2025 (12) TMI 1002 - AT - Central Excise

Refund of excess excise duty allowed where discounts pre-known, Rule 7 provisional assessment wrongly denied, no unjust enrichment

CESTAT allowed the appeal, setting aside the impugned order and granting refund of excess central excise duty paid on account of pre-known cash and ... Refunds of excess central excise duty paid - hit by unjust enrichment or not - CA Certificate and Dealer’s certificate conclusively proves that duty incidence on discounts was borne by the Appellant alone and the unregistered dealers were incapable of passing it on to the ultimate consumers - HELD THAT:- The appellant was compelled to file refund claims of excess duty paid during the impugned period on account of cash discount/turnover discount which were well-known in advance. The Adjudicating Authority admitted the fact that appellant has issued credit notes to the buyers or dealers who has avail the provisional scheme by way of turnover discount and cash discount. The Adjudicating Authority in its order has recorded that the appellant was not required to issue credit note for duty paid on these discounts which means the Adjudicating Authority in its order has recorded the findings that appellant has refunded the excess duty received by them on account of various discount offered by the appellant to its dealers. In that circumstances the buyers/dealers of the appellant has not borne the duty component and got the refund of duty paid by them to the appellant. Therefore, the appellant has passed the bar of unjust enrichment and the finding of the Adjudicating Authority that the appellant has issued credit notes to its buyers/dealers of duty paid by dealers/buyers on account of discount also certify the same. The dealers are not registered with Central Excise department therefore, they cannot take Cenvat Credit of duty paid of the goods in question. Consequently, duty cannot be passed on by the dealers. In view of this, the appellant are entitled for the refund claims filed by them. Further, it would be in the interest of justice if appellant was allowed for provisional assessment in terms of Rule 7 of the Central Excise Rules, 2002. The impugned order set aside - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether refunds of excess central excise duty paid on clearances where post-clearance discounts (turnover/quantity, cash and compensatory discounts) were granted to dealers are hit by the bar of unjust enrichment under Section 11B(2)(d) read with Section 12B of the Central Excise Act, 1944. 1.2 Whether issuance of 'cum-duty credit notes' by the manufacturer to unregistered dealers is a valid mode of passing post-clearance discounts and of neutralizing the duty incidence for purposes of refund. 1.3 Whether discounts which are known to dealers prior to or at the time of clearance but quantified and adjusted later are admissible deductions from transaction value for determining duty liability and consequent refund entitlement. 1.4 Whether the manufacturer was entitled to provisional assessment under Rule 7 of the Central Excise Rules, 2002 for clearances made under pre-declared discount schemes, and the relevance of such entitlement to the refund claims. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of unjust enrichment to refund of duty on post-clearance discounts Interpretation and reasoning 2.1 The Court noted that the manufacturer cleared excisable goods on payment of duty through a dealer network and operated pre-declared annual discount schemes (turnover/quantity discounts, cash discounts, compensatory discounts), divided into four-month blocks, with rates intimated in advance to each dealer. 2.2 It was undisputed that, after completion of each discount period, the manufacturer issued credit notes (cum-duty) to dealers to pass on the discounts and refund the excess duty component relatable to such discounts. The adjudicating authority itself recorded that the manufacturer had issued such credit notes and thereby refunded excess duty collected on account of discounts. 2.3 The Court considered the annual discount policy, sample dealer certificates declaring that the incidence of duty on the discount portion was not passed on to buyers, and a Chartered Accountant's certificate confirming that the duty incidence on discounts was borne by the manufacturer and not passed on. 2.4 It was specifically found that the dealers were not registered under the central excise law and did not avail or pass on any Cenvat credit on the duty paid by the manufacturer, ruling out any possibility of double benefit in the chain and indicating that the duty incidence on the discount component remained with the manufacturer. 2.5 The Court referred to and followed its earlier final orders in the same assessee's cases, wherein, on similar facts, it had held that (i) the presumption under Section 12B is rebutted when the manufacturer establishes through credit notes, dealer certificates and CA certificates that duty incidence on the discount component was not passed on; and (ii) where dealers are unregistered and cannot avail Cenvat credit, the manufacturer successfully crosses the bar of unjust enrichment. 2.6 The Court examined the reliance placed by the lower appellate authority on the decision of the Supreme Court in a case concerning turnover discounts and held that, far from barring refunds, that decision recognizes that (a) an assessee is entitled to claim refund of duty on the basis of credit notes for post-clearance discounts; and (b) unjust enrichment is a matter of evidence, which may be rebutted, inter alia, by CA certificates and other documentary proof that the incidence of duty was not passed on. Conclusions 2.7 The Court held that the manufacturer had successfully rebutted the statutory presumption under Section 12B and had demonstrated, through credit notes, dealer declarations, and a CA certificate, that the burden of duty on the discount component was borne by it and not passed on to dealers or ultimate consumers. 