Refund - Unjust enrichment

2008 (232) E.L.T. 653 (Tri. - Mumbai) IN THE CESTAT, WEST ZONAL BENCH, MUMBAI [COURT NO. II] S/Shri M.V. Ravindran, Member (J) and K.K. Agarwal, Member (T) COMMISSIONER OF CENTRAL EXCISE, MUMBAI-V Versus MILTON PLASTICS LTD. Final Order No. A/527/2008-WZB/C-II/(EB), dated 26-6-2008 in Appeal No. E/1615/2001 Refund - Cenvat/Modvat - Adjustment of credit - Credit amount cannot be adjusted against refund without issue of a show cause notice - Sections 11A and 11B of Central Excise Act, 1944. [para 8] Refund - Unjust enrichment - Provisional assessment - Once classification list was approved whether after affording an opportunity of hearing or without opportunity of hearing, the assessment cannot be held to be provisional - Doctrine of unjust enrichment applicable - Section 11B of Central Excise Act, 1944. [para 10] Refund - Unjust enrichment - Price remaining same, effect - Quantum of profit is much more than the duty payable, hence price remained same by cutting the profits only, which is not sufficient to establish that incidence of duty has not been passed on - Assessable value indicated in price list was much less than invoice value after allowing deduction of sales tax and discounts which further establishes that incidence of duty has been passed on - Refund rejected on ground of unjust enrichment - Section 11B of Central Excise Act, 1944. [para 10] Appeal allowed CASES CITED Commissioner v. Pratap Rajasthan Copper Foils — Order No. R/106/1998-NB(DB), dated 9-10-1998 — Relied on [Paras 6, 8] Hawkins Cookers Ltd. v. Commissioner — 2004 (176) E.L.T. 191 (Tribunal) — Referred... [Para 4] Indo-Swiss Synthetic Gem Mfg. Co. Ltd. v. Collector — 1992 (59) E.L.T. 345 (Mad.) — Relied on [Paras 4, 10] M.R.F. Ltd. v. Commissioner — 2002 (149) E.L.T. 801 (Tribunal) — Relied on ........... [Paras 5, 10] Mafatlal Industries Ltd. v. Union of India — 1997 (89) E.L.T. 247 (S.C.) — Relied on [Paras 2, 4, 7, 10] Metal Forgings v. Union of India — 2002 (146) E.L.T. 241 (S.C.) — Relied on.............. [Paras 5, 10] Orissa Extrusions Ltd. v. Collector — 1996 (83) E.L.T. 308 (Tribunal) — Referred.............. [Para 3] Samrat International (P) Ltd. v. Collector — 1992 (58) E.L.T. 561 (S.C.) — Distinguished [Paras 7, 10] Western Bengal Coal Fields Ltd. v. Union of India — 1989 (43) E.L.T. 27 (Bom.) — Relied on [Paras 6, 8] REPRESENTED BY : Shri C. Lama, JDR, for the Appellant. S/Shri V. Sridharan and V.S. Sejpal, Advocates, for the Respondent. [Order per : K.K. Agarwal, Member (T)]. - This is an appeal filed by the revenue. The brief facts of the case are that the respondents are inter alia engaged in the manufacture of composite articles of plastic which was classifiable under Chapter 39.24 of the Central Excise Tariff Act, 1984. Articles of plastics are exempt from duty by notification 132/86 dated 1-3-86. The respondents filed a classification list with effect from 1-3-86 in respect of the final products in question claiming the benefit of notification 132/86 which was approved finally. However, on or about 17-11-86 the department raised objections regarding the eligibility of the products (composite articles) to the benefit of notification 132/86 and insisted that they clear the products on payment of appropriate duty on 17-11-86. They were asked to file another classification list with effect from 21-11-86 in which again the appellants claimed benefit of notification 125/86 but the same was arbitrarily scored of as the classification list was approved by the Asst. Commissioner on 18-12-86 requiring them to pay duty at the rate of 15% ad valorem. They therefore addressed a letter dated 5-12-86 to the Jurisdictional Asst. Commissioner which was delivered and received in the Range office on 5-12-86 and in (ho Asst. Commissioner's office on 15-12-86 stating that they shall be paying duty under protest and shall be availing modvat credit under the modvat scheme. Against the approval of the classification list they filed an appeal with the Commissioner (Appeals), who vide his order in appeal dated 9-11-87 remanded the matter for de novo decision as the approval was done without giving an opportunity to the respondents to present their case. On de novo proceedings the Asst. Commissioner vide order dated 20-3-89 and 24-8-99 held that the respondents are eligible for complete exemption under Notification 132/86-C.E. and finalised the approval of various classification list filed from time to time including the classification list effective from 21-11-86. 