2014 (7) TMI 401 - AT - Central Excise

Refund - unjust enrichment - payment of duty initially on captive consumption of intermediate product which were exempt from duty - Held that - refund is claimed consequent to availment of benefit under Notification 67/95. The said Notification provided that the benefit of exemption would be available when goods are captively consumed in the manufacture of exempted final products only when no CENVAT credit of the duty paid on the inputs used in the manufacture of intermediate products arising in the manufacture of final products is taken. In the present case, CENVAT credit has been availed by the respondent in respect of synthetic waste and polyester tops. From these raw materials, the respondent has made the yarn of waste wool was captively consumed in the manufacture of blankets, shawls, etc. which were exempt from payment of duty. Except for the costing statement of the product which indicates that they have sold the final products below cost, there is no evidence to indicate that the incidence of duty has been borne by the respondent. In the statutory books of accounts and the balance sheets maintained by the respondent, the amount claimed as refund is not shown as claims receivable from the department. The respondent has clearly admitted to the fact that the said amount of refund claimed was treated as expenditure and taken to the profit & loss account. If the amount is taken to the profit and loss account, it signifies that the respondent has adjusted the amount in their income while arriving at the net profits thereby implying that the incidence has been passed on to the third parties. Chartered Accountant s certificate is not a conclusive proof of having not passed on duty of incidence to the customers. It is incidence of duty and not the duty as such which is required to be shown to have not being passed on from the sale records, balance sheets and other related documents - Following decision of Crompton Greaves Ltd. (2009 (4) TMI 490 - CESTAT, MUMBAI) and Union of India vs. Solar Pesticide Pvt. Ltd. 2000 (2) TMI 237 - SUPREME COURT OF INDIA - Decided in favour of Revenue.

Summary

Issues Involved:
1. Eligibility for exemption under Notification No. 67/95-CE.
2. Compliance with Rule 6(3)(a) of CENVAT Credit Rules, 2001.
3. Bar of unjust enrichment.
4. Validity of Chartered Accountant's certificate as proof of non-passing of duty incidence.

Issue-wise Detailed Analysis:

1. Eligibility for Exemption under Notification No. 67/95-CE:
The respondent, M/s. Raymond Ltd., manufactured yarn of waste wool from inputs like rags and synthetic waste, availing CENVAT credit on these inputs. The yarn was used to manufacture blankets, shawls, and woolen fabrics, which were exempt from duty. According to Notification No. 67/95-CE, exemption is granted if no CENVAT credit is availed on inputs used in the manufacture of such yarn. The respondent initially paid duty on the yarn and later filed for a refund, claiming to have reversed the CENVAT credit. The appellate authority allowed the refund, stating that the later reversal of credit was reasonable compliance with the notification. However, the Revenue argued that the benefit of the notification was not applicable as the final products were exempt from duty and the reversal of credit was not timely.

2. Compliance with Rule 6(3)(a) of CENVAT Credit Rules, 2001:
The adjudicating authority rejected the refund claim because the reversal of CENVAT credit was not done at the time of clearance of the yarn, violating Rule 6(3)(a) of CENVAT Credit Rules, 2001. The respondent reversed the credit only after filing the refund claim, which the Revenue argued did not fulfill the conditions of the exemption at the time of clearance.

3. Bar of Unjust Enrichment:
The appellate authority observed that since the respondent sold finished products below cost, they could not have passed on the duty burden to buyers, thus crossing the bar of unjust enrichment. However, the Revenue contended that the respondent did not provide sufficient evidence to prove non-transfer of duty incidence. The Tribunal noted that the respondent treated the refund amount as 'expenditure' in the profit and loss account, implying the incidence of duty was passed on to third parties. Citing various case laws, including Mafatlal Industries Ltd. and Allied Photographic India Ltd., the Tribunal emphasized that mere uniformity in price or selling below cost does not prove non-transfer of duty incidence.

4. Validity of Chartered Accountant's Certificate:
The respondent provided a Chartered Accountant's certificate to support their claim of not passing on the duty incidence. The Revenue argued that such a certificate is not conclusive proof and that it must be corroborated with sales records, balance sheets, and other documents. The Tribunal agreed, referencing the case of Crompton Greaves Ltd., which held that a Chartered Accountant's certificate alone is insufficient to prove non-transfer of duty incidence.

Conclusion:
The Tribunal concluded that the respondent did not fulfill the statutory obligations for claiming the refund. The reversal of CENVAT credit was not timely, and sufficient evidence was not provided to prove that the duty incidence was not passed on. Consequently, the Tribunal set aside the appellate authority's order and allowed the Revenue's appeals, denying the refund claim to the respondent.