2007 (10) TMI 188 - AT - Central Excise

Goods procured at NIL rate of duty u/not.. 34/01 for use in the mfg. of goods to be exported - goods rejected and returned to the supplier (without payment of duty) demand raised on ground that procured goods were not used for intended purposes is not justified - duty paid under protest such return cannot be termed as utilization of goods for purpose other than intended moreover incidence of duty cannot be passed as duty has been paid subsequent to clearance refund allowed

Summary

Issues:
- Duty liability on rejected goods procured at NIL rate under Notification No. 34/2001-C.E.(N.T.)
- Refund claim for duty paid on rejected goods
- Incidence of duty passed on to customers
- Pre-deposit of duty and consequent relief

Analysis:

Issue 1: Duty liability on rejected goods procured at NIL rate under Notification No. 34/2001-C.E.(N.T.)
The appellant procured H.R. Coil and paints at NIL rate of duty under a specific notification for use in manufacturing goods for export. However, the procured goods were rejected due to quality issues and returned to the supplier without payment of duty. Authorities imposed duty liability on the appellant for not using the goods for their intended purpose, amounting to Rs. 2,51,092. The appellant paid the duty under protest and filed a refund claim, which was initially rejected. The Commissioner (Appeals) allowed the appeal, leading to the current appeal before the Tribunal.

Issue 2: Refund claim for duty paid on rejected goods
The appellant contended that the rejected goods, procured duty-free and subsequently returned, should not be considered as utilized for a purpose other than intended. The appellant argued that the duty paid under protest should be refunded as a consequent relief. The Tribunal analyzed the appellant's letter indicating the payment as a pre-deposit of duty and emphasized the right to litigate the matter. The Tribunal observed that since the appellant was not required to pay duty on rejected inputs, the consequent relief in the form of a refund cannot be denied.

Issue 3: Incidence of duty passed on to customers
The appellant's consultant argued that the duty amount was not passed on to or recovered from any customers, supported by a Chartered Accountant's certificate. The Revenue contended that once duty amount is shown as an expenditure in books, it may be transferred as a cost to finished goods, potentially leading to cost recovery from customers. However, the Tribunal found that the appellant's subsequent payment of duty on rejected goods back to the supplier indicated no transfer of duty incidence to customers.

Issue 4: Pre-deposit of duty and consequent relief
The Tribunal referred to a Division Bench decision and a High Court judgment emphasizing that deposits made during appeal proceedings become refundable upon appeal success, without the need for a formal refund application. The Tribunal highlighted that the appellant's payment under protest and subsequent successful appeal entitled them to a refund. Citing relevant legal precedents, the Tribunal set aside the impugned order, allowing the appeal with any consequential relief.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the duty liability on rejected goods procured at NIL rate did not apply, and the appellant was entitled to a refund of the duty paid under protest. The Tribunal emphasized the appellant's right to litigate and the absence of duty incidence passed on to customers, ultimately allowing the appeal with any consequential relief.