2010 (1) TMI 1091 - Commissioner - Central Excise

Issues Involved:
1. Proper format of refund claims.
2. Passing of duty incidence to customers.
3. Accounting treatment of duty paid.
4. Applicability of unjust enrichment principle.
5. Adjudication beyond the scope of SCNs.
6. Relevance of accounting standards AS2 and AS10.
7. Consideration of submissions and evidence.

Issue-wise Detailed Analysis:

1. Proper format of refund claims:
The appellants argued that they filed refund claims using forms available in the Central Excise manual. They contended that if the forms were deemed improper, the department should have issued deficiency memos, which it did not. The Assistant Commissioner's observation that the claims were not in the prescribed format was not rebutted, indicating a procedural oversight by the department.

2. Passing of duty incidence to customers:
The appellants maintained that the duty was not charged in the invoices and was borne as an expense, thus not passed on to customers. They argued that the duty was paid after the clearance of final products, negating the presumption of passing the burden to customers. The Assistant Commissioner failed to provide evidence that the cost of final products included the duty element, thus not proving that the duty incidence was passed on.

3. Accounting treatment of duty paid:
The appellants contended that the duty paid was treated as an extraordinary item under AS-5 and debited to the profit and loss account. They argued that this accounting treatment was correct and in line with accepted standards. The Assistant Commissioner's reliance on AS2 and AS10 was deemed irrelevant as these standards deal with inventory valuation and fixed assets, respectively.

4. Applicability of unjust enrichment principle:
The lone issue was whether the refund claims were hit by the principle of unjust enrichment. The appellants demonstrated through CA certificates and accounting records that the duty incidence was not passed on to customers. The Assistant Commissioner did not provide evidence to the contrary, thus failing to prove unjust enrichment. The appellants' refunds were not hit by unjust enrichment as they showed the duty paid as receivable under current assets, not as an expense.

5. Adjudication beyond the scope of SCNs:
The Assistant Commissioner's findings included issues not mentioned in the SCNs, such as the correctness of duty payment on scraps and the surrender of refund rights by paying duty under protest. This amounted to traveling beyond the SCNs, making the order unsustainable as per the Apex Court's decision in CC v. Toyo Engg India Ltd. - 2006 (201) E.L.T. 513 (S.C.).

6. Relevance of accounting standards AS2 and AS10:
The Assistant Commissioner incorrectly applied AS2 and AS10, which were not relevant to the issue at hand. AS2 deals with inventory valuation, and AS10 deals with accounting for fixed assets, neither of which pertained to the appellants' situation. The appellants correctly followed AS-5 for accounting the duty paid.

7. Consideration of submissions and evidence:
The Assistant Commissioner did not consider the appellants' submissions and evidence, including CA certificates and balance sheets. The order appeared to convert the SCNs into OIOs without addressing the appellants' arguments, indicating a biased and predetermined decision.

Conclusion:
The appeals were allowed with consequential relief, setting aside the impugned OIOs. The appellants successfully demonstrated that their refund claims were not hit by unjust enrichment, and the Assistant Commissioner's order was unsustainable due to procedural and substantive errors.

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