2018 (7) TMI 854 - AT - Central Excise

Refund claim - suo motto adjustment of the excess payment against the short payment of Central Excise duty - unjust enrichment - Held that - The refunds under Indirect taxes have to cross the bar of Unjust Enrichment . If the amount of Tax/Duty sought to be refunded has been recovered from the buyers, then the claimant is not entitled to refund. Even if the such amount of tax, though not directly recovered from the client, but has been charged to expenses in the books of accounts, then also it is consistently held that the claimant has indirectly recovered the tax and hence failed to cross the bar of Unjust Enrichment. The only possible way to pass the bar of Unjust Enrichment is that the disputed tax /duty is not expenses off in the accounts, but booked as Receivables . Tribunal has in case of Philips Electronics India Ltd Vs. Commissioner of Central Excise, Pune I 2010 (4) TMI 449 - CESTAT, MUMBAI has held that CA s certificate of non-recovery of duty loses its probative value, it certified that amount shown as expenses in profit loss a/c whereas assessee collected cum-duty prices. Further if amount shown in P L account, it must have been factored into price of goods manufactured. Refund hit by bar of unjust enrichment. Appeal dismissed.

Issues Involved:
1. Whether the refund of the amount deposited during the investigation should be treated as a refund under Section 11B of the Central Excise Act, 1944.
2. Applicability of the doctrine of unjust enrichment to the refund claim.
3. Treatment of the amount claimed as refund in the appellant's books of account.
4. Distinction between pre-deposit and payment of duty.

Issue-wise Detailed Analysis:

1. Refund Treatment under Section 11B:
The appellant argued that the refund claimed was not of duty but of amounts deposited during the investigation, and hence should not be governed by Section 11B of the Central Excise Act, 1944. They cited various judicial decisions to support their claim that deposits made during investigations are not subject to the same refund procedures as duty payments. However, the tribunal held that all amounts deposited, other than those deposited as per specific directions under Section 35F, are payments towards duty and must be processed under Section 11B. The tribunal referenced the Supreme Court’s decision in Mafatlal Industries Ltd., which mandates that all claims for refund must be adjudicated under the provisions of the respective enactment.

2. Doctrine of Unjust Enrichment:
The appellant contended that the doctrine of unjust enrichment should not apply to their case, as the amounts deposited were not duty but deposits made during the investigation. They further argued that they had not passed on the burden of these amounts to their customers. However, the tribunal found that the appellant had treated the deposited amounts as expenses in their profit and loss account, implying that the burden was indirectly passed on to the customers. The tribunal cited several judicial precedents, including Solar Pesticides and DCW Ltd., which establish that the bar of unjust enrichment applies even to captive consumption. The tribunal concluded that the appellant failed to rebut the presumption of unjust enrichment.

3. Accounting Treatment of the Refund Amount:
The appellant admitted that the amounts claimed as refunds were treated as expenses in their profit and loss account. The tribunal noted that treating the amounts as expenses means they were factored into the cost of the final product, thus passing the burden to the customers. The tribunal referenced the case of Rajasthan Spinning & Weaving Mills Ltd., where it was held that amounts treated as expenses in the profit and loss account are generally recovered through the sales price of the product. The tribunal concluded that the appellant had indirectly recovered the duty from their customers, failing to cross the bar of unjust enrichment.

4. Distinction Between Pre-deposit and Payment of Duty:
The appellant attempted to draw a parallel between the amounts deposited during the investigation and pre-deposits made under Section 35F, arguing that refunds of pre-deposits are not subject to the doctrine of unjust enrichment. The tribunal rejected this argument, emphasizing the clear distinction between pre-deposits and payments of duty. Pre-deposits are statutory requirements for hearing appeals and are not considered payments of duty. The tribunal cited the CBEC Circular No 984/08/2014-CX, which states that pre-deposits are not payments of duty, and thus, the treatment of pre-deposits cannot be applied to the amounts deposited during the investigation.

Conclusion:
The tribunal upheld the order of the Commissioner (Appeal), concluding that the refund claim was rightly credited to the Consumer Welfare Fund due to the applicability of the doctrine of unjust enrichment. The appellant's arguments regarding the nature of the deposits and their accounting treatment were found insufficient to negate the statutory presumption of passing on the duty burden to the customers. The appeal was accordingly rejected.

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