2005 (10) TMI 9 - AT - Central Excise

Refund Applicability of doctrine of unjust enrichment where duty paid on samples/goods distributed free

Summary

Issues:
1. Refund of excess duty paid on physician's samples under Central Excise Act.
2. Application of unjust enrichment in the case of free distribution of physician samples.
3. Interpretation of provisions regarding duty recovery in free distribution cases.

Analysis:

Issue 1: Refund of excess duty paid on physician's samples under Central Excise Act
The Appellant, engaged in manufacturing excisable goods falling under Chapter 30 of the Central Excise Tariff Act, had cleared physician's samples for free distribution by adopting the Pro-rata transaction value. A circular by CBEC clarified that the value should be 115% of the cost of production. The Appellant claimed a refund of excess duty paid, which was initially sanctioned but later reversed by the Commissioner (Appeals) citing unjust enrichment. The Tribunal noted that the refund was admissible on merits and was rejected solely on the ground of unjust enrichment.

Issue 2: Application of unjust enrichment in the case of free distribution of physician samples
The Tribunal considered whether the duty element had been recovered in the case of free distribution of physician's samples, thereby attracting the bar of unjust enrichment. Referring to precedents, including the case of Sarabhai Chemicals Pvt. Ltd. and German Remedies Vs. Commissioner of Central Excise, Mumbai, the Tribunal held that in instances of free distribution, the duty burden could not have been passed on to buyers. The Tribunal also cited a decision by the Hon'ble High Court of Mumbai in the case of Cipla Ltd. Vs Union of India, stating that provisions of unjust enrichment do not apply to clinical samples of medicines distributed free of charge to hospitals and medical practitioners.

Issue 3: Interpretation of provisions regarding duty recovery in free distribution cases
Based on the above precedents and legal interpretations, the Tribunal set aside the impugned orders and allowed both appeals related to the refund of excess duty paid on physician's samples. The Tribunal's decision was guided by the understanding that in cases of free distribution where the cost is not recovered from customers, the duty element cannot be considered as recovered, thus not attracting the principle of unjust enrichment.

This detailed analysis of the judgment highlights the key issues surrounding the refund of excess duty paid on physician's samples and the application of the principle of unjust enrichment in cases of free distribution, providing a comprehensive overview of the legal reasoning and precedents considered by the Tribunal in reaching its decision.