2011 (7) TMI 984 - AT - Central Excise

Manufacturing from bought out items - Assembly - Whether the respondents had right to realise the duty from the buyers on CJK when such goods were not manufactured and were not dutiable - Held that - prior to the judgment of the Tribunal and the Apex Court the respondents were paying duty on the CJK by treating the same as excisable as the department was of the view that the process of assembly of CJK amounts to manufacture. However the respondent continued to pay the duty on CJK even after the decision of this matter in their favour by the Tribunal s order and upholding of the Tribunal s order by the Hon ble Supreme Court vide judgment dated 3-3-2001. So long as the respondent were paying duty on the CJK they could always recover the same from their customers as central excise duty is an indirect tax and there is no prohibition in the Central Excise Act 1944 or the Rules made thereunder in this regard. Provisions of section 11D - held that - since the amount collected in respect of sale of CJKs as excise duty was paid by the respondent to the Government and as such there is no contravention of the provisions of Section 11D the question of asking them to pay this amount to the Government does not arise. Whether the respondent are entitled to adjustment of the duty payable on the intermediate products manufactured by them against the duty paid on CJKs which were not dutiable - Held that - The process of adjustment of duty paid on CJK on which no duty is payable towards duty liability in respect of the intermediate products on which duty is payable amounts to just changing the head under which the duty had been paid and so long as the duty is not being refunded to the respondent there would not be any unjust enrichment. - refund of tax means giving the tax paid back to the assessee which he can use the way he wants and the same can not be equaled with adjustment of tax paid under some head which was not payable against tax liability under some other head which is to be discharged. For such adjustment no application under Section 11B is required - Decided against the revenue by third member decision.

Summary

Issues Involved:
1. Excisability of Cable Jointing Kits (CJK).
2. Adjustment of duty paid on CJK against duty liability on intermediate goods.
3. Recovery of wrongly availed Cenvat credit.
4. Applicability of Section 11D of the Central Excise Act, 1944.
5. Doctrine of unjust enrichment.

Detailed Analysis:

1. Excisability of Cable Jointing Kits (CJK):
The respondents were engaged in the manufacture of Cable Jointing Kits (CJK). Despite a Tribunal decision in 2000 declaring CJK as non-excisable, the respondents continued to pay duty on CJK. The Tribunal's decision was upheld by the Supreme Court. Consequently, the intermediate products used in CJK became dutiable. The respondents did not pay duty on these intermediate products, leading to a demand of Rs. 47 lakhs along with interest and penalties.

2. Adjustment of Duty Paid on CJK Against Duty Liability on Intermediate Goods:
The respondents argued that the duty paid on CJK should be adjusted against the duty liability on intermediate goods. The Commissioner (Appeals) allowed this adjustment, relying on the Supreme Court's decision in Divya Enterprises Ltd. The Revenue contended that such an adjustment would contravene Section 11B of the Central Excise Act and result in unjust enrichment. The Tribunal's Technical Member upheld the adjustment, citing that the duty paid on CJK was more than the duty liability on intermediate goods, thus not resulting in unjust enrichment. The Judicial Member disagreed, arguing that such adjustment would unjustly enrich the respondents as they had collected duty on CJK from customers.

3. Recovery of Wrongly Availed Cenvat Credit:
The respondents availed Cenvat credit on bought-out items used in CJK, which was later deemed non-excisable. The lower authorities confirmed the demand of Rs. 20,50,911/- for wrongly availed Cenvat credit. The Commissioner (Appeals) upheld the demand but waived the interest and penalty. The Tribunal restored the lower adjudicating authority's order, emphasizing that a wrong cannot be remedied by another wrong.

4. Applicability of Section 11D of the Central Excise Act, 1944:
The Revenue argued that the duty paid on CJK should be treated as a deposit under Section 11D and not be adjusted against the duty liability on intermediate goods. The respondents contended that there was no allegation in the show cause notice regarding the applicability of Section 11D. The Tribunal found that the respondents had paid the duty collected from customers to the Government, thus complying with Section 11D.

5. Doctrine of Unjust Enrichment:
The Revenue argued that allowing the adjustment of duty paid on CJK would result in unjust enrichment, as the respondents had collected and paid this duty from customers. The Tribunal's Technical Member found no unjust enrichment as the duty paid on CJK was more than the duty liability on intermediate goods. The Judicial Member disagreed, emphasizing that the respondents should not benefit from the duty collected on non-excisable goods.

Separate Judgments by Judges:
- Technical Member (S.K. Gaule): Upheld the adjustment of duty paid on CJK against the duty liability on intermediate goods, finding no unjust enrichment.
- Judicial Member (D.N. Panda): Disagreed with the adjustment, citing unjust enrichment and the necessity to deposit the duty collected on CJK into the treasury.

Final Order:
The matter was referred to a third member due to the difference of opinion. The third member (Rakesh Kumar) agreed with the Technical Member, allowing the adjustment of duty paid on CJK against the duty liability on intermediate goods. Consequently, the Tribunal upheld the Commissioner (Appeals)'s order in Appeal No. E/480/2006 and dismissed the Revenue's appeal. In Appeal No. E/479/2006, the Tribunal set aside the Commissioner (Appeals)'s order and allowed the Revenue's appeal.