2.8 The bar of unjust enrichment under Section 11B(2)(d) read with Section 12B was held not to apply, and the manufacturer was found entitled to the refund of excess duty paid on account of discounts. Issue 2: Validity and effect of 'cum-duty credit notes' for post-clearance discount and refund Interpretation and reasoning 2.9 The adjudicating authority had denied refund primarily on the ground that the manufacturer had 'no authority' to issue 'cum-duty credit notes'. 2.10 The Court noted that the issuance and accounting of such credit notes were admitted facts and that the effect of those credit notes was to return to dealers the excess amounts, including the duty component, collected at the time of clearance before the final discount entitlement was known. 2.11 Relying on its prior decisions in the same assessee's matters and on the Supreme Court's recognition of credit notes as valid instruments for granting post-clearance discounts and for founding refund claims, the Court held that there is no legal bar to using credit notes (including cum-duty credit notes) for this purpose. 2.12 The Court further observed that the lower appellate authority had misapplied the Supreme Court precedent by assuming that refund could only go to ultimate consumers, whereas that precedent accepts credit notes and other evidence to determine who actually bore the duty incidence. Conclusions 2.13 The Court held that 'cum-duty credit notes' are a valid mechanism for passing post-clearance discounts and for neutralizing the duty incidence between the manufacturer and its dealers. 2.14 The absence of a specific statutory provision expressly authorizing such instruments does not invalidate them; they are sufficient documentary basis, together with supporting certificates, to establish that the manufacturer bore the duty incidence and is entitled to refund. Issue 3: Admissibility of pre-declared but later-quantified discounts as deduction from transaction value Legal framework (as discussed) 2.15 The Court proceeded on the settled legal position, as affirmed by higher judiciary, that trade discounts known to buyers at or before the time of clearance are admissible deductions from transaction value, even if the precise quantum is determined or adjusted subsequently through credit notes. Interpretation and reasoning 2.16 The Court recorded that the manufacturer's annual discount policy and the specific discount slabs for each dealer were made known in advance, prior to clearance, and applied uniformly over designated four-month discount periods. 2.17 The quantification of discounts was contingent on factors such as quantity lifted within a period and prompt payment, and could only be finalized at the end of each discount period. Nonetheless, the schemes and their structure were pre-declared and known to the dealers. 2.18 By following its earlier final orders in the same assessee's case and the reasoning approved by the Supreme Court in the context of turnover discounts, the Court reiterated that such pre-declared discounts constitute admissible deductions, and the mere fact that they are quantified post-clearance and adjusted by way of credit notes does not render them inadmissible. Conclusions 2.19 Discounts (turnover/quantity, cash, compensatory) which are known to dealers before or at the time of removal, though quantified and adjusted later through credit notes, are admissible deductions from transaction value for assessment of duty. 2.20 Excess duty paid because discounts were not reflected at the time of clearance is refundable to the manufacturer, subject to the bar of unjust enrichment, which in this case was held to have been overcome. Issue 4: Entitlement to provisional assessment under Rule 7 of the Central Excise Rules, 2002 and its relevance to refund Legal framework (as discussed) 2.21 Rule 7 of the Central Excise Rules, 2002 permits provisional assessment where the assessee is unable to determine the value or rate of duty at the time of removal and assessment requires subsequent finalization. Interpretation and reasoning 2.22 The Court noted that the manufacturer had applied for provisional assessment under Rule 7 on the basis that discounts were known but not quantifiable at the time of clearance, requiring later adjustment. The request was initially rejected, but this Tribunal and thereafter the High Court (both single and division benches) held that Rule 7 was applicable and that the assessee was entitled to provisional assessment. 2.23 Despite these judicial pronouncements, the revenue did not grant provisional assessment in practice, compelling the manufacturer to file refund claims for excess duty paid on discount components during the impugned period. 2.24 The Court observed, in line with the assessee's contention, that entitlement to refund is not contingent upon grant of provisional assessment; refund can be claimed on merits independently, provided the conditions of Section 11B, including unjust enrichment, are satisfied. 2.25 Having already held that the manufacturer had rebutted unjust enrichment and that discounts were admissible deductions, the Court considered that, in the interest of justice, the assessee ought also to have been allowed provisional assessment under Rule 7 for such clearances. Conclusions 2.26 The manufacturer was legally entitled to provisional assessment under Rule 7 for clearances made under pre-declared discount schemes where the final discount quantum was determinable only after the discount period. 2.27 Nevertheless, the absence or delay of provisional assessment did not bar the refund claims; the Court held that the refunds of excess duty paid on account of discounts are admissible on merits, and directed that the impugned orders be set aside and the refund claims be allowed with consequential relief.