2017 (9) TMI 1490 - AT - Central Excise

Refund claim - quantity discount given to their wholesale dealers as an incentive, by way of credit notes - whether the impugned refund claims against quantity discount given by respondent are eligible for refund? - unjust enrichment - CBEC circular No. F-354/81/2000 (TRU), dated 30.06.2000 - Held that - as per CBEC guidelines, if the discount is declared on price and actually passed on to the buyer goods, as per common practice, it will not form part of the transaction value eg. quantity discount. However, the nature and quantum of discount should be known at the time of sale of the goods and further they should have actually been passed on to the buyers goods. The circular also takes into account the practice of year end discount, however, in such cases the transactions have to be assessed on a provisional basis - it emerges that the quantity discount was offered by respondents to all wholesale dealers, but the quantity and amount would vary from party to party and area to area as agreed, before lifting the material - the nature of quantity discount, albeit given post clearances, was very much known to the buyers of the respondent - the impugned orders upholding the claim for refund of quantity discount, on merits, is sustained. Unjust enrichment - Held that - The ratio laid down by Apex Court in the case of CCE Madras vs. Addison & C. Ltd. 2016 (8) TMI 1071 - SUPREME COURT was that trade discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price and that when turn-over discount is known to the dealer at the time of clearance, assessee is entitled for filing a claim for refund, on the basis of credit notes raised by them towards turnover discounts - the impugned orders which have held that sanction of refund to respondents do not amount to unjust enrichment, cannot be sustained and required to be set aside. Appeal allowed - decided partly in favor of Revenue.

Summary

Issues:
- Eligibility of refund claims against quantity discount
- Application of unjust enrichment principle

Eligibility of refund claims against quantity discount:
The case involved appeals related to refund claims filed by a paper manufacturing company for duty on quantity discounts given to wholesale dealers. The department appealed against the orders granting refunds, arguing that the discounts were post-clearance and the duty burden may have been passed on to customers. The core issue was whether the quantity discounts were eligible for refund and if they were hit by unjust enrichment. The circular by CBEC clarified that discounts passed on to buyers do not form part of transaction value. The tribunal found that the quantity discounts were known to buyers and passed on, making them eligible for refund. The lower appellate authority's decision in favor of the respondents was upheld, rejecting the department's appeal on this aspect.

Application of unjust enrichment principle:
Regarding unjust enrichment, both lower authorities relied on a Tribunal decision and a High Court judgment to conclude that it did not apply in this case. However, the Supreme Court had set aside these judgments. The tribunal held that the refund to respondents did not amount to unjust enrichment, contrary to the lower authorities' findings. The tribunal decided that the refund, if admissible, should be credited to the Consumer Welfare Fund under the Central Excise Act. The impugned orders on unjust enrichment were set aside, and the department's prayer for crediting the refund amounts to the Consumer Welfare Fund was allowed. In conclusion, the tribunal partly allowed the revenue appeals, upholding the refund of quantity discount but directing the refund amounts to be credited to the Consumer Welfare Fund.