Excess excise duty refund after provisional assessment for stock transfers to sister units, unjust enrichment rejected under controlled drug prices

Refund of excess duty arising on finalisation of provisional assessment under the Central Excise Rules was denied on the ground of unjust enrichment. The Tribunal held that unjust enrichment was inapplicable because the goods were transferred only by stock transfer to the assessee's own sister units, so the incidence of duty could not have been passed on, consistent with prior CESTAT rulings. It further held that the selling price was mandatorily fixed under the Essential Commodities Act, 1955 read with the Drug (Prices Control) Order, 1995, preventing recovery of any amount beyond the controlled price and negating any presumption of duty pass-through. With no contrary evidence from Revenue, the refund was held admissible; the impugned order was set aside and the appeal allowed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether refund of excess central excise duty arising on finalisation of provisional assessment was barred by the doctrine of unjust enrichment in the facts of stock-transfer/captive use to the manufacturer's own sister units.

(ii) Whether statutory Government price control governing the goods (and related final products) conclusively negated any inference that duty incidence could have been passed on, thereby removing the unjust enrichment bar.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Unjust enrichment where clearances were stock transfers to own sister units

Legal framework (as discussed): The Tribunal examined the refund only through the lens of the principle of unjust enrichment as applied to refunds of duty paid in excess upon finalisation of provisional assessment.

Interpretation and reasoning: The Tribunal found, on the facts, that the goods were transferred only to the manufacturer's own sister units. In such a stock-transfer situation, the Tribunal held that the "question of passing on the incidence of duty does not arise", since the transfers were not sales to independent buyers where duty could be recovered as part of a price from another person.

Conclusion: The refund was not hit by unjust enrichment on this ground; therefore, the first appellate authority's remand to re-examine passing on of incidence was unwarranted on merits.

Issue (ii): Effect of Government-controlled prices on unjust enrichment

Legal framework (as discussed): The Tribunal treated statutory price control under the Essential Commodities Act read with the Drugs (Prices Control) Order as a material factual/legal constraint relevant to unjust enrichment analysis.

Interpretation and reasoning: The Tribunal held that where prices are mandatorily fixed/determined by the Government, the manufacturer cannot charge any amount over the controlled price. Consequently, any excess duty later found payable/paid due to provisional assessment finalisation cannot be presumed to have been recovered from any other person through increased pricing, because the controlled pricing mechanism prevents such loading. This feature was treated as an additional and independent reason supporting non-application of unjust enrichment in the present refund.

Conclusion: The Tribunal concluded that, due to Government price control, the bar of unjust enrichment did not apply, reinforcing the entitlement to refund of excess duty determined on finalisation of provisional assessment.

Final determination and relief

The Tribunal held that the order directing remand for unjust enrichment verification was unsustainable on merits, set it aside, and allowed the refund with consequential relief in accordance with law, noting also that there was no contrary evidence from Revenue to displace the factual foundation relied upon for allowing the refund.

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