2012 (7) TMI 879 - AT - Central Excise

Denial of refund claim - Unjust enrichment - Held that - The appellant during the period of dispute had manufactured processed fabrics on job work basis and the duty liability in respect of those fabrics had been discharged under the Compounded Levy Scheme at the monthly rate based on the length of the stenters fixed by the Commissioner. Though initially, the duty liability had been fixed by the Commissioner on the basis of the length of the stenter which included the length of the galleries, subsequently, the Apex Court held that the length of galleries is not to be included in the length of stenter and on this basis, the actual duty liability of the appellant became lower than the amount of duty paid by them. This has given rise to this refund claim. It is not disputed that the duty liability had been discharged by the appellant at the monthly rate determined on the basis of length of stenter which included the length of galleries and it is this duty which obviously has been recovered by the appellant from the principal manufacturers. There is no evidence produced to show that the appellant while paying duty at higher rate, had been recovering lower amount from their customers the principal manufacturers. - Decied against assessee.

Summary

Issues:
Refund claim under Compounded Levy Scheme; Principle of unjust enrichment applicability.

Analysis:
The appellant, an independent processor of man-made fabrics, operated under the Compounded Levy Scheme from 16-12-1998 to 31-3-1999. The duty liability was determined based on the length of the stenters, including the galleries. A subsequent Supreme Court judgment clarified that the galleries should not be included in the stenter length for annual capacity determination. This led the appellant to seek a refund of Rs. 51,49,298/-, as their duty liability would be lower without the galleries' length. The Dy. Commissioner rejected a part of the refund claim but allowed Rs. 48,24,325/-, directing it to the Consumer Welfare Fund due to unjust enrichment concerns, as the appellant failed to prove they bore the duty incidence.

The appellant contended that as job workers who did not sell the fabrics, they did not pass on the duty incidence to customers, hence unjust enrichment should not apply. The Departmental Representative argued that since the appellant recovered the duty from the principal manufacturer, they were not eligible for the refund. The Tribunal noted that the refund was admissible on merits, but the crucial issue was whether the duty incidence was borne by the appellant. The duty was paid based on stenter length, including galleries, and recovered from the principal manufacturers without evidence of passing on lower amounts.

The Tribunal concurred with the Commissioner (Appeals) that the duty incidence was not borne by the appellant, upholding the unjust enrichment bar. As the appellant failed to demonstrate they absorbed the duty cost, the refund claim was dismissed. The appeal was found devoid of merit and dismissed accordingly.

This judgment clarifies the application of the principle of unjust enrichment in refund claims under the Compounded Levy Scheme, emphasizing the need for appellants to prove they bore the duty incidence to avoid the bar of unjust enrichment.