1996 (1) TMI 473 - Commissioner - Customs

Summary

Issues Involved:
1. Rejection of refund claim by the Lower Authority.
2. Allegation of unjust enrichment.
3. Inclusion of customs duty in the cost of imported moulds.
4. Depreciation and its impact on the refund claim.
5. Application of Section 27(2) of the Customs Act, 1962.
6. Interpretation of relevant case laws and their applicability.

Detailed Analysis:

1. Rejection of Refund Claim by the Lower Authority:
The appeal is against the Order No. S25/758/93, dated 24-7-1995, passed by the Assistant Commissioner of Customs (Refunds), Custom House, Madras. The Lower Authority rejected the refund claim on the grounds that the documentary evidence produced by the importer did not conclusively prove whether the incidence of duty had been passed on to the consumer/buyer, either directly or indirectly. Consequently, the refundable amount was directed to be deposited in the Consumer Welfare Fund in terms of Section 27(2) of the Customs Act, 1962.

2. Allegation of Unjust Enrichment:
The primary issue for determination is whether the refund claim was affected by unjust enrichment. The appellant contended that the refund claim was rejected solely on the grounds of unjust enrichment. They produced a certificate from a Chartered Accountant dated 13-9-1995, stating that the cost of the moulds, inclusive of bill value, customs duty, and clearing and forwarding charges, was fully capitalized in the books of the firm as a fixed asset, and depreciation was claimed every year.

3. Inclusion of Customs Duty in the Cost of Imported Moulds:
During the personal hearing, the appellant confirmed that for the purpose of computing depreciation, the value of the capital goods was inclusive of the customs duty actually paid. However, it was emphasized that the higher incidence of duty, now claimed as a refund, had not been passed on to the buyers through the sale price. The appellant claimed only depreciation from the gross profit in their Profit and Loss Account. It was further submitted that during the material accounting year 1992-93, the appellant suffered a loss of Rs. 78,452.57.

4. Depreciation and Its Impact on the Refund Claim:
The appellant's Chartered Accountant explained that any refund of customs duty paid on imported moulds would constitute a reduction in the cost of the capital asset. Under the Income Tax Act, 1961, the refund would be reduced from the written down value of the Block of Assets for the computation of depreciation. Consequently, any refund of customs duty would result in a corresponding decrease in depreciation allowance and an increase in the Income Tax payable. Thus, the original income tax reduction availed on payment of excess customs duty by including it as the cost of moulds and claiming depreciation would now be offset by a fresh levy of income tax.

5. Application of Section 27(2) of the Customs Act, 1962:
Section 27(2) of the Customs Act, 1962, relates to the refund of duty and interest if the importer had not passed on the incidence of such duty and interest to any other person. The appellant argued that the refund should be granted as the incidence of duty was not passed on to the buyers. However, the judgment emphasized that the onus of proving that the incidence of duty had not been passed on lies with the appellant.

6. Interpretation of Relevant Case Laws and Their Applicability:
The judgment referred to the case of "Collector of Customs and Other v. The Indo-Swiss Synthetic Gem Manufacturing Company Ltd. and Another," where the Hon'ble Madras High Court dissented from the Bombay High Court's decision in "Solar Pesticides Pvt. Ltd. v. Union of India." The Madras High Court observed that customs duty paid on raw materials becomes part of the cost of the manufacture of the new item and is indirectly passed on to the customer or buyer. The judgment highlighted that the passing on of the incidence of duty is not confined to direct passing on and includes indirect passing on by including such duty in the cost of the end product.

In the case of capital goods such as moulds, it was noted that there is no question of directly passing on the duty of customs to the buyers as the moulds are not directly sold. However, the passing on of the incidence of duty indirectly by including the extra duty paid on the moulds in the cost of the end products was considered. The judgment emphasized that no manufacturer would exclude customs duty paid on raw materials or capital goods from the price of the finished products.

The judgment concluded that the appellant had included the impugned excess customs duty in the landed cost of the moulds and claimed depreciation, thereby passing on the higher customs duty to the buyers indirectly. Consequently, the appeal was rejected, and the refund claim was denied on the grounds of unjust enrichment.