2016 (6) TMI 825 - AT - Central Excise

Refund of duty - unjust enrichment - 100% EOU - Exemption from payment of duty on procurement of goods used for R&D purpose - The department entertained the view that R&D was not part of manufacturing activity and that the benefit of exemption from payment of duty cannot be extended to inputs used for R&D purpose. - Held that - Department has not adduced any evidence to establish that appellant showed the duty element in the invoices. It is their case that as the appellants showed the amount as expenditure in the Profit & Loss account the amount is factored in working out the sale price and so the duty has been passed on indirectly. I am not convinced with these arguments. When the appellants are not liable to pay duty the amount paid does not have the colour of duty at all. Therefore the doctrine of unjust enrichment is not applicable to the said amount. The duty was paid by appellant much later after starting of investigations. So it cannot be said that the incidence of duty has been passed on to buyers. When the Department argues that the incidence of duty has been passed on not directly but indirectly then it is for the Department to establish the details of such passing of incidence of duty. It cannot be based on assumptions that incidence of duty is passed on. The refund is not hit by the doctrine of unjust enrichment. - Decided in favor of assessee.

Summary

Issues:
Refund claim hit by unjust enrichment - Duty on inputs used for R&D - Exemption under Notification No.52/2003-Cus. and Notification No.22/2003-CE - Doctrine of unjust enrichment applicability to deposits made under pressure from Department - Burden of proof on passing incidence of duty - Interpretation of Section 11B.

Analysis:

1. Refund Claim and Unjust Enrichment: The appellant filed a refund claim for the duty paid under pressure from the Department during an investigation. The original authority rejected the refund claim citing unjust enrichment under Section 11B of the Central Excise Act, 1944. The Commissioner(Appeals) upheld the rejection, directing the amount to be credited to the Consumer Welfare Fund. The issue before the Tribunal was whether the refund claim was genuinely hit by unjust enrichment.

2. Exemption and Duty on Inputs for R&D: The appellant, a 100% EOU engaged in manufacturing bulk drugs, availed exemptions under Notification No.52/2003-Cus. and Notification No.22/2003-CE. The dispute arose regarding the duty liability on inputs used for R&D purposes. The Department contended that duty was payable on such inputs, leading to the payment by the appellant under protest. However, the Commissioner(Appeals) held that R&D activities were integral to the manufacturing process, exempting the appellant from duty payment.

3. Doctrine of Unjust Enrichment and Burden of Proof: The Tribunal analyzed the doctrine of unjust enrichment in detail. It was argued that the amount paid by the appellant, though shown as expenditure, did not pass on the duty incidence as the appellant was not liable to pay duty in the first place. The Department failed to provide evidence linking the duty element to the sale price, and the Tribunal found no merit in the argument that the duty had been indirectly passed on.

4. Judicial Precedents and Interpretation of Section 11B: The Tribunal referred to various judicial precedents, including Universal Heat Exchangers Ltd., Advance Steel Tubes Ltd., and Sandvik Asia Ltd., to support its interpretation of the doctrine of unjust enrichment. It emphasized that the burden of proof lies with the Department to establish the passing on of duty incidence. The Tribunal distinguished cases where excess duty was paid from the present scenario where duty was paid under pressure during investigation.

5. Decision and Relief: After considering the arguments and legal principles, the Tribunal held that the refund claim was not hit by unjust enrichment. It set aside the order directing the amount to be transferred to the Consumer Welfare Fund and allowed the appeal with consequential reliefs. The Tribunal emphasized that the duty paid did not have the character of duty as the appellant was not liable to pay it, thereby rejecting the unjust enrichment argument.

6. Conclusion: The Tribunal's decision focused on the lack of evidence showing the passing on of duty incidence and the appellant's exemption from duty payment under relevant notifications. By applying legal principles and precedents, the Tribunal ruled in favor of the appellant, allowing the refund claim and dismissing the unjust enrichment argument put forth by the Department.