The issue involved in the present case pertains to the
applicability of the doctrine of unjust enrichment in the
case of refund of duty paid on 'capital goods' used
captively. The factual matrix under which the aforesaid
issue arises for consideration is taken note of, in short, JUDGMENT hereinbelow:
The respondent herein purchased Electro Static
Precipitators (ESPs for short) from M/s. BHEL, Ranipet. In
terms of Notification No.78/1990-CE dated 20.3.1990, the
respondent was entitled to buy the said ESPs at concessional
rate of duty which was 5% ad valorem in contra distinction
to the normal rate of 15% ad valorem duty. This concession
rate becomes payable on the condition that an officer not
below the rank of Deputy Secretary in the Ministry of
Environment and Forests (MoEF) certifies that the goods
manufactured are meant for pollution control purpose. The
dispute arose as to whether the respondent was entitled for
concessional rate of duty or not. It paid the duty at
normal rate and fought for refund of the extra duty paid on
the ground that only concessional rate of duty at 5% could
have been charged. Respondent succeeded in its attempt
before the judicial fora. In view thereof, question of
refund of duty paid which was in the tune of Rs.27,66,970/-,
arose for consideration. The Revenue/appellant herein,
refused to release this refund and rejected the application
of the respondent in this behalf on the ground that the
respondent had passed on the burden and therefore refunding
the extra duty paid would result in unjust enrichment to the
respondent. Against that order the respondent filed the
appeal before the Commissioner of Central Excise (Appeal) JUDGMENT Chennai, who also dismissed the said appeal vide order dated
21.9.2000. Challenging that order the respondent filed
further appeal before the CESTAT. In this appeal the
respondent has succeeded as vide impugned judgment dated
17.6.2003, the CESTAT has allowed the appeal and set aside
the order of the Commissioner (Appeal) thereby directing the
refund of the additional duty paid by the respondent.
A perusal of the order of the CESTAT would reveal that
the CESTAT was grapping with the question as to whether the
doctrine of unjust enrichment will be applicable in case of
refund of duty paid on capital goods, which are used
captively. The CESTAT has taken note of certain judgments
including judgment of this Court in case of Union of India
vs. Solar Pesticides Pvt. Ltd. (2000 (2) SCC 705 which was
relied upon by the Revenue. However, the said judgment is
distinguished as not applicable in the instant case on the
ground that this Court in the said case was not concerned
with the issue of unjust enrichment in connection with
capital goods used captively.
It is in this backdrop the issue, as formulated in the
first para above, arises for consideration.
Since the judgment Solar Pesticides Pvt. Ltd. has
been distinguished and held not applicable to the facts of JUDGMENT the present case, we shall start our discussion by analysing
the said judgment. In the said case the question which was
formulated for decision was as under:
“Whether the doctrine of unjust enrichment
is applicable in respect of raw material
imported and consumed in the manufacture of
a final product is the question which arises
for consideration in these appeals.”
The Court in detail discussed the principle of unjust
enrichment. At the outset it took note of the Constitution
Bench judgment in Mafatlal Industries Ltd. and Others vs.
Union of India and Others (1997 (5) SCC 536) and the
principles laid down therein. Thereafter the position in
law on this aspect is succinctly summed up in paras 17 to 20
which are reproduced below:
“ 17. Section 11-B, along with Section 11-A, was
introduced by Customs, Central Excises and Salt
and Central Board of Revenue (Amendment) Act,
1978 with effect from 17-11-1980, a fact
mentioned hereinbefore. Until the enactment
and enforcement of Sections 11-A and 11-B, the
recovery and refund of excise duties was
governed by the Rules. Rule 11 which dealt with
claims for refund of duty, as in force prior to
6.8.1977 read as follows.
11. No refund of duties or charges
erroneously paid, unless claimed
within three months.-- No duties or
charges which have been paid or have
been adjusted in an account current
maintained with the Collector under
Rule 9, and of which repayment
wholly or in part is claimed in
consequence of the same having been
paid through inadvertence, error or misconstruction,JUDGMENTshall be refunded
unless the claimant makes an
application for such refund under
his signature and lodges it with the
proper officer within three months
from the date of such payment or
adjustment, as the case may be."
