2025 (2) TMI 74 - AT - Central Excise

Adjustment of excess duty paid by the Appellant against the demand for differential duty - applicability of doctrine of unjust enrichment to reject the claim for a refund of the excess duty paid upon the finalization of provisional assessment? - HELD THAT - Sub-rule 6 ibid safeguards the right of the assessee to claim refund in case any amount is found paid in excess. However this right is subject to the applicability of principle of unjust enrichment. Rule 7 nowhere talks about adjustment of excess duty paid towards the duty short paid. The view held by the Larger Bench in the Excel Rubber Limited case 2011 (3) TMI 527 - CESTAT NEW DELHI (LB) relied in the impugned order is that before grant of adjustment the authority finalizing the provisional assessment will have to ascertain whether such excess amount is to be actually refunded or is liable either wholly or partly to be credited to the Consumer Welfare Fund and only thereafter make an order of adjustment to the extent the amount found to be actually refundable. Hon ble High Court of Karnataka in the case of Toyota Kirloskar Auto Parts Pvt. Ltd. 2011 (10) TMI 201 - KARNATAKA HIGH COURT where it was held that when there is provisional assessment the same is applicable to the entirety of the goods and to arrive at final duty liability adjustments of duty excess paid against short payment will have to be made. Conclusion - In cases of provisional assessment adjustments of excess duty paid against shortfalls should be made in a consolidated manner and the doctrine of unjust enrichment does not apply when the duty incidence has not been passed on. The Appellant was entitled to adjust excess duty payments and was not subject to the doctrine of unjust enrichment. Appeal allowed.

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

Whether the excess duty paid by the Appellant can be adjusted against the demand for differential duty.
Whether the doctrine of unjust enrichment is applicable to reject the claim for a refund of the excess duty paid upon the finalization of provisional assessment.

ISSUE-WISE DETAILED ANALYSIS

Adjustment of Excess Duty Paid:

Relevant Legal Framework and Precedents: The assessment of excise duty was conducted under Rule 7 of the Central Excise Rules, 2002, which allows for provisional assessments. The Appellant argued that excess duty paid should be adjusted against any shortfall, citing precedents such as Toyota Kirloskar Auto Parts Pvt. Ltd. and Jonas Woodhead & Sons (I) Limited, where it was held that adjustments should be made in a consolidated manner rather than on a transaction-by-transaction basis.
Court's Interpretation and Reasoning: The Tribunal referenced the Karnataka High Court's decision in Toyota Kirloskar, which emphasized that the duty liability should be determined in aggregate for all goods under provisional assessment. The Court found that adjustments of excess duty against shortfalls are permissible.
Key Evidence and Findings: The Tribunal noted that the Appellant had paid excess duty for certain periods and shortfalls for others, and that the approach of treating these separately was unsupported by statutory provisions.
Application of Law to Facts: The Tribunal applied the principle that provisional assessments cover the entirety of goods, and adjustments must be made to arrive at the final duty liability.
Treatment of Competing Arguments: The Department argued that the Appellant had passed on the duty incidence and thus was not entitled to a refund. However, this was countered by the Appellant's reliance on judicial precedents that supported their claim for adjustments.
Conclusions: The Tribunal concluded that the Appellant was entitled to adjust excess duty paid against any shortfall, and the impugned orders were set aside.

Doctrine of Unjust Enrichment:

Relevant Legal Framework and Precedents: The doctrine of unjust enrichment, as per Rule 7(6) of the Central Excise Rules, applies to refunds unless the duty incidence has not been passed on to another party. The Tribunal considered precedents such as Hindustan Zinc and the Supreme Court's ruling in Allied Photographics India Ltd., which clarified that unjust enrichment does not apply to provisional assessments.
Court's Interpretation and Reasoning: The Tribunal found that the principle of unjust enrichment does not apply to the Appellant's case, as the excess duty was paid post-clearance and was not passed on to consumers.
Key Evidence and Findings: The Tribunal noted that the Appellant's situation involved captive consumption, where the goods were not sold, further supporting the inapplicability of unjust enrichment.
Application of Law to Facts: The Tribunal applied the legal principles from the cited cases to determine that the Appellant's refund claim should not be barred by unjust enrichment.
Treatment of Competing Arguments: The Department's argument that the Appellant had passed on the duty incidence was dismissed based on the Tribunal's interpretation of the law and the facts of the case.
Conclusions: The Tribunal concluded that the doctrine of unjust enrichment was not applicable, and the Appellant was entitled to a refund of the excess duty paid.

SIGNIFICANT HOLDINGS

Core Principles Established: The Tribunal reinforced the principle that in cases of provisional assessment, adjustments of excess duty paid against shortfalls should be made in a consolidated manner, and the doctrine of unjust enrichment does not apply when the duty incidence has not been passed on.
Final Determinations on Each Issue: The Tribunal set aside the impugned orders, allowing the appeals with consequential benefits to the Appellant, confirming that the Appellant was entitled to adjust excess duty payments and was not subject to the doctrine of unjust enrichment.
Verbatim Quotes of Crucial Legal Reasoning: The Tribunal quoted the Karnataka High Court's decision in Toyota Kirloskar, which stated, "If after taking into consideration the duty payable in respect of all goods and the duty paid in pursuance of the final assessment order, if still the assessee is due in any duty, then for the shortfall in payment of duty, the assessee is liable to pay interest."

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