2. On the basis of the Asst. Commissioner’s order allowing them the exemption under Notification 132/86, the respondents filed a refund claim of Rs. 70,50,149.48 in respect of the duty paid on the products in question for the period from 17-11-86 to 11-9-88. They were however issued a show cause notice on 1-12-89 seeking to deny the refund claim on the ground that the respondents had recovered duty from their customers and therefore they were not entitled to the same. The show cause notice also sought evidence regarding payment of duty on PU Foam as intermediate goods during the period 17-11-86 to 11-9-88. The respondents replied to the show cause notice stating that they have not collected the duty from the customers and the price of the products in question remained constant and did not go up even after they started paying duty on the goods in question and that the duty has been absorbed by them by reducing their profit margin and since the duty was paid under protest, time bar will not apply and they are eligible for refund. The refund claim was rejected by the Asst. Commissioner on various grounds. He found that though the actual amount of claim is Rs. 70,27,587.92 and not Rs. 70,50,149.48 as claimed by the respondents on account of clerical error and out of this amount Rs. 28,99,754.35 was paid by them through RG23A account and once the product was fully exempted they were not entitled to any modvat credit and therefore this credit of Rs. 28,99,754.35 could not have been availed of by them and therefore the question of its refund does not arise. He also held that the respondents are liable to pay Rs. 5,98,432.75 in respect of an intermediate product PU foam which was generated during die process of manufacture, which was also sought to be adjusted against the refund claim and a short payment of Rs. 440.22 was found in PLA account which was also adjusted and accordingly, the net refund claimed worked out to Rs. 35,28,960,40. Besides an amount of Rs. 1,31,952.78 was also held as time barred as it related to a period 5-12-86 to 14-12-86 i.e. the period which was prior to their letter of protest which was received in the Asst. Commissioner’s office on 15-12-86. The balance claim was also rejected on the ground of unjust enrichment as the duty was recovered from the customers. He rejected the plea of the respondents that the prices of the impugned products remained same both prior to imposition of duty and during the period when they were paying duty as well as when they stopped paying duty. It was held by him that in the price list submitted by the respondent the assessable value was much below the invoice value even after allowing the deduction of sale tax and discount passed by assessee which only establish that the duty was recovered by him from his customers. The respondent filed appeal against the order of the Asst. Commissioner rejecting the entire refund claim. The Commissioner (Appeals) in his order held that so far as the refund relating to an amount of Rs. 28,99,754.35 was concerned, the same was denied on the ground that once the assessee’s final product were exempted from duty they were not entitled to the modvat credit. The Commissioner (Appeals) held that though it is correct that the assessee was not entitled to the modvat credit but the same could have been recovered by the department only by issuing of a show cause notice and once a show cause notice has not been issued, the refund of the same cannot be denied and no adjustment of the credit availed of by them can be made from the refund amount. As regards the refund of Rs. 5,98,432/- it was held that the Tribunal in their own case has held that no duty is payable on PU foam which come into existence at the intermediate stage and accordingly this amount could not have been adjusted against the refund. As regards balance of Rs. 35,28,960.40 it was held that once the assessee’s invoice did not show any recovery of the central excise duty at all and that price remained the same both before and after imposition of duty it cannot be held that they have recovered duty from the customers. It was further held that the assessment in their case were provisional and therefore the doctrine of unjust enrichment did not apply as held by the Supreme Court in Mafatlal Industries Ltd. v. U.O.I. - 1997 (89) E.L.T. 247. The rejection of refund claim of Rs. 1,31,952.78 on ground of time bar was also set aside as once the assessment were held to be provisional the question of any time bar does not arise. 