CX - Sum claimed as refund is not shown as 'receivables' in books and same were expensed out in P&L a/c - Claim hit by unjust enrichment: CESTAT
By TIOL News Service
MUMBAI, APR 23, 2014 : THIS is a Revenue appeal, and for a change, they have won!
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The respondents are manufacturers of blankets, shawls and woolen fabrics from yarn of waste wool. Yarn of waste wool is exempt from duty, if captively consumed vide Notification No. 67/95-CE dated 16/03/1995, subject to the condition that the manufacturer does not avail CENVAT credit of the duty paid on inputs used in the manufacture of such yarn of waste wool.
During the period 1/01/2002 to 30/06/2002, the respondent consumed inputs such as rags and synthetic waste apart from polyester tops and took credit of the excise duty paid on synthetic waste and polyester tops. Using such cenvatted material, they manufactured yarn of waste wool which was in-turn consumed in the manufacture of blankets, shawls and woolen fabrics. On the yarn so manufactured, initially they paid duty.
Subsequently, they filed a refund claim for the refund of duty of Rs.76,61,460/- being the amount of duty paid on yarn. The claim was filed with the department on 12/08/2012. However, subsequently on 24/08/2002 the respondent claimed to have reversed CENVAT credit taken on inputs used in the manufacture of waste wool amounting to Rs.3,12,569/-.
The said claim was rejected by the adjudicating authority on two grounds. The first ground was that inasmuch as the reversal was not done at the time of clearance of the yarn and the duty liability was discharged on the yarn, the respondent did not follow the provisions of Rule 6(3)(a) of CCR, 2001. The second ground taken was that the respondent did not lead evidence to prove that they have crossed the bar of unjust enrichment.
The lower appellate authority allowed the appeal of the assessee by observing thus -
+ The assessee had sold the finished products i.e., blankets, shawls etc. below cost as certified by the Chartered Accountant and, therefore, the respondent could not have passed on the incidence of duty burden to the buyers and, thus there was no unjust enrichment;
+ The reversal of credit taken on the inputs, though at a later date, is a reasonable compliance to Notification No. 67/95-CE and, therefore, the respondent is eligible for the benefit of exemption under Notification 67/95-CE.
Aggrieved, Revenue is in appeal before the CESTAT.
The grounds of rejection mentioned by the adjudicating authority were reiterated and support was also placed on the following decisions to submit that merely because the cost of the finished products remained constant both during the period of refund as well as afterwards, that by itself cannot lead to the conclusion that there is non-transfer of duty incidence to the buyers; Chartered Accountant certificate is not a conclusive proof of having not passed on incidence of duty to the customers - SahakariKhandUdyogMandal Ltd. 2005-TIOL-48-SC-CX-LB; Mafatlal Industries Ltd. vs. Union of India 2002-TIOL-54-SC-CX; Allied Photographics India Ltd. 2004-TIOL-27-SC-CX; Crompton Greaves Ltd. 2011-TIOL-583-CESTAT-MUM.
The respondent assessee placed reliance on the decision in Godavari Sugar Mills Ltd. 2007-TIOL-602-CESTAT-BANG to submit that subsequent reversal of credit taken cannot be a ground to deny the exemption notification 67/95-CE. In the matter of unjust enrichment the apex court decision in Panihati Rubber Ltd. 2006-TIOL-115-SC-CX is relied upon.
During the course of arguments the respondent was directed by the Bench to lead evidence as to how the refund claim due from the department was reflected in the books of accounts and vide letter dated 14/02/2014 the respondent confirmed that the amounts claimed as refund were not shown as ‘receivables' in the books of accounts and the same were expensed out in the profit and loss account.
The Bench inter alia observed -
++ It is on record that the respondent did not reverse the credit taken at the time of captive consumption of yarn. Credit was not reversed even at the time of filing of the refund claim in August, 2002 and was claimed to have been made on 24/08/2002. From the records submitted by the respondent before the adjudicating authority, the respondent has claimed that they have reversed an amount of Rs.3,12,569/- in respect of the manufacture of exempted products during the period November 2001 to June 2002. The refund claim in the present case pertained to the period 01/06/2001 to 30/06/2002. Thus, no evidence has been led by the respondent that he had reversed the credit in respect of duty paid on inputs on which credit has been taken which was used in the manufacture of exempted final products for the whole period.
++ Except for the costing statement of the product which indicates that they have sold the final products below cost, there is no evidence to indicate that the incidence of duty has been borne by the respondent. In the statutory books of accounts and the balance sheets maintained by the respondent, the amount claimed as refund is not shown as ‘claims receivable' from the department. The respondent has clearly admitted to the fact that the said amount of refund claimed was treated as 'expenditure' and taken to the profit & loss account. If the amount is taken to the profit and loss account, it signifies that the respondent has adjusted the amount in their income while arriving at the net profits thereby implying that the incidence has been passed on to the third parties. It is a settled position in law that all claims of refund under Section 11B of the Act has to be granted after satisfying that the bar of unjust enrichment has been crossed and the incidence has been borne by the respondent themselves. Merely because the respondent sells the goods below cost, it does not mean that the incidence of duty has been passed on.
After extracting paragraphs 91 & 48 of the apex Court decisions in Mafatlal Industries Ltd., and Sahakari Khand Udyog Mandal Ltd. respectively and relying on the SC decision in Allied Photographic India Ltd. and Tribunal decision in Crompton Greaves Ltd., the Bench concluded that the respondent had not discharged the statutory obligation cast on it and, therefore, the order of the lower appellate authority is clearly unsustainable in law.
The Revenue appeal was, therefore, allowed.
(See 2014-TIOL-617-CESTAT-MUM)
