2017 (3) TMI 355 - AT - Central Excise

CENVAT credit - Refund claim of the credit restored after reversal / restoration of disallowed credit - unjust enrichment - Held that - CENVAT credit, and its utilisation, stands on different footing as this credit is a matter of right flowing from having paid duty or tax on goods or services procured for manufacture of goods or for rendering of services. Its avowed purpose of avoiding the cascading effects of taxation can be met only when it is passed on by utilising of such credit. Commercial exigency dictates that a lower price will stimulate a beneficial outcome for the seller and access to this credit enables that commercial objective. Hence credit, or re-credit, in the CENVAT account benefits the buyer and others in the chain and is, correspondingly, of no benefit to the seller. Accordingly, to even conceive that restoration of CENVAT credit is to be prevented as a matter of course is not in accordance with the fundamentals that motivated the incorporation of value added in indirect taxation. It is only tax administrators who continue to hold fast to the hurdle of unjust enrichment to deny rightful claims for restoration of CENVAT credit. Such obduracy is ill-founded. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Refund claim disallowed on the grounds of 'unjust enrichment'
- Applicability of Section 11B of the Central Excise Act, 1944
- Discrepancy in processing restoration of CENVAT credit
- Interpretation of 'unjust enrichment' in the context of CENVAT credit restoration

Analysis:
1. The appeal was against the order disallowing a refund claimed by M/s JSW Ispat Steel Ltd due to the bar of 'unjust enrichment.' The Tribunal had earlier held a recovery to be incorrect and remanded the matter for further consideration. The original authority sanctioned the refund, but the appellate order invoked the 'unjust enrichment' principle based on Supreme Court rulings, requiring proof that the duty burden had not been passed on.

2. The impugned order emphasized the requirement under Section 11B of the Central Excise Act, 1944, to establish that the burden of duty had not been passed on to claim a refund. The original authority had sanctioned the claim without invoking 'unjust enrichment,' which the appellate authority disputed, leading to the denial of cash refund.

3. The processing gap in the CENVAT Credit Rules, 2004, regarding the restitution of disallowed credit was highlighted, leading to confusion in the application process for credit restoration. The lack of clarity in the procedure allowed for misinterpretation by tax officials, resulting in the denial of rightful claims.

4. The judgment emphasized that the restoration of credit is not a refund but a procedural step that should be granted without hindrance. The distinction between refund claims and credit restoration was crucial, with the court holding that 'unjust enrichment' should not be a barrier to the re-credit process, as it is a right of the appellant.

5. The court cited judgments from various High Courts and the Supreme Court to support the position that the restoration of CENVAT credit should not be subject to the 'unjust enrichment' principle. The rulings emphasized that the reversal of credit entries does not involve an outflow of funds, making it distinct from refund claims under Section 11B of the Act.

6. Ultimately, the court set aside the impugned order and allowed the appeal, emphasizing that the restoration of credit should not be hindered by the 'unjust enrichment' principle, as it is a procedural step necessary for the proper functioning of the CENVAT credit system.