2020 (6) TMI 120 - AT - Central Excise

Refund of CENVAT Credit - denial on the ground of unjust enrichment - allegation is that the appellant has not established that the incidence of the ST has not been passed on to the buyer - HELD THAT - The appellant have filed the refund claim in respect of Cenvat Credit reversed by them which is related to a compensation charges towards the short lifting of steam. In this undisputed fact, the compensation paid by the appellant to M/s. PR Ecoenergy Pvt. Ltd. is related to supply of steam which is used in the manufacture of final product by the appellant therefore, this expenses is directly in relation to the manufacture of final product. Hence, the same is admissible input service. Therefore, there is no doubt that the appellant is entitled for the Cenvat Credit of Service Tax paid on compensation for non-lifting of steam by the appellant. Unjust Enrichment - HELD THAT - The appellant have accounted for the amount of refund in their ledger as recoverable dues therefore, the amount was not included in any of the amount which was recovered or recoverable from the buyer. Hence, it is clear that the incidence of the refund amount was not (sic) paid passed on by the appellant to any other person - the appellant have passed the test of unjust enrichment. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Entitlement to Cenvat Credit for service tax paid on compensation for non-lifting of steam
- Unjust enrichment in refund claim

Entitlement to Cenvat Credit:
The appellant, engaged in manufacturing various products falling under specific Chapter Headings, had a contract with M/s. PR Ecoenergy Pvt. Ltd. for the supply of steam used in the manufacturing process. A clause in the agreement required the appellant to compensate for any shortfall in the minimum guaranteed off-take of steam, falling under declared service under Section 66E(e) of the Finance Act, 1994. Following a shortfall incident, the appellant was issued a debit note for compensation along with service tax, which they availed as Cenvat Credit. However, the Central Excise Audit Officer objected to this, leading the appellant to reverse the credit and pay interest. Subsequently, realizing the error, the appellant filed a refund claim. A Show Cause Notice was issued, questioning the refund denial on the grounds that the compensation amount was not for a service used in manufacturing the final product and citing unjust enrichment concerns. The Adjudicating Authority rejected the refund claim, prompting the appellant to appeal.

Unjust Enrichment in Refund Claim:
The appellant contended that the use of steam directly related to the manufacture of the final product, justifying the refund. They argued that since the refund amount was accounted for in their ledger as recoverable, it had not been passed on to any other party, thus meeting the unjust enrichment criteria. The appellant cited various judgments in support of their position. The Authorized Representative for the revenue reiterated the findings of the impugned order. Upon review, the Tribunal found that the compensation paid by the appellant for the non-lifting of steam was directly related to the supply of steam used in manufacturing, making it an admissible input service. The Tribunal also noted that the appellant had accounted for the refund amount as recoverable in their ledger, demonstrating that the incidence of the refund had not been passed on to any other party, thereby satisfying the unjust enrichment test. Consequently, the Tribunal set aside the impugned order, allowing the appeal and granting any consequential relief as per the law.

This judgment from the Appellate Tribunal CESTAT Ahmedabad, delivered by Hon'ble Member (Judicial) Mr. Ramesh Nair, addresses the appellant's entitlement to Cenvat Credit for service tax paid on compensation for non-lifting of steam and the issue of unjust enrichment in a refund claim. The Tribunal ruled in favor of the appellant, determining that the compensation paid for non-lifting of steam was directly related to the manufacturing process, making it an admissible input service. Additionally, the Tribunal found that the appellant had not passed on the refund amount to any other party, meeting the unjust enrichment criteria. As a result, the Tribunal allowed the appeal, overturning the previous decision and providing relief to the appellant in accordance with the law.