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Application of principle of unjust enrichment in case of refund - Draft Circular

News and Press Release - Dated:- 10-8-2016 - Draft Circular / / 2016-Service Tax F. No. 137/29/2016-Service Tax Government of India Ministry of Finance Department of Revenue Central Board of Excise and Customs Service Tax Wing Dated August 2016 To All Principal Chief Commissioners of Central Excise All Chief Commissioners of Central Excise/ Service Tax Principal Directors General of Service Tax/Central Excise Intelligence/Systems Director General of Audit All Principal Commissioners of Central E .....

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rms of Section 12B of the CEA. The provisions of Section 11B and 12B of CEA have been made applicable to service tