2025 (5) TMI 797 - AT - Central Excise

Refund of excess excise duty paid pursuant to finalization of provisional assessments for the period September 1998 to March 2005 - Principles of unjust enrichment - HELD THAT - The refund order dated 07/5/2012 that this OIA was accepted by the Committee of Commissioners as legal and proper and no further appeal was preferred by the Revenue before the Tribunal. Therefore for all the practical purposes the OIA dated 30/11/2011 holding that the appellant is eligible for refund of the amount along with interest has reached finality. Once the findings and rulings therein have not been challenged by the Revenue the directions contained therein are required to be followed up by the lower authorities. Therefore in terms of this OIA the appellant was required to be paid the interest on the refund amount. It is found that in spite of such clear directions in the OIA which has also been accepted by the Committee of Commissioner both the Adjudicating Authority and Commissioner (Appeals) (in the impugned order) have completely ignored the directions and have once again gone on some other details about the delay from the side of the appellant in filing of documents so as to hold that interest cannot be paid. Since the OIA had reached finality the lower authorities are precluded from taking some other stand to somehow or the other deny the legally payable interest to the appellant which is not appreciated by the Tribunal. Such an act by the Revenue has not only caused inconvenience to the appellant but has made the Tribunal spend precious time to go through all the details so as to restore the rightful remedy to the appellant. Also the directions contained in the OIA dated 30/11/2011 are required to be implemented with respect to the interest payable to the appellant. Conclusion - The excise duty has been collected improperly and without authority of law - in violation of Article 265 of the Constitution. The refund claim of Rs. 2, 37, 28, 797/- is proper and admissible and the appellant is entitled to receive the refund amount along with interest under Section 11BB of the Central Excise Act. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(a) Whether the appellant is entitled to refund of excess excise duty amounting to Rs. 2,37,28,797/- paid pursuant to finalization of provisional assessments for the period September 1998 to March 2005.

(b) Whether the doctrine of unjust enrichment applies to deny refund where the appellant has issued credit notes evidencing that discounts inclusive of duty have been passed on to buyers, thereby negating any incidence of duty being passed on.

(c) Whether the lower authority was justified in rejecting the refund claim without issuing a Show Cause Notice (SCN) or adducing cogent evidence to disprove the appellant's claim.

(d) Whether the appellant is entitled to interest on the refund amount under Section 11BB of the Central Excise Act, 1944, considering the delay caused by the department in sanctioning the refund.

(e) Whether the lower authorities' disregard of appellate orders and case law constitutes a violation of judicial discipline and causes undue harassment to the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Entitlement to Refund of Excess Excise Duty

Legal Framework and Precedents: The refund claim arises from finalization of provisional assessments under the Central Excise Act, 1944. Section 11B and Section 11BB provide for refund of excess duty paid and payment of interest thereon. The Hon'ble Tribunal and High Courts have held that if excess duty is paid, refund is admissible provided the incidence of duty has not been passed on to the buyer.

Court's Interpretation and Reasoning: The Commissioner (Appeals) and subsequently the Tribunal have held that the appellant paid excess excise duty which was not passed on to the buyers. The appellant issued credit notes to buyers reflecting discounts inclusive of duty, proving that the reduced price and duty were realized from buyers. No duty was pocketed unjustly by the appellant.

Key Evidence and Findings: Credit notes issued by the appellant were accepted as cogent and credible evidence that discounts inclusive of duty were passed on. The lower authority failed to produce any evidence to the contrary or to dispute the credit notes. The terms of sale were ordinary commercial transactions at arm's length.

Application of Law to Facts: Given the credit notes and absence of contrary evidence, the Tribunal applied the principle that refund is due where the incidence of duty has not been passed on. The lower authority's rejection of refund was found to be unreasonable and legally unsustainable.

Treatment of Competing Arguments: The lower authority argued unjust enrichment and non-passage of discounts to buyers by stockists/indentors. The Tribunal rejected this, noting failure to examine facts properly and absence of evidence to support such claims.

Conclusion: The appellant is entitled to refund of Rs. 2,37,28,797/- along with applicable interest.

(b) Applicability of Doctrine of Unjust Enrichment

Legal Framework and Precedents: The doctrine of unjust enrichment prevents refund where the taxpayer has passed on the incidence of duty to the buyer and has thus been unjustly enriched by the refund. However, the Hon'ble High Court of Punjab & Haryana in CCE vs Vardhman Industries Ltd. held that if it is proved that the incidence of tax has not been passed on to the consumer, refund must be granted to the assessee and diversion of such amount to Consumer Welfare Fund is unconstitutional under Article 265 of the Constitution.

Court's Interpretation and Reasoning: The Tribunal relied on this precedent and other case law to hold that since the appellant issued credit notes evidencing discounts inclusive of duty, the incidence of duty was not passed on. Therefore, the doctrine of unjust enrichment did not apply.

Key Evidence and Findings: Absence of any evidence from the department to disprove the credit notes or the appellant's claim that discounts were passed on. The lower authority's findings were described as egregious and unreasonable.

Application of Law to Facts: The Tribunal applied the principle that if no duty is collected from buyers on discounted amounts, refund cannot be denied on unjust enrichment grounds.

