2005 (2) TMI 362 - AT - Central Excise

Modvat/Cenvat Credit - Entitlement of refund - non-adoption of Chapter X Procedure and Unjust enrichment - Payment of Central Excise Duty - burden of duty on the tyres and tubes - HELD THAT - A perusal of the certificate shows that Cenvat Credit on the inputs is not included while costing the product. Secondly, all elements of cost prior to 1-3-2000 and after 1-3-2000 remain the same excepting that of tyres and tubes. In the case of tyres and tubes, the net cost prior to 1-3-2000 is Rs. 6,250/- and Rs. 7,250/- after 1-3-2000. This variation is on account of the change in the duty structure. The selling price for both the periods is Rs. 2,99,046/-. The loss in the first period is Rs. 74,031/- and after 1-3-2000 it is Rs. 75,031/- in respect of each vehicle. When we see the magnitude of loss and the duty incidence on tyres and tubes, we find that the difference is very huge. In other words, the appellants could not only not pass on the burden of duty on the tyres and tubes but also not recover other elements of cost. On the basis of the above figures it would be very difficult, nay impossible to hold that the duty incidence has been passed on to the buyers. In our view, Revenue's contention does not appear to be correct. If Chartered Accountant's analysis is not to be accepted, then Revenue should have furnished adequate reasons for rejecting the same, which they have not done. Whether the duty on inputs is included or not in the cost of a product is not so much relevant as the quantum of selling price, profit to decide if the duty incidence has been passed or not. When a manufacturer makes a loss, sometimes, he may not even recover the material cost, not to speak of excise duty irrespective of the fact that duty on inputs is included in the cost. In the present case, we are satisfied that the duty incidence has not been passed on. Therefore, we have no other option but to allow the appeal with consequential relief.

Summary

Issues:
- Appeal against OIA No. SDK (1474) 137/AUR/2002 dated 28-2-2002 passed by the Commissioner of Central Excise (Appeals), Mumbai.
- Entitlement to refund based on non-adoption of Chapter X Procedure and unjust enrichment.
- Determining whether the duty burden was passed on to the buyers.
- Analysis of cost and selling prices to ascertain unjust enrichment.

Analysis:
1. The appellant received Tyres and Tubes from M/s. South Asia Tyres Ltd (SATL) on payment of Central Excise Duty, which changed from 24% BED and 8% SED to 16% BED and 16% SED from 1-3-2000. The appellant applied for a CT-2 Certificate to avail remission of SED but faced delays from the department. A refund claim was filed, rejected on grounds of non-adoption of Chapter X Procedure and unjust enrichment by the Original Authority, later partially allowed by the Commissioner (Appeals) due to failure to prove non-passing of duty burden to buyers.

2. The appellant's advocate argued that the Modvat Credit was not included in the final product's cost, and losses were incurred both pre and post-duty structure change. The Chartered Accountant's Certificate supported the claim that the SED element on Tyres was not passed on to buyers. The Revenue countered, citing legal precedents and asserting the manufacturer must prove duty non-passing as the law presumes duty burden transfer to buyers.

3. The Tribunal analyzed the concept of 'passing on the incidence of duty' using cost and selling price examples. The cost analysis certificate for a 'Family saloon model' highlighted that despite duty structure changes, the selling price remained constant while losses increased post-duty change. The Tribunal concluded that the duty incidence was not passed on to buyers due to significant losses incurred, indicating an inability to recover costs, including the duty burden.

4. The Tribunal emphasized that the magnitude of loss compared to the duty incidence on Tyres and Tubes demonstrated the non-passing of duty burden. Rejecting Revenue's contention, the Tribunal found no evidence to dispute the Chartered Accountant's analysis. The decision to allow the appeal with consequential relief was based on the inability of the manufacturer to recover costs, leading to the conclusion that the duty burden was not passed on to buyers.

This detailed analysis of the judgment showcases the considerations made by the Tribunal in determining the entitlement to refund and the crucial aspect of unjust enrichment concerning the passing on of duty burden to buyers.