2018 (2) TMI 888 - AT - Central Excise

CENVAT credit - molasses - rule 6(3) of CENVAT Credit Rules 2004 - Held that - the appellant had failed to discharge its obligation to establish that the amounts debited in the CENVAT credit account had not been passed on to the buyer. On the bar of unjust enrichment operating against that claim. The appellant had submitted evidence in the form of certificate of Chartered Accountant for not having passed on the burden of payment discharged under rule 6 of CENVAT Credit Rules 2004. Moreover, this was not a duty that could have been availed as credit by the buyer of waste product. The transfer of refund to the Fund is, therefore, without authority of law and is set aside.

Summary

Issues:
Refund claim rejection by Commissioner of Service Tax, Obligation to pay 5% of value of materials, Exemption from duties, Waste arising in manufacturing process, Competence of authorities, Unjust enrichment, Absorption of amounts by buyers, Transfer of refund to Consumer Welfare Fund.

Analysis:
The case involves an appeal by M/s Vithal Corporation Limited against the rejection of its refund claim by the Commissioner of Service Tax. The dispute originated from the demand served on the appellant for payment of 5% of the value of materials like 'bagasse' and others during the manufacturing process. These materials were exempt from duties, but the authorities considered them as part of dutiable goods under rule 6(3) of CENVAT Credit Rules, 2004. However, the Tribunal, relying on a High Court decision, held that these materials were waste and not subject to the obligations of exempt manufacture, leading to the refund claim by the appellant.

The first appellate authority disagreed with the lower authorities' competence to revisit the payment obligation and decided on the refund claim's merit. The order segregated the claims, with one approved for refund and the others pending. The pending claims were deemed premature as no cause of action had arisen. The appellant's entitlement to the refund was dependent on the resolution of these pending disputes.

Regarding the approved refund claim, the appellant failed to prove that the debited amounts were not passed on to buyers, invoking the bar of unjust enrichment. The appellant argued that these debits were not duties and thus not subject to unjust enrichment. Various cases were cited to support this argument. The appellant also provided a certificate from a Chartered Accountant to show that the amounts were not included in the consideration collected from buyers.

However, the impugned order denied the refund based on the worksheet submitted by the appellant, indicating recovery of amounts from buyers. The appellant's failure to demonstrate the absorption of these amounts through financial records led to the denial of the refund. The first appellate authority cited precedents to support this decision.

The appellant had submitted evidence, including a Chartered Accountant's certificate, to show that the burden of payment under CENVAT Credit Rules was not passed on to buyers. The Tribunal found that this burden was not a duty that could be availed as credit by buyers of waste products. Consequently, the transfer of the refund to the Consumer Welfare Fund was deemed unauthorized and was set aside by the Tribunal.