3. It is against the above order of the Commissioner (Appeals) that the revenue has come up in appeal. In the grounds of appeal, it has been stated that under Rule 57F(3) of the Central Excise Rules, only in the case of unutilised modvat credit on input used in the manufacture of goods exported cash refund can be allowed and in no other circumstances such refund in cash is to be allowed. Since the respondent's final product were exempted, modvat credit was inadmissible under Rule 57C of the then Central Excise Rules, 1944 and therefore refund of amount of duty paid from RC23A part II is not allowable to the assessee. It has been urged that once Commissioner (Appeals) has accepted in his order that the modvat credit is not allowable when final product is exempted, he could not have allowed the refund of Rs. 28,99,754.35 which was utilised as modvat credit for payment of duty. Once statutorily the assessee cannot avail of modvat credit in respect of inputs used in the manufacture of exempted final product, a mere non-issuance of show cause notice will not entitle the respondents to get the refund. If at all the refund is to be allowed, it should have been allowed by credit in RG23A Part II account. The Tribunals decision in the case of Orissa Extrusion Ltd. - 1996 (83) E.L.T. 308 (T) was cited wherein modvat credit denied on inputs used in exempted final product was held to be ineligible for payment of duty on other final products. As regards refund amount to Rs. 1,31,952.78 it was stayed that since the protest letter was received in the Divisional office on 15-12-86 the same shall have effect from that date and accordingly rejection of refund of the amount for the period 4-12-86 to 14-12-86 on ground of time bar was in order. 4. As regards the applicability of doctrine of unjust enrichment it was submitted that the assessee have opted for cum duty price structure and has, claimed abatement in the price list on account of sales tax/trade discount and Central excise duty. However, while preparing the invoice they have been showing only discount/sales tax but not the Central excise duty. Therefore, invoice value after these deduction represent cum duty price. Further, as per paragraph 19 of order in original the assessee themselves had contended before the Asst. Commissioner that during the period when they were paying duty or after they stopped paying duty, the price charged to the customer remained same. In fact the assessee should have reduced the price to the extent of excise duty when they paid Central excise duty in order to support their contention that they did not collect Central excise duty from their customers. In view of this, they should be presumed to have passed on the incidence of duty. In support of this, the learned DR referred to the decision of the Apex Court in the case of Mafatlal Inds. v. U.O.I. - 1997 (89) E.L.T. 247 (S.C.) wherein the Supreme Court observed that the incidence of duty can be passed on by a manufacturer by dipping into his profits. The decision of the Madras High Court reported in 1992 (59) E.L.T. 345 was also cited wherein the High Court held that the final product price remained constant even though inputs duty was incurred then the logic of presumption in such a situation is that profit is reduced but that input duty incidence did get passed on to the buyer. This decision was followed by the Tribunal in the case of Hawkins Cookers Ltd. v. CCE, 2004 (176) E.L.T. 191. 5. As regards the plea that the assessment were provisional, it was submitted that the assessments were never provisional as the price list which was submitted with effect from 21-11-1986 was approved on 8-12-86 and no provisional assessment was ordered. The assessee filed an appeal against that and on appeal the matter was remanded but that does not mean that during the appeal period the assessment remained provisional. In support of this reference were invited to the decision of the Tribunal in MRF Ltd. - 2002 (149) E.L.T. 801 wherein it was held that when the duty is paid under protest assessment were not provisional and provisions of unjust enrichment are applicable. Similarly, the Apex Court has in the Metal Forgings v. U.O.I. - 2002 (146) E.L.T. 241 (S.C.) held that order of Asst. Collector determining the classification is final order and mere filing of appeal against such order does not make subsequent clearance as made on provisional basis. 6. The learned advocate for the respondents submitted that refund of amount of Rs. 28,99,754.35 could not have been denied once a show cause notice was not issued to this effect even though the credit was not admissible to them and in support thereof he referred to the decision of the Tribunal in the case of Commissioner v. Pratap Rajasthan Copper foils in Order No. R/106-1998-NB (DB) dated 9-10-1998 wherein similar situation it was held, that proforma credit availed by the assessee could not have been recovered from him while granting refund without issuance of a show cause notice. Similarly, the Bombay High court has in the case of Western Bengal Coal Fields v. U.O.I. - 1989 (43) E.L.T. 27 (Bom.) held, recovery by adjustment is not allowable as recovery can be made only by resort to the procedure as laid down under section 11A of the Central Excise & Salt Act, 1944. In view of this, the refund of this amount could not have been denied. As regards the refund of Rs. 1,31,952.78 on ground of time bar, it was submitted that once the protest letter was received in the Range Office on 5-12-1986 the protest will be effective from that date irrespective of the fact that the same was received in the Divisional office on 15-12-86. 