Treatment of Competing Arguments: The department's argument that discounts were not passed on to ultimate buyers was rejected due to lack of evidence and improper examination of facts.

Conclusion: The doctrine of unjust enrichment is not attracted; refund is admissible.

(c) Procedural and Evidentiary Lapses by Lower Authority

Legal Framework and Precedents: The principles of natural justice require issuance of SCN before rejecting refund claims. The burden of proof to disprove appellant's claim lies on the department. Judicial discipline mandates subordinate authorities to follow appellate orders unless stayed or set aside by competent courts.

Court's Interpretation and Reasoning: The Tribunal observed that no SCN was issued to the appellant before rejecting the refund claim. The lower authority failed to discharge the burden of proof. The lower authority's order was described as lacking diligence and application of mind, and violating judicial discipline.

Key Evidence and Findings: The Commissioner (Appeals) and Tribunal found the lower authority's order to be rash, impetuous and legally unsustainable. The lower authority ignored binding appellate decisions and case law.

Application of Law to Facts: The Tribunal emphasized that failure to follow appellate orders and ignoring legal precedents causes undue harassment and violates judicial discipline. The Supreme Court's ruling in U.O.I. vs Kamlakshi Finance Corporation Ltd. was cited to reinforce this principle.

Treatment of Competing Arguments: The department's refusal to follow appellate orders on grounds of non-acceptance was rejected as untenable.

Conclusion: The impugned order rejecting refund without proper procedure and evidence is quashed.

(d) Entitlement to Interest on Refund

Legal Framework and Precedents: Section 11BB of the Central Excise Act mandates payment of interest on delayed refunds. Delay caused by the department without reasonable cause entitles the appellant to interest.

Court's Interpretation and Reasoning: The Commissioner (Appeals) had held interest payable on refund amount due to delay by department. However, the Adjudicating Authority and Commissioner (Appeals) in a subsequent order disallowed interest on grounds of delay by appellant in filing documents. The Tribunal found this contradictory to the earlier final order and held that the lower authorities were precluded from taking a contrary stand once the appellate order reached finality.

Key Evidence and Findings: The final assessment was not challenged by Revenue; the refund order and appellate decision were accepted by the Committee of Commissioners; no appeal was preferred by Revenue thereafter.

Application of Law to Facts: The Tribunal held that the directions of the appellate order regarding interest payment are binding and must be implemented. The lower authorities' attempt to deny interest on new grounds was improper.

Treatment of Competing Arguments: The department's reliance on appellant's delay was rejected as it conflicted with binding appellate orders.

Conclusion: Interest on the refund amount is payable and the order denying it is set aside. The Adjudicating Authority is directed to verify and pay interest within three months.

(e) Violation of Judicial Discipline and Harassment of Appellant

Legal Framework and Precedents: The Supreme Court has emphasized the importance of judicial discipline requiring subordinate authorities to comply with appellate orders to avoid undue harassment and chaos in tax administration.

Court's Interpretation and Reasoning: The Tribunal severely criticized the lower authority for wantonly disregarding binding appellate decisions and case law. It observed that such conduct causes unnecessary hardship to honest taxpayers and undermines public confidence in the administration.

Key Evidence and Findings: The lower authority's repeated refusal to sanction refund and interest despite clear appellate directions is noted as a serious infraction of law and judicial discipline.

Application of Law to Facts: The Tribunal invoked the principle that revenue authorities must act in good faith and follow judicial pronouncements to maintain public trust and ensure justice.

Treatment of Competing Arguments: The department's attitude of denying legally due refunds and interest was condemned as unhealthy and detrimental to tax administration.

Conclusion: The lower authority is admonished and directed to comply strictly with appellate orders and legal principles.

3. SIGNIFICANT HOLDINGS

"Refund - Unjust enrichment - Application of - Finalization of provisional assessment resulting in refund being due to assessee. Once it is proved that incidence of tax has not been passed on to consumer, then refund by credit notes has to go back to assessee only - In such a case principle of unjust enrichment is not attracted because duty has not been collected and pocketed by assessee - diverting such an amount to Consumer Welfare Fund is unconstitutional under Article 265 of Constitution of India - Section 11B of Central Excise Act, 1944."

"The terms and conditions of sale applicable in this case are not exceptional, being ordinarily applicable in such commercial transactions, at arm's length. The onus of proof to prove otherwise falls squarely upon the Lower Authority which he has failed to discharge."

"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not 'acceptable' to the department in itself an objectionable phrase and is the subject-matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent Court."

"The excise duty has been collected improperly and without authority of law - in violation of Article 265 of the Constitution. This sum, due to the Appellant, legally, cannot be retained and not returned to them, along with suitable recompense for the damages and grievous injury suffered by them in this manner."

The Tribunal conclusively held that the refund claim of Rs. 2,37,28,797/- is proper and admissible, and the appellant is entitled to receive the refund amount along with interest under Section 11BB of the Central Excise Act. The impugned order rejecting the refund and interest claims is quashed and set aside. The lower authorities are directed to comply with the appellate order and pay the refund and interest within three months.

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