2019 (8) TMI 526 - AT - Central Excise

Refund - amount debited to profit and loss account as expense - principles of unjust enrichment - Availment and reversal of CENVAT Credit, which was subsequently held to be admissible credit - mismatch of weight in the paper used for covering copper strips manufactured by it and papers purchased by it which was in excess of its output -HELD THAT - The finding of the Commissioner (Appeals) that appellant has not passed the test of unjust enrichment is based on the fact that appellant had charged the amount paid towards interest to its Profit Loss Account in its financial statement under sub-heading interest and others and it had admitted that it had considered interest component for pricing purpose of the final products. While according to my approval to such test to be applied to refund of interest paid prior to 2008 as per the ratio of Mafathlal case, I failed to agree with the Commissioner (Appeals) that only by showing the amount in the Profit Loss Account as expenditure toward interest payment, cost of the product cannot go up by itself unless it is specifically infused for the said purpose. Further no statement of the appellant or its representative is found on record to establish that payment made towards interest had been absorbed in the cost component of the final product. In the instant case appellant had justified on record as to why the same amount has been shown in the Profit Loss account whereby Appellant Company s profit was proportionately reduced - the incidence of duty as interest paid has not been passed by the appellant to any other person to bring the case into the purview of unjust enrichment. The Appellant is entitled to get refund of ₹ 11,45,295/- along with applicable interest calculated from 3 months after filing of refund application on dated 25-09-2008, as per explanation appended to Sec 11 BB of the Central Excise Act and the respondent Department is directed to pay the same to the appellant within 3 months from receipt of the order - appeal allowed.

Summary

Issues:
Denial of refund on interest paid for the period between availment and reversal of CENVAT Credit; Applicability of unjust enrichment to the refund of interest; Interpretation of relevant provisions of the Central Excise Act.

Analysis:

Issue 1: Denial of refund on interest paid for the period between availment and reversal of CENVAT Credit
The appellant was instructed to reverse CENVAT credit due to a mismatch in weight of materials used in manufacturing. After reversing the credit and paying interest, the credit was confirmed as admissible. The Asst. Commissioner allowed the refund of the credit but denied the interest refund citing unjust enrichment. The appellant argued that the interest refund should not be denied based on the amendment date of the unjust enrichment provision. The appellant contended that the interest was abnormal expenditure and did not impact pricing. The Tribunal found that the appellant did not pass on the interest burden to consumers and ruled in favor of the appellant, allowing the interest refund.

Issue 2: Applicability of unjust enrichment to the refund of interest
The Commissioner (Appeals) denied the interest refund based on unjust enrichment, arguing that the interest was considered in pricing the final products. The appellant argued that showing interest expenditure in the Profit & Loss Account does not automatically increase product cost unless specifically allocated. The Tribunal agreed with the appellant, stating that the interest burden was not passed on to others, thereby rejecting the unjust enrichment argument and allowing the interest refund.

Issue 3: Interpretation of relevant provisions of the Central Excise Act
The Tribunal analyzed the application of the unjust enrichment principle to interest refunds paid before the relevant amendment date. Referring to precedents and legal principles, the Tribunal emphasized the need for the burden of proof to show that the interest burden was passed on to consumers. The Tribunal concluded that the appellant had not absorbed the interest cost in the product pricing, leading to the decision to allow the interest refund. The order set aside the Commissioner's decision and directed the Department to pay the interest refund to the appellant.

In conclusion, the Tribunal allowed the appeal, setting aside the Commissioner's order and granting the appellant the interest refund along with applicable interest. The decision highlighted the importance of proving unjust enrichment and the specific allocation of costs in determining refund eligibility under the Central Excise Act.