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2019 (2) TMI 849 - AT - Central ExciseRefund of excise duty - duty paid under protest - refund by utilization of CENVAT Credit - rejection on the ground that the appellant could not have claimed cenvat credit on inputs for a product that was exempted from payment of duty - principles of unjust enrichment - Held that - In the present case, the Department itself required the Appellant to pay excise duty on the drugs by not accepting the claim of the Appellant that it was exempted from payment of excise duty. It is not the case of the Department that payment of excise duty could not have been made by utilizing the Cenvat Credit if the goods were not exempted and this is the reason why no objection was raised by the Department when excise duty was paid by utilization of Cenvat Credit. It is, therefore, not open to the Department to now contend that since the final product has been exempted from payment of excise duty by the Tribunal, Cenvat Credit could not have been utilized for payment of excise duty. Principles of unjust enrichment - Held that - In the face of documentary evidence available on record, namely, copies of the invoices indicating that the incidence of duty had not been passed on, the certificates given by the Chartered Accountant and the ER-1 returns filed by the Appellant, the Commissioner (Appeals) could not have held that the incidence of duty had been passed on to the customers merely on account of the statements contained in the Profit & Loss A/c. The finding, therefore, that the claim for refund was hit by doctrine of unjust enrichment cannot be sustained. The accounting disclosure contained in the Profit & Loss A/c, cannot conclusively prove that the incidence of duty had been passed on to the customer. The learned Representative for the Department has, however, placed reliance upon the decision of the Principal Bench of the Tribunal at New Delhi in the case of Ranbaxy Laboratories Ltd. vs CCE, Chandigarh, 2010 (4) TMI 390 - CESTAT, NEW DELHI , to contend that the Cenvat Credit scheme is available only if the final product suffers the excise duty. This decision is clearly distinguishable and in any view was reversed by the Himachal Pradesh High Court in Ranbaxy Laboratories Ltd. vs CCE, Chandigarh, 2012 (4) TMI 369 - HIMACHAL PRADESH HIGH COURT . Issuance of SCN u/r 14 or CCR - Held that - When no show cause notice was issued by the Department to the Appellant under Rule 14 of the Cenvat Credit Rules, 2004 for denying the Cenvat Credit, the claim of the Appellant for refund of excise duty paid through Cenvat Credit cannot be denied for the reason that Cenvat Credit could not have been availed of. In proceeding for deciding refund of excise duty, the eligibility of Cenvat Credit cannot be examined - The High Court examined the provisions of Rule 14 of the Cenvat Credit Rules, 2004 in (Commissioner, Service Tax Commissionerate, Noida vs M/s HCL Comnnet System & Services Ltd., Noida 2017 (12) TMI 1661 - ALLAHABAD HIGH COURT and observed that in the absence of a notice under Rule 14, action taken to reject the claim is bad in law. The claim of the Appellant for refund of excise duty paid through Cenvat Credit could not have been denied - However, this order will not prohibit the Department from issuing a notice under Rule 14 of the Cenvat Credit Rules, 2004, if it is now permissible in law - appeal allowed - decided in favor of appellant.
Issues Involved:
1. Refund of excise duty paid under protest. 2. Entitlement to Cenvat Credit on inputs for exempted products. 3. Application of the doctrine of unjust enrichment. Detailed Analysis: Refund of Excise Duty Paid Under Protest: The appellant sought a refund of ?9,35,97,502/- paid under protest from April 2006 to March 2014. The Adjudicating Authority allowed a refund of ?5,11,56,276/- paid from PLA but denied ?4,24,41,226/- paid through Cenvat Credit, citing that the appellant could not claim Cenvat Credit for inputs on an exempted product. Both the appellant and the Department filed appeals, leading to the Commissioner (Appeals) dismissing the appellant's appeals and allowing the Department’s appeals, thus denying the entire refund claim. Entitlement to Cenvat Credit on Inputs for Exempted Products: The appellant argued that the formulation of Diphenoxylate Hydrochloride with Atropine Sulphate was exempted under Notification No. 4/2006-CE. However, the Department contended that since Diphenoxylate Hydrochloride was not listed in the exemption notification, the product was not exempt. The Tribunal had dismissed the Department's appeal, affirming the product's eligibility for exemption. Consequently, the appellant filed for a refund of the duty paid under protest. The Commissioner (Appeals) held that since the product was exempted, the appellant could not claim Cenvat Credit on inputs as per Rule 6 of the Cenvat Credit Rules, 2004. Application of the Doctrine of Unjust Enrichment: The Department argued that the refund of duty paid through PLA was subject to unjust enrichment. The Commissioner (Appeals) observed that the appellant's disclosure in the Profit and Loss Account indicated that the excise duty was recovered from customers. The appellant countered that the invoices showed NIL duty and the Chartered Accountant's certificate confirmed that the duty burden was not passed to customers. The Tribunal found that the invoices and Chartered Accountant's certificate were sufficient evidence that the incidence of duty was not passed on to the customers, and the Commissioner (Appeals) erred in ignoring this evidence. Tribunal's Findings: 1. Voluntary Payment of Duty: The Tribunal noted that the appellant paid duty under protest due to continuous show cause notices from the Department, despite a favorable order from the Commissioner (Appeals). Therefore, the payment was not voluntary. 2. Refund of Duty Paid Through PLA: The Tribunal held that the Department's show cause notice did not challenge the refund of duty paid through PLA on grounds of unjust enrichment. Thus, the Commissioner (Appeals) was incorrect in denying the refund on this basis. 3. Refund of Duty Paid Through Cenvat Credit: The Tribunal observed that the Department did not object to the utilization of Cenvat Credit when the duty was paid. Therefore, the refund could not be denied on the grounds that Cenvat Credit was used. The Tribunal referenced the Allahabad High Court's decision in M/s HCL Comnet System & Services Ltd., which emphasized that without a notice under Rule 14 of the Cenvat Credit Rules, 2004, denying the refund was improper. Conclusion: The Tribunal set aside the order dated 27 April 2018 by the Commissioner (Appeals) and allowed the refund of the entire amount of ?9,35,97,502/- with consequential benefits. The Department retains the right to issue a notice under Rule 14 of the Cenvat Credit Rules, 2004, if permissible by law. The appeals were allowed to the extent indicated.
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