Excise duty refund allowed when payment made under protest after goods clearance without passing burden to customers

CESTAT NEW DELHI allowed the appeal, setting aside the refund rejection order. The case involved refund of excise duty paid on investment subsidy adjusted against VAT and CST returns. The appellant had paid the disputed amount under protest while the excisability issue was pending adjudication before the Tribunal. CESTAT held that since the amount was paid under protest after goods clearance and the liability was subsequently set aside, the burden could not be passed to customers. Therefore, unjust enrichment principles were not applicable, distinguishing it from cases where amounts are shown as expenses in profit and loss accounts.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the refund claim for excise duty paid on investment subsidy adjusted against VAT and CST returns is barred by limitation.
• Whether the principle of unjust enrichment applies to the refund claim when the duty paid was accounted as "expenses" and not as "receivables" in the appellant's books of accounts.
• Whether the accounting treatment of the duty paid (booked as expenses in Profit & Loss account) can be a basis to deny refund on the ground that the incidence of duty has been passed on to customers.
• Whether the refund claim is maintainable when the excise duty was paid under protest during the pendency of adjudication and investigation proceedings.
• Whether the refund claim is barred by limitation or other procedural bars.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on Refund Claim

Relevant legal framework and precedents: The limitation period for filing refund claims under central excise law is generally one year from the date of payment. However, the Tribunal has held in previous decisions that this limitation does not apply where the amount was paid under protest or during the pendency of adjudication/investigation.

Court's interpretation and reasoning: The Tribunal noted that the Adjudicating Authority had initially rejected the refund claim on the ground of limitation. However, on appeal, the Tribunal remanded the matter observing that the limitation clause is not applicable in this case because the duty was paid under protest and during ongoing adjudication proceedings.

Key evidence and findings: The appellant paid excise duty on VAT at their own risk for the subsequent period after the Tribunal's earlier order setting aside the demand. The refund claim was filed within a reasonable time after the final adjudication.

Application of law to facts: Since the duty was paid under protest during investigation and adjudication, the limitation period for refund claim does not apply, and the refund claim is maintainable.

Treatment of competing arguments: The Department argued for rejection on limitation grounds, but the Tribunal rejected this view based on the principle that deposits under protest are not subject to the one-year limitation.

Conclusion: The refund claim is not barred by limitation.

Issue 2: Application of Unjust Enrichment Principle

Relevant legal framework and precedents: The principle of unjust enrichment prevents a claimant from recovering a tax amount if the incidence of the tax has been passed on to another party, typically the customer. However, the Tribunal has consistently held that the mere accounting treatment of duty as an expense does not establish that the burden was passed on.

Precedents relied upon include:

• M/s. Chambal Fertilizers and Chemical Vs. Commissioner of Central Excise and CGST (2023)
• Commissioner of Customs Vs. U.T. Electronics Pvt. Ltd. (2020)
• Allied Chemicals and Pharmaceuticals Pvt. Ltd. Vs. CCE and ST, Jaipur (2019)
• Barmer Lignite Mining Co. Ltd. Vs. Commerce CE & CGST (2024)

Court's interpretation and reasoning: The Tribunal emphasized that the method of accounting followed by the assessee - whether the duty is booked as "expenses" or "receivables" - does not impact the admissibility of the refund claim. The Tribunal rejected the Commissioner (Appeals)'s reasoning that booking duty as expenses implies passing the incidence to customers.

Key evidence and findings: The Department pointed out that the duty paid was shown as expenses, not as receivables, arguing this shows the incidence was passed on. The Tribunal found this argument unpersuasive in light of binding precedents.

Application of law to facts: Since the subsidy amount was not linked to any sale to the Government of Rajasthan and no amount was recovered from other buyers, the incidence of duty was not passed on, negating the claim of unjust enrichment.

Treatment of competing arguments: The Department relied heavily on the accounting treatment and the Hindustan Petroleum Corporation Ltd. decision. The Tribunal distinguished that case and reiterated that accounting entries alone cannot establish passing of incidence.

Conclusion: The plea of unjust enrichment is not applicable; refund cannot be denied on this ground.

Issue 3: Refund of Duty Paid Under Protest During Pendency of Adjudication

Relevant legal framework and precedents: Deposits made under protest during the pendency of adjudication or investigation are recognized as deposits made to avoid enhanced liability. Such deposits do not confer any right to the revenue until entitlement is established. The principle is supported by judicial pronouncements, including the Delhi High Court decision in Team HR Services Pvt. Ltd. (2020) and the Tribunal decision in Advanced Steel Tubes Vs. CCE, Ghaziabad (2014).

Court's interpretation and reasoning: The Tribunal noted that the appellant had paid the disputed duty amount under protest after clearance of goods and during the pendency of the final adjudication. Therefore, the refund claim is not barred by unjust enrichment or other procedural bars.

Key evidence and findings: The Tribunal relied on the fact that the duty was paid suo-moto/under protest and that the issue of excisability of the subsidy was sub judice at the time of payment.

Application of law to facts: Since the duty was paid under protest and the issue was pending adjudication, the refund claim is maintainable and not subject to the bar of unjust enrichment.

Treatment of competing arguments: The Department argued that the amount was paid as expenses and incidence was passed on, but the Tribunal rejected this, holding that the timing and nature of payment (under protest) preclude such a conclusion.

Conclusion: Refund of duty paid under protest during adjudication proceedings is allowable.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"The principle of treating the excise duty booked as 'expenditure' in the Profit and Loss account cannot be held to have passed on the incidence of duty."

"In such a scenario, there is no question of unjust-enrichment to the claimant."

"Any amount deposited during the pendency of adjudicating proceedings or investigation is in the nature of deposit made under protest and, therefore, the principles of unjust enrichment would not apply when a refund is claimed for this amount."

"The limitation clause of filing refund claim within one year is not applicable where the duty was paid under protest during the pendency of adjudication."

"The method of accounting followed by an assessee does not impact upon the admissibility of refund and cannot be made a basis to hold that the incidence of duty had been passed."

Based on these principles, the Tribunal set aside the impugned order rejecting the refund claim and allowed the appeal with consequential relief.

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