7. It was vehemently argued the assessment in this case were provisional and in this regard reliance was placed on the decision of the Apex Court in the case of Samrat International - 1992 (58) E.L.T. 561 (S.C.) wherein it was held once classification/price list submitted by the assessee but approved by the Asst. Collector after sometime clearance made in the meantime are to be deemed provisional even if B-13 bond is not executed but personal ledger account is maintained. It was submitted since first approval was arbitrary without following the principles of natural justice, it cannot be considered as an approval and till the final approval was given as a consequence of de novo proceedings the clearance in between have to be treated as provisional. In such a situation, the doctrine of unjust enrichment will not apply as has been held by the Apex Court in the case of Mafatlal. Even otherwise, it was submitted that once the price of the impugned products remained almost same before the introduction of duty, after introduction of duty and after withdrawal of the duty, the same is sufficient to show that the incidence of duty has not been passed on to the customer. As this exemption was being enjoyed by all their competitors and by their own factory elsewhere, therefore, they could not have afforded to charge the duty from their customers. In view of this, the incidence of duty has to be held to have been borne by them and refund has accordingly been correctly sanctioned. 8. We have considered the submissions. So far as the amount of Rs. 28,99,754.35 is concerned, we find that the issue is squarely covered by the Tribunal’s decision in Pratap Rajasthan Copper foils and Bombay High Court in the case of Western Bengal Coal Fields cited supra and refund of the modvat credit amount cannot accordingly be adjusted against the refund without issue of a show cause notice and we follow the same and since in this case also no show cause notice was issued for denying credit, to hold that refund of this amount cannot be denied. 9. As regards the amount of Rs. 1,31,952.78. we hold that once the protest letter was received in the range office on 5-12-86 the same shall have effect from 5-12-86 itself and therefore the demand cannot be considered as hit by time bar. 10. So far as the assessment being provisional is concerned, we find from the records that at no stage the assessment were made provisional and classification list was approved on 8-12-86 itself and once the classification list was approved whether after affording an opportunity of hearing or without opportunity of hearing, the assessment cannot be held to be provisional and the decision of the Apex Court in Samrat International is not applicable as in that case the assessment were deemed to be provisional during the time the classification/price list submitted by the assessment is approved by the Asst. collector which is not so in the present case. This view is duly supported by the Tribunal’s decision in the case of MRF Ltd. and Supreme Court decision in Metal Forgings cited supra. Therefore, the doctrine of unjust enrichment will equally apply in the present case also. So far as the passing of the incidence of duty is concerned, the respondents main plea is that the price has more of less remained same during the entire period i.e. introduction of duty, after introduction of duty and after withdrawal of duty. This cannot be considered as sufficient as has been held by the Supreme Court in the case of Mafatlal - 1997 (89) E.L.T. 247 (S.C.) and Madras High Court in 1992 (59) E.L.T. 345 wherein it has been held that incidence of duty can be passed on to a manufacturer by dipping into his profits. We have seen the costing of the products shown by the respondents and we find that the quantum of profit is much more than the duty payable and therefore the price remained the same by cutting the profits only, which as per the Supreme Court decision in Mafatlal is not sufficient to establish that the incidence of duty has not been passed on. We, further, observe from the order in original that the assessable value indicated in the price list was much less than the invoice value after allowing the deduction of sales tax and discounts and this further establishes that the incidence of duty has been passed on. We therefore hold that the refund of the entire amount of Rs. 70,50,149.48 is liable to be rejected on the ground of unjust enrichment as this entire amount has been passed on to the customers. The revenue’s appeal is allowed on above grounds. (Pronounced on 25-6-2008)