2011 (8) TMI 880 - AT - Central Excise

Refund of bank guarantee amount - - unjust enrichment - Provisional assessment - Differential duty - This is a fact that while ordering provisional assessment by the department the assessee was asked to execute B-13 Bond duly supported by the securities in form of the Bank Guarantee, which were later on encashed by the department - held that - Bank Guarantee cannot be held as payment of duty and, therefore, refund does not attract the provisions of Section 11B of the Central Excise Act - refund allowed.

Summary

Issues:
- Applicability of provisions of Section 11B on unjust enrichment for refund amounts recovered by encashing Bank guarantee.

Analysis:
1. The case involved two appeals filed by the Revenue against the orders-in-appeal dismissing the department's appeal. The respondents, manufacturers of cotton and blended yarn, filed declarations for the years 1998-99 and 1999-2000 under Rule 173C of Central Excise Rules, declaring the assessable value based on estimated costs. The assessable value needed to consider various elements like profit, material cost, labor cost, overheads, etc. The assessments were finalized based on reports submitted by the AD (Cost), leading to show-cause notices for recovery of differential duty. The respondents filed refund claims for the excess duty paid, which were sanctioned by the Deputy Commissioner, leading to departmental appeals dismissed by the Commissioner of Central Excise (Appeals).

2. The Revenue contended that the doctrine of unjust enrichment under Rule 9B of Central Excise Rules applied to refund cases arising from finalization of provisional assessments. They argued that the respondents failed to provide evidence to show duty was not passed on to others. They cited a Board Circular stating unjust enrichment applies even to duties on imported raw materials used in captive consumption. They requested setting aside the Commissioner (Appeals) order.

3. The respondents argued that the Bank Guarantee amounts were not duty payments but security, thus not subject to unjust enrichment. They referenced decisions like Grasim Industries Ltd. v. Commissioner of Central Excise, Jaipur-II and Pace Marketing Specialities Ltd. v. Commissioner of Central Excise, Ghaziabad, supporting their stance that Bank Guarantee refunds do not attract Section 11B provisions.

4. The main issue was whether Section 11B's unjust enrichment provisions applied to refund amounts recovered by encashing Bank guarantees. The Tribunal held that Bank Guarantees were not equivalent to duty payments, citing the Supreme Court's judgment in Oswal Agro Mills Ltd. case. As Bank Guarantees were not considered duty payments, the refund did not fall under Section 11B. The Tribunal upheld the Commissioner (Appeals) order, dismissing the Revenue's appeals.