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Commnr. of Central Excise, Chennai-III Versus Grasim Industries

2015 (4) TMI 389 - SUPREME COURT

Refund claim - doctrine of unjust enrichment - Capital goods - Captive consumption - Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product - Held that:- principle of unjust enrichment is applicable even when the goods are used for captive consumption. - 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 conc .....

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hment, 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.

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 .....

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ENT A. K. Sikri, J. 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, 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 .....

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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 ₹ 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 b .....

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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 w .....

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all 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. a .....

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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 mis .....

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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 o .....

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half. (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 controvers .....

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cise 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 subsection (2) .....

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ner 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 d .....

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: 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 .....

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h 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 subsection (1) shall .....

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ommissioner 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. A .....

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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 prov .....

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