18. Rule 11 was amended with effect from 6-8-
1977 and it remained in force till the coming
into force of Section 11-B. Rule 11, as it
obtained during the said period, read as
follows:
11.Claim for refund of duty.--
(1) Any person claiming refund of any
duty paid by him may make an
application for refund of such duty
to the Assistant Collector of Central
Excise before the expiry of six
months from the date of payment of
duty.
Provided that the limitation of six
months shall not apply where any duty
has been paid under protest.
Explanation.-- Where any duty is paid
provisionally under these rules on
the basis of the value or the rate of
duty, the period of six months shall
be computed from the date on which
the duty is adjusted after final
determination of the value or the
rate of duty, as the case may be.
(2) If on receipt of any such
application the Assistant Collector
of Central Excise is satisfied that
the whole or any part of the duty
paid by the applicant should be
refunded to him, he may make an order
accordingly.
(3) Where as a result of any order
passed in appeal or revision under
the Act, refund of any duty becomes
due to any person, the proper officer
may refund the amount to such person
without his having to make any claim
in that behalf. JUDGMENT
(4) Save as otherwise provided by or
under these rules no claim for refund
of any duty shall be entertained.
Explanation. -- For the
purposes of this rule, `refund'
includes rebate referred to in
Rules 12 and 12A."
19. We may now set out Section 11-B, as amended by Act 40 of 1991. (Even subsequent to 1991, there have been certain minor amendments to the said section.) As it stands today, Section 11-B reads as follows (portions not necessary for the purposes of the present controversy
omitted):
"11B. Claim for refund of duty.-- (1)
Any person claiming refund of any duty
of excise may make an application for
refund of such duty to the Assistant
Commissioner of Central Excise before
the expiry of six months from the
relevant date in such form and manner
as may be prescribed and the
application shall be accompanied by
such documentary or other evidence
including the documents referred to in
section 12A as the applicant may
furnish to establish that the amount
of duty of excise in relation to which
such refund is claimed was collected
from, or paid by, him and the
incidence of such duty had not been
passed on by him to any other person:
Provided that where an
application for refund has been made
before the commencement of the Central
Excises and Customs Laws (Amendment)
Act, 1991, such application shall be
deemed to have been made under this
sub-section as amended by the said Act
and the same shall be dealt with in
accordance with the provisions of sub-
section (2) substituted by that Act:
Provided further that the
limitation of six months shall not
apply where any duty has been paid under protest.
(2) If, on receipt of any such
application, the Assistant
Commissioner of Central Excise is
satisfied that the whole or any part
of the duty of excise paid by the
applicant is refundable, he may make
an order accordingly and the amount so
determined shall be credited to the
Fund:
Provided that the amount of
duty of excise as determined by the
Assistant Commissioner of Central
Excise under the foregoing provisions
of this sub-section shall, instead of
being credited to the Fund, be paid to the applicant, if such amount is relatable to--
(a) rebate of duty of excise on excisable goods exported out of India or on excisable material used in the manufacture of goods which are exported out of India;
(b) unspent advance deposits lying in balance in the applicant's account current maintained with the Commissioner of Central excise;
(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;
(d) duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person;
(e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person;
(f) the duty of excise borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify: JUDGMENT Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.
(3) Notwithstanding anything to the contrary contained in any judgment, decree, order of direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder or any other law for the time being in force, no refund shall be made except as provided in
sub-section (2).
Explanation.-- For the purposes of
this section, ......... (B) `relevant
date' means --
(f) in any other case, the date of
payment of duty."
20. The said Amendment Act also amended Section 11-C, besides introducing Section 11-D and an entire new chapter, Chapter II-A. Since Section 11-C does not fall for our consideration, we need not refer to it. Section 11-D reads as follows:
11D. Duties of excise collected from
the buyer to be deposited with the
Central Government (1)
Notwithstanding anything to the
contrary contained in any order or
direction of the Appellate Tribunal
or any court or in any other
provision of this Act or the rules
made thereunder, every person who has
collected any amount from the buyer
of any goods in any manner as
representing duty of excise, shall
forthwith pay the amount so collected
to the credit of the Central
Government.
(2) The amount paid to the credit of
the Central Government under sub- sectionJUDGMENT(1) shall be adjusted against
duty of excise payable by the person
on the finalisation of assessment and
where any surplus is left after such
adjustment, the amount of such
surplus shall either be credited to
the Fund or, as the case may be,
refunded to the person who has borne
the incidence of such amount, in
accordance with the provisions of
section 11B and the relevant date for
making an application under that
section in such cases shall be the
date of the public notice to be
issued by the Assistant Commissioner
of Central Excise."
Two things which emerge from the reading of the
aforesaid judgment and need to be emphasized are as under:
(i) in attracting the principle of unjust enrichment it is
not only the actual burden which is passed on to the another
person that would be taken into consideration even if the
incident of such duty had not been passed on by him to any
other person;
(ii) the principle of unjust enrichment shall be applicable
in the case of captive consumption as well. According to
the Court the principle of unjust enrichment would be
applicable in both the circumstances.
This case, therefore, makes it clear that the
principle of unjust enrichment is applicable even when the
goods are used for captive consumption. No doubt, in the
said case the goods with which the Court was concerned was JUDGMENT raw material, imported and consumed in the manufacture of
the final product. The question is as to whether this
principle would be extended to capital goods also, as it was
in respect of raw material. This was left open in Mafatlal
Industries case. As it falls for determination in the
present case, we are addressing this issue. To answer this
issue, we may drawn some sustenance from the judgment of
this Court in the case of Indian Farmers Fertiliser
Coop.Ltd. vs. C.C.E.Ahmedabad (1996 (86) ELT 177 (S.C.).
Though that case is concerned with the exemption of Raw
Naptha was used to produce ammonia which is used in effluent
treatment plant. Notification No.187/61-CE provided for
exemption to such Raw Naptha as is used in the manufacture
of ammonia provided such ammonia is used elsewhere in the
manufacture of fertilizers. The question was as to whether
the ammonia used in the off-site plants is also ammonia
which is used elsewhere in the manufacture of fertilizers.
The court answered the question in the affirmative thereby
holding that exemption provided under Notification 187/61-CE
shall be available to the assessee.
However, what follows from the reading of the said
judgment is that if a particular material is used for
manufacture of a final product, that has to be treated as
the cost of the product. Insofar as cost of production is
concerned, it may include capital goods which are a part of JUDGMENT fixed cost as well as raw material which are a part of
variable cost. Both are the components which come into
costing of a particular product. Therefore it cannot be
said that the principle laid down by the Court in Solar
Pesticides would not extend to capital goods which are used
in the manufacture of a product and have gone into the
costing of the goods. In order to come out of the
applicability of the doctrine of unjust enrichment, it
therefor becomes necessary for the assessee to demonstrate
that in the costing of the particular product, the cost of
capital goods was not taken into consideration. We, thus,
are of the opinion that the view taken by the Tribunal is
not correct in law.
We also find from the reading of the judgment of
Tribunal that the Tribunal has observed that capital goods
viz. ESPs have been only used captively for pollution
control purpose and the same is not used for processing or
manufacturing of any final product and therefore there is no
question of passing on the burden of duty to any one. These
observations are clearly erroneous in law in view of the
judgment of this Court in Indian Farmers Fertilisers COOP.
Ltd.
Accordingly, the judgment of the Tribunal is set
aside. However, in the facts of the present case we are of JUDGMENT the opinion that one opportunity should be granted to the
respondent to demonstrate to the assessing authority that
the cost of the capital goods was not included in the
costing of the machinery. Only if the respondent is able to
prove the aforesaid aspect it shall be entitled to the
refund and not otherwise.
The appeal is allowed in the above terms.
(A.K. SIKRI)
(ROHINTON FALI NARIMAN) New Delhi; Date: 13.3.2015.
Civil Appeal No(s). 8359/2003
COMMNR. OF CENTRAL EXCISE, CHENNAI Appellant(s)
VERSUS
M/S. GRASIM INDUSTRIES Respondent(s)
(with appln. (s) for ex-parte stay and office report)
Date : 13/03/2015 This appeal was called on for hearing today.
CORAM :
For Appellant(s) Mr. Ashok Panda,Sr.Adv.
Mr. Arijit Prasad,Adv.(Argued by)
Ms. Sushma Manchanda,Adv.
Mr. B. Krishna Prasad,Adv.
For Respondent(s) Mr. A.K.Chitale,Sr.Adv.
Mr. Sumit Kumar Sharma,Adv.
Mr. Niraj Sharma,Adv.
UPON hearing the counsel the Court made the following
O R D E R
The appeal is allowed in terms of the signed order.