Mandatory CT-3 procedure and unjust enrichment bar refund claims for duty on EOU inputs used in captive consumption.

A 100% export oriented unit cannot sustain a refund claim for duty on raw materials where the mandatory CT-3 procedure prescribed for duty-free procurement under Notification No. 1/95-C.E. was not followed, because non-compliance with the exemption conditions defeats the claim. The article also notes that refund on inputs used in captive consumption is subject to the doctrine of unjust enrichment under Section 11B of the Central Excise Act, 1944, so captive use does not by itself take the claim outside that bar. On that reasoning, the refund was treated as inadmissible on both grounds.

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Issues: (i) Whether refund of duty on raw materials procured by a 100% export oriented unit could be allowed despite non-compliance with the procedure for obtaining CT-3 certificates under Notification No. 1/95-C.E. dated 04-01-1995. (ii) Whether the refund claim in respect of inputs used in captive consumption was barred by the principle of unjust enrichment under Section 11B of the Central Excise Act, 1944.

Issue (i): Whether refund of duty on raw materials procured by a 100% export oriented unit could be allowed despite non-compliance with the procedure for obtaining CT-3 certificates under Notification No. 1/95-C.E. dated 04-01-1995.

Analysis: The exemption for a 100% EOU was conditional and required adherence to the procedure under Chapter X of the Central Excise Rules, 1944, with CT-3 certificates as the prescribed mechanism. The appellants admittedly did not follow that procedure for the yarn in question, though they had followed it for other raw materials. Since the condition for duty-free procurement was not fulfilled, the explanation offered for purchasing the yarn on payment of duty could not cure the defect or convert the claim into one covered by the notification.

Conclusion: The refund claim was not admissible on this ground and the finding is against the assessee.

Issue (ii): Whether the refund claim in respect of inputs used in captive consumption was barred by the principle of unjust enrichment under Section 11B of the Central Excise Act, 1944.

Analysis: The claim was considered in the light of the Supreme Court ruling on unjust enrichment in captive-consumption situations. The principle was held applicable even where the raw material was used captively, so the mere fact of captive consumption did not take the case outside Section 11B. The earlier reliance placed on contrary authority was not accepted, and the cited precedent on different facts did not assist the appellants.

Conclusion: The refund claim was barred by unjust enrichment and the finding is against the assessee.

Final Conclusion: The refusal to grant refund was upheld because the appellants failed to satisfy the mandatory exemption procedure and the claim was also hit by unjust enrichment.

Ratio Decidendi: Where an exemption notification prescribes a mandatory procedure for duty-free procurement, non-compliance with that procedure defeats the refund claim, and the doctrine of unjust enrichment applies even to duty paid on inputs used in captive consumption.

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