratio relevant to the facts. Conclusion: Revenue is precluded from selectively challenging some years when materially identical refunds for other years have been accepted; this supports upholding the appeal decision in favour of the claimant. Final disposition: The appellate order setting aside denial of refunds is upheld and Revenue's appeals dismissed as without merit.