2020 (2) TMI 399 - AT - Central Excise

Reversal of refund order - principles of unjust enrichment - incidence of duty not passed on - HELD THAT - First, there is no rule prescribed that in adjudication proceedings, documentary evidence that to of a public nature, was not to be accepted without examining the source, on the basis of which such documents has been prepared. Second, if the said document is not to be accepted, then there is no point in throwing the blame on the appellant for its failure to produce the same before him which, admittedly was a departmental report and could not be possibly accessed by the appellant unless supplied to it by the Department - It is not invariably true that when any amount is shown as expenditure or any expenditure is required to be made, the same has to be absorbed in costing of final product unless there is a proof that pricing of the final product has been specifically increased on that score, since there are various mechanisms available before the manufacturer to absorb the cost, say, by way of reducing profit margins of its sale, overhead expenditures of the company etc. In the case on hand, it is acknowledged that there was no change in the price structure of the product immediately after payment of duty on protest - The appellant is entitled to get refund of ₹ 10,17,419/- alongwith interest as per Section 11BB of the Central Excise Act, 1944 to be calculated from three months after filing of the application of refund - appeal allowed - decided in favor of appellant.

Issues:
1. Legality of the reversal of refund order sanctioned by the Deputy Commissioner of Central Excise.
2. Burden of proof regarding unjust enrichment in the refund claim.
3. Acceptance of Chartered Accountant certificate as evidence.
4. Verification report by Range Superintendent.
5. Duty not passed on to customers.
6. Interpretation of book of accounts and expenditure recovery.
7. Pricing dynamics and absorption of costs in final product.
8. Refund entitlement and interest calculation.

Analysis:
1. The appellant challenged the legality of the reversal of the refund order amounting to ?10,17,419/- sanctioned by the Deputy Commissioner of Central Excise. The appeal stemmed from a long-standing dispute dating back to 1998, involving the demand of duty on the manufacturing unit's production capacity under Textile Processors Annual Capacity Determination Rules, 1998.

2. The primary contention revolved around the burden of proof concerning unjust enrichment in the refund claim. The Commissioner (Appeals) rejected the refund order based on the appellant's failure to demonstrate that the duty incidence was not passed on to customers. The appellant argued that the Commissioner erred in disregarding the Chartered Accountant certificate and placing the burden of producing the Range Superintendent's verification report on the appellant.

3. The acceptance of the Chartered Accountant certificate as evidence was a crucial point of contention. The appellant contended that the Commissioner's reliance on the report of the Range Superintendent, without considering the Chartered Accountant certificate, was erroneous. The appellant highlighted the lack of access to the departmental report, which hindered the production of the verification report during the appeal proceedings.

4. The issue of the verification report by the Range Superintendent was raised during the proceedings. The Tribunal observed a contradiction in the Commissioner's rejection of the refund order based on the Superintendent's report and the appellant's failure to produce the same. The Tribunal emphasized the need for clarity on the acceptance of documentary evidence in adjudication proceedings.

5. Concerning the duty not being passed on to customers, the Tribunal analyzed the Commissioner's reasoning behind deeming the tax paid on protest as recovered from customers. The Tribunal underscored the necessity of establishing that the duty incidence was not realized from customers, especially considering the absence of duty collection from customers in the invoices at the time of sale.

6. The interpretation of the book of accounts and expenditure recovery played a pivotal role in the judgment. The Tribunal delved into the dynamics of pricing and cost absorption in the final product, emphasizing that not all expenditures necessarily translate into cost recovery from customers. The Tribunal highlighted the complexities involved in tracing expenditure absorption over a decade and the various mechanisms available to manufacturers to manage costs.

7. The judgment also addressed the pricing dynamics and absorption of costs in the final product. The Tribunal noted that there was no immediate change in the product's price structure after the duty payment on protest, indicating that the duty amount was not automatically recovered from customers. The Tribunal referenced previous decisions to support the conclusion that expenditure does not automatically translate into cost recovery from customers.

8. In the final order, the Tribunal allowed the appeal, setting aside the Commissioner's decision and directing the respondent-department to refund the amount of ?10,17,419/- along with interest as per the Central Excise Act, to be calculated from three months after the refund application filing date. The respondent-department was instructed to make the payment within three months of receiving the order.

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