By TIOL News Service

NEW DELHI, AUG 02, 2013: THE appellant's factory was visited by the jurisdictional Central Excise Officers and they found shortage of finished goods and raw materials. During the investigations, the appellants deposited Rs 18,75,000/-. The case was settled by the Settlement Commission and after settlement of the case, an unappropriated amount of Rs 10,34,880/- remained with the department. The appellant filed a refund claim for the said amount.

The refund claim was rejected by the jurisdictional Deputy Commissioner on the ground of unjust enrichment as the amount had been shown as Revenue expense in the profit and loss account for that year as a result of which this amount would result in increased cost of the product and higher price and thus refunding the amount would result in unjust enrichment. On appeal being filed against this order before the Commissioner (Appeals), the same was dismissed by the Commissioner (Appeals). Hence this appeal.

After hearing both sides, the Member (T) held:

The provisions of Section 11B would be applicable to a refund claim only if the claim is for refund of excess Central Excise duty paid. The bar of unjust enrichment is prescribed in 1st proviso to Section 11B (2). The provisions of Section 11B and hence the principle of unjust enrichment would not be applicable to the refund claims of amounts which are not duty - like refund of excess fine or penalty or refund of pre-deposit paid under section 35 F on the direction of the Appellate authority where subsequently the assessee's appeal is allowed. The refund amount is not even duty and hence there is no question of applying the provisions of Section 11B and the principle of unjust enrichment for its refund. This amount should have been refunded without even refund application.

Even if this amount is treated as duty and section 11B is held as applicable, the unjust enrichment principle would not be applicable. Under the 1st proviso to section 11B (2), the refund is payable to a manufacturer only if the incidence of excise duty whose refund is claimed has not been passed on to another person. In this case, no presumption can be made that the amount of Rs.10,34,880/- where refund is sought, had been recovered from the customers as increased cost and hence increased price. The burden would be on the Department to prove that this amount had been recovered from the buyers as increased price.

But, the Member (J) held:

The amount in dispute did not appear on the balance sheet in the asset side for recovery from the Department. Once there is no such disclosure of recovery from the Department and exhibited by Balance Sheet, definitely the amount in question was adjusted in the cost of manufacture through profit and loss account as excise duty as has been done by appellant in this case and admitted by it as well as absorbed by sale value. Thus the amount sought to be refunded by appellant was already recovered by him through sale. Therefore, it has no locus standi to seek refund from Revenue to be unjustly enriched at the cost of Revenue. The amount in dispute having been a constituent of the cost of manufacture, it cannot be said that such cost was not absorbed by sale price. This is the basic matching principle of accounting which is followed by manufacturing concerns depicting the accounting elements in the debit side of the profit and loss account to represent cost.

In view of the difference in opinion, the Bench directed the Registry to place the matter before the President.

(See 2013-TIOL-1164-CESTAT-DEL)