Modvat adjustment and unjust enrichment did not defeat a previously sanctioned central excise refund claim.

Refund of central excise duty was not erroneous merely because Modvat credit adjustments were made in computing the claim, as Rule 57E permitted corresponding credit variation and the claim had already been reduced to reflect amounts linked to buyers' credit. The appellate order was unsustainable because it identified no statutory prohibition or legal basis for rejecting the refund. The doctrine of unjust enrichment also did not bar the claim, since the amended Section 11B regime applied only to pending claims and this refund had already been sanctioned and part-paid before the amendment came into force. The refund sanction was therefore restored in favour of the assessee.

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Issues: (i) Whether refund of central excise duty could be treated as erroneous merely because Modvat credit adjustments were made against the claim. (ii) Whether the doctrine of unjust enrichment barred the refund claim in the facts of the case.

Issue (i): Whether refund of central excise duty could be treated as erroneous merely because Modvat credit adjustments were made against the claim.

Analysis: The refund arose from duty paid at a higher rate instead of the concessional rate under the small scale exemption notification. Rule 57E of the Central Excise Rules, 1944 permits variation of credit where duty on inputs changes and provides for corresponding adjustment in the credit account. The provision does not prohibit refund to the manufacturer of the inputs. On the facts, the refund claim had already been reduced by the amount relatable to credit taken by the buyers, and the assessee had borne the burden to that extent through adjustment in its accounts. The appellate order set aside the refund without identifying any legal basis or specifying what statutory provision was violated.

Conclusion: The refund could not be treated as erroneous on the ground of Modvat adjustment. This issue was decided in favour of the assessee.

Issue (ii): Whether the doctrine of unjust enrichment barred the refund claim in the facts of the case.

Analysis: The amended refund regime under Section 11B of the Central Excises and Salt Act, 1944 applied to pending refund claims from 20-9-1991. Here, the refund had already been sanctioned and part-paid on 6-4-1990, and no refund application was pending when the amendment came into force. The circumstances also showed that the assessee had not passed on the entire burden, since the relevant credit had been adjusted in its accounts and the balance refund had been limited accordingly. The bar of unjust enrichment therefore did not invalidate the refund.

Conclusion: The refund claim was not hit by unjust enrichment. This issue was decided in favour of the assessee.

Final Conclusion: The impugned appellate order was unsustainable, the refund sanction was restored, and the assessee's appeal succeeded.

Ratio Decidendi: Where the governing refund provisions do not prohibit refund and the claim is not pending on the date of a later amendment introducing unjust-enrichment restrictions, a refund already sanctioned cannot be disallowed merely because Modvat-related adjustments were made in the course of computation.

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