2005 (12) TMI 569 - HC - Customs

Refund claim - duty paid on capital goods and inputs - Imports plant and equipment known as Steam Tube Dryer (machinery/plant) from Germany for upgrading its existing plant - HELD THAT - Once the bank guarantee has been invoked and encashed, the amount partakes the character of duty paid and thereafter, even when an assessee succeeds ultimately, the claim of refund will be for refund of duty paid. The claimant has to comply with the conditions of the provisions pertaining to refund, namely, Section 11B of the Central Excise Act, 1944 and Section 27 of the Customs Act, 1962. During the course of hearing, it was submitted on behalf of the petitioner that even if such an incidence of duty might form part of the cost price, unless and until it goes in as a part of the sale price, the doctrine of unjust enrichment cannot be invoked against the petitioner. This contention is based on the plea that the sale price which existed prior to putting the plant and machinery to use continued in relation to the manufactured products after the plant and machinery was put to use and therefore, in absence of any difference in the sale price at different points of time, a presumption should be raised that incidence of duty had not been passed on. The entire premise on which the submission is built is fallacious. In the first instance, it is the case of petitioner itself, that it had imported the plant in question so as to replace and upgrade its existing plant and machinery. This would indicate that the cost of user of the old plant and machinery was such that a particular sale price had to be fixed. As against that, when new plant and machinery are installed and put to use, the manufacturing cost is bound to come down, which would leave enough margin to the manufacturer to retain the sale price at the same level. This could be only one instance why the sale price has remained constant. There could be various other factors, and such factors are within the knowledge of the petitioner. The petitioner is, therefore, duty bound to place on record the relevant material in this regard and discharge the onus which has been cast on the person making a claim to establish that the incidence of duty has not been passed on. The contention that merely because the sale price might be such that, due to market factors, an assessee may incur losses would not necessarily reflect that the incidence of duty has not been passed on. May be, in a given case, only a proportionate part may be passed on in such circumstance. Ultimately, it would be a question of fact and evidence will have to be led in this context. In the case of the petitioner, both the adjudicating authority and the appellate authority have come to the conclusion that the petitioner has not been able to establish that incidence of duty had not been passed on. This is a finding of fact and it is not possible for this Court in these proceedings to take a different view of the matter. In principle, the contention that in case of capital goods, the incidence of duty can never be passed on, cannot be accepted for the reasons mentioned hereinbefore. Thus, the claim of the petitioner regarding balance amount of ₹ 23,98,176/- is concerned, it is not possible to find any infirmity in the impugned order of Commissioner (Appeals). The petition therefore, partly allowed to the extent of claim of ₹ 17,50,000/-, and rejected insofar as the claim of ₹ 23,98,176/- is concerned. The amount of ₹ 17,50,000/- to be refunded by the respondent authorities within a period of twelve weeks from today. The claim as to interest cannot be accepted for the simple reason that the principal claim having been rejected in absence of any entitlement to refund of ₹ 23,98,176/-, there would be no question of granting any interest.

Issues Involved:
1. Refund of Rs. 17,50,000/- deposited with the High Court.
2. Refund of Rs. 23,98,176/- recovered by encashment of a bank guarantee.
3. Application of the doctrine of unjust enrichment.
4. Entitlement to interest on the refund amount.

Detailed Analysis:

1. Refund of Rs. 17,50,000/- Deposited with the High Court:
The petitioner claimed a refund of Rs. 17,50,000/- deposited with the High Court as per its directions. The Deputy Commissioner of Customs rejected this claim, stating that the amount was not credited under the Customs Head. The Commissioner (Appeals) allowed the refund subject to verification of records. The court found that the petitioner could not be expected to establish where the amount was credited after being withdrawn by the Customs Department's counsel. The court held that the petitioner must be granted the refund since the records showed that the amount was collected by the Department's counsel.

2. Refund of Rs. 23,98,176/- Recovered by Encashment of a Bank Guarantee:
The petitioner argued that the amount recovered by encashment of the bank guarantee retained the characteristic of a security and was not a duty payment. Therefore, the doctrine of unjust enrichment should not apply. The court disagreed, stating that once a bank guarantee is encashed, it partakes the character of duty paid. Consequently, the claim for a refund must comply with the provisions of Section 11B of the Central Excise Act, 1944, and Section 27 of the Customs Act, 1962. The court upheld the rejection of the refund claim by both the Deputy Commissioner and the Commissioner (Appeals).

3. Application of the Doctrine of Unjust Enrichment:
The petitioner contended that the doctrine of unjust enrichment should not apply to the refund of Rs. 23,98,176/- as the plant and machinery were used for manufacturing final products and not sold. The court held that the cost of capital goods, including depreciation, is part of the manufacturing cost and thus affects the final product's cost. Therefore, the petitioner must establish that the incidence of duty was not passed on. Both the adjudicating authority and the appellate authority found that the petitioner failed to establish this, and the court upheld their findings.

4. Entitlement to Interest on the Refund Amount:
The petitioner sought interest on the refund amount. The court rejected this claim, stating that since the principal claim of Rs. 23,98,176/- was not entitled to a refund, there was no question of granting interest. The court ordered the refund of Rs. 17,50,000/- within twelve weeks but did not grant any interest on this amount.

Conclusion:
The court allowed the petition partly, granting the refund of Rs. 17,50,000/- but rejecting the refund claim of Rs. 23,98,176/- and the claim for interest. The decision emphasized the need for the petitioner to prove that the incidence of duty was not passed on and clarified the treatment of encashed bank guarantees as duty payments.

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