2018 (7) TMI 1714 - AT - Central Excise

Refund claim - adjustment of Bank Guarantee with refund amount - unjust enrichment - Held that - It is apparent that the amount of ₹ 3,23,195/- does not stand paid to Revenue and therefore, it needs to be adjusted against the admissible refund of ₹ 12,65,209/-. Consequently, the appellant are entitled to refund of an amount of ₹ 9,42,015/- as adjudged by original adjudicating authority. Principles of unjust enrichment - duty is secured against the bank guarantee - Held that - The decision in the case of Saheli Synthetics Pvt. Limited vs. CC & CE, Surat 2001 (9) TMI 141 - CEGAT, MUMBAI squarely covers the issue where it was held that bank guarantee furnished by an assessee in compliance with a Court order is in the form of a security or deposit and cannot be held as payment of duty attracting the provisions of unjust enrichment. Interest on refund amount - Held that - As the appellant were liable to pay duty only on the job work charges. Subsequent proceedings in 1983 onwards, the appellant were required to pay duty not only on the job charges but also on the cost of material and consequently the amount deposited by them were a differential amount required to be deposited against the duty liability and thus it was not a case of pure refund - appellant is therefore, entitled for refund of ₹ 9,42,015/- along with interest as prescribed under the Act. However, while granting the said interest, the interest for the period for which the entire amount was refunded to them in 1983, and 75% of which was recovered from them in 1990, needs to be adjusted. Appeal allowed in part.

Summary

Issues:
Appropriation of refunds sanctioned to the appellant, applicability of principles of unjust-enrichment, grant of interest on the refund amount.

Appropriation of Refunds:
The appeal concerns the appropriation of refunds sanctioned to the appellant, M/s. Kwality Silk Mills, related to the period from September 1976 to February 1987. The issue revolves around the liability of Central Excise duty on processing of fabrics, specifically on whether processing by job workers amounts to manufacture and the valuation for duty payment. Various court orders, including those from the Hon'ble Gujarat High Court and the Hon'ble Apex Court, directed the refund of excess amounts paid by the appellant. The Original Adjudicating Authority used the best judgment method to calculate the refund amount, considering the directions of the courts. The appellant claimed a refund of ?40,73,077, but the authority quantified it at ?9,42,015, which was appropriated towards the Consumer Welfare Fund citing unjust-enrichment provisions under the Central Excise Act, 1944 and relevant case law.

Principles of Unjust-Enrichment:
The appellant argued that the bank guarantee furnished by them, in compliance with court orders, does not constitute payment of duty, thus not attracting unjust-enrichment provisions. They cited several case laws supporting this argument, emphasizing that the bank guarantee is a form of security and not actual payment of duty. The Tribunal analyzed these arguments and concluded that the refund is not subject to unjust-enrichment, aligning with the decisions in the cited cases. Therefore, the refund should be granted to the appellant rather than being credited to the Consumer Welfare Fund.

Grant of Interest on Refund Amount:
Regarding the grant of interest on the refund amount, the appellant sought 12% interest based on a previous court order. However, the Tribunal noted that the earlier directions for interest were fulfilled when the amount was refunded in 1983. As subsequent proceedings involved duty liabilities beyond job charges, the nature of the refund changed, and the appellant's claim for additional interest did not hold. The Tribunal determined that the appellant is entitled to a refund of ?9,42,015 along with interest as per the Act, adjusting for the period when the entire amount was refunded and later partially recovered.

In conclusion, the Tribunal partly allowed the appeal, directing the refund of the specified amount to the appellant along with applicable interest, subject to adjustments for previous refunds and recoveries.