2025 (3) TMI 1397 - AT - Central Excise

Refund upon finalisation of provisional assessments - requirement to prove conclusively that the incidence of duty burden has not been passed on to the ultimate buyer - compliance to the principle of the doctrine of unjust enrichment - HELD THAT - It is evident from the records that the Original Authority in the denova Order-in-Original No. 08/2016 dated 05.08.2016 has arrived at the decision that the appellant has borne the excise duty burden and not passed on to the dealers after scrutinizing the credit notes Chartered Accountant s certificate extract of ledger for discounts etc. and ordered for sanction of the refunds. Whereas in the impugned orders dated 14.09.2017 the Commissioner of GST and Central Excise (Appeals) Coimbatore has held that refund claims were hit by the bar of unjust enrichment as the appellant has not conclusively established that the burden of excise duty in relation to which such refunds are claimed has not been passed on by him to any other person (ultimate consumer) and the verification process done by the Original Adjudicating Authority was only confined to the first buyers i.e. Dealers. Whether the incidence of duty was passed on to any other downstream buyer was not verified by the Original Adjudicating Authority and also from the records it was ascertained that the assessee has not submitted any such evidence. An in-depth examination of the Hon ble Supreme Court s judgment in the case of Addison Co. Ltd. 1997 (3) TMI 98 - SUPREME COURT makes it clear that there is a presumption that the full incidence of duty burden has been passed on to the buyer of the goods. The refund of any duty can be made only to the person who bears the incidence of duty and it is necessary to conduct verification as to ascertain who actually have borne the burden of duty. It has been categorically laid down that refund can be granted only to the person who has paid the duty and borne the duty and not to anyone else. If the ultimate customer cannot be identified the amount should be credited to the Consumer Welfare Fund established under Section 12 C of the Central Excise Act 1944 to be utilised for the benefit of consumers in general. The appellant would be eligible for refunds sanctioned only when it is proved that incidence of duty has not only been passed on to the dealers but also by the dealers to the ultimate customers. Herein the appellant has proved that the excise duty burden has been borne by him and not passed on to the dealers. But whether there is any evidence as to their dealers having not passed on the duty incidence to the ultimate customers of Motor Cycles is not forth coming as a second stage verification has not been carried out. As such the appellant is required to prove conclusively that the incidence of duty burden has not been passed on to the ultimate buyers so as to be eligible for the refund claims arising on account of finalisation of provisional assessment after allowing abatements. The sanction of the refund claims by the Original Adjudicating Authority without conducting verification as to whether the dealers of the Motor Cycles have not passed on the incidence of duty to the ultimate customer is not legal and proper. Refund of excess excise duty paid at the time of provisional assessments could be legally sanctionable only to those persons which include ultimate customers who must have borne the burden of excise duty paid. Conclusion - The appellant failed to conclusively prove that the duty burden was not passed on to the ultimate consumers thus affecting their eligibility for refunds. The appeals are allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issues considered in this judgment are:

• Whether the appellant is required to conclusively prove that the incidence of duty burden has not been passed on to the ultimate buyer to be eligible for a refund.
• Whether the refunds allowed to the appellant consequent to the finalization of provisional assessments are affected by the doctrine of unjust enrichment, particularly in light of the Supreme Court's ruling in the case of Commissioner of Central Excise Vs. Addison & Co. Ltd.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement of Conclusive Proof of Duty Burden Not Passed to Ultimate Buyer

• Relevant Legal Framework and Precedents: The legal framework is centered around Section 12B of the Central Excise Act, 1944, which presumes that the incidence of duty is passed on to the buyer unless proven otherwise. The Supreme Court's decision in Addison & Co. Ltd. clarifies that the claimant must establish that the duty burden has not been passed on to any other person, including the ultimate consumer.
• Court's Interpretation and Reasoning: The court emphasized that the burden of proof lies with the appellant to demonstrate that the duty burden was not passed on to the ultimate buyer. The presumption under Section 12B is rebuttable, but the appellant must provide conclusive evidence to rebut it.
• Key Evidence and Findings: The appellant provided credit notes and Chartered Accountant's certificates to argue that the duty burden was not passed on. However, the court found that these documents only proved that the burden was not passed to the dealers, not to the ultimate consumers.
• Application of Law to Facts: The court applied the presumption under Section 12B and the precedent set by Addison & Co. Ltd., concluding that the appellant failed to prove that the duty burden was not passed on to the ultimate consumers.
• Treatment of Competing Arguments: The appellant argued that the dealers did not avail of CENVAT credit and that the burden was not passed on. The court, however, found that the appellant's evidence was insufficient to prove that the ultimate consumers did not bear the duty burden.
• Conclusions: The court concluded that the appellant must provide evidence that the duty burden was not passed on to the ultimate consumers to be eligible for a refund.

Issue 2: Application of the Doctrine of Unjust Enrichment

• Relevant Legal Framework and Precedents: The doctrine of unjust enrichment is central to this issue, as outlined in Section 11B of the Central Excise Act and reinforced by the Supreme Court's ruling in Addison & Co. Ltd.
• Court's Interpretation and Reasoning: The court interpreted the doctrine to mean that a refund can only be granted if the duty burden has not been passed on to any other person, including the ultimate consumer. The court emphasized the need for verification to determine who ultimately bore the duty burden.
• Key Evidence and Findings: The court found that the original adjudicating authority did not conduct a thorough verification to determine whether the burden was passed to the ultimate consumers. The evidence provided by the appellant was deemed insufficient to meet the requirements of the doctrine.
• Application of Law to Facts: Applying the doctrine, the court held that the appellant's refunds were subject to unjust enrichment as the necessary verification was not conducted.
• Treatment of Competing Arguments: The appellant argued that the doctrine of unjust enrichment should not apply to provisional assessments and that the refunds were already sanctioned. The court disagreed, stating that the doctrine applies regardless of the assessment stage.
• Conclusions: The court concluded that the refunds were affected by the doctrine of unjust enrichment, and a remand was necessary to conduct the required verification.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The judgment reinforces the principle that the burden of proof lies with the claimant to establish that the duty burden was not passed on to the ultimate consumer. It also emphasizes the necessity of verification in refund claims to ensure compliance with the doctrine of unjust enrichment.
• Final Determinations on Each Issue: The court determined that the appellant failed to conclusively prove that the duty burden was not passed on to the ultimate consumers, thus affecting their eligibility for refunds. The court ordered a remand for further verification to ensure compliance with the doctrine of unjust enrichment.
• Verbatim Quotes of Crucial Legal Reasoning: "The sine qua non for a claim for refund as contemplated in Section 11B of the Act is that the claimant has to establish that the amount of duty of excise in relation to which such refund is claimed was paid by him and that the incidence of such duty has not been passed on by him to any other person."