2008 (11) TMI 229 - AT - Central Excise

Refund Cenvat credit unjust enrichment export under rule 19 - The appellants wanted to export certain goods. They procured inputs without payment of duty under Rule 19 of the Central Excise Rules, 2002 read with Notification No. 42/2001-C.E. (N.T.), dated 26-6-2001 under CT-1. These inputs are supposed to be used in the manufacture of goods which are finally to be exported. Due to certain circumstances the export order was cancelled. Consequently, the appellants used the inputs for the manufacture of goods and these goods were cleared for home consumption on payment of duty. Further, the appellants discharge the duty liability on the inputs along with interest. - Since, the appellants had paid the duty along with interest and cleared the final product on payment of duty, they were under the belief that they were entitled for Cenvat credit. However, they filed a refund claim of the duty paid on the inputs. held that provision of unjust enrichment are not applicable refund allowed.

Summary

Issues involved:
Refund claim of duty paid on inputs, entitlement for Cenvat credit, unjust enrichment.

Refund Claim of Duty Paid on Inputs:
The appellants procured inputs duty-free under Rule 19 of the Central Excise Rules for export but used them for home consumption after the export order was canceled. They paid duty on the final products and filed a refund claim for the duty paid on inputs, which was rejected by the Original Authority. The Commissioner (Appeals) found the appellants eligible for Cenvat credit but rejected the refund claim citing unjust enrichment. The appellant's argument was that they should be allowed to take Cenvat credit, and the Departmental Representative contended that granting a refund would imply passing on the duty burden to the buyer. The Tribunal observed that the duty on inputs is typically included in the sale price of final products and denied the unjust enrichment argument, allowing the Cenvat credit.

Entitlement for Cenvat Credit:
The Tribunal emphasized that every manufacturer includes the duty on inputs in the sale value of final products, leading to a cascading effect on costs. The Cenvat credit scheme was introduced to mitigate this effect, allowing manufacturers to claim credit for duty paid on inputs. The Tribunal held that the appellants were entitled to Cenvat credit as they had paid duty on the inputs, regardless of the unjust enrichment argument raised by the Departmental Representative. It was clarified that the appellants sought only the credit of duty paid on inputs, and unjust enrichment did not apply in this case.

Unjust Enrichment:
The concept of unjust enrichment arises when a manufacturer passes on the duty burden to a buyer and later claims a refund. The Tribunal noted that in this case, the appellants only sought the credit of duty paid on inputs and did not pass on the duty burden to buyers. Therefore, the question of unjust enrichment was deemed irrelevant, and the Tribunal allowed the appeal, granting the appellants the Cenvat credit on materials for which they had discharged duty liability later. The Tribunal highlighted that denying Cenvat credit based on unjust enrichment grounds would undermine the purpose of the Cenvat credit scheme.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT, Bangalore, clarifies the issues of refund claim of duty paid on inputs, entitlement for Cenvat credit, and the concept of unjust enrichment, providing a comprehensive understanding of the legal reasoning and decision-making process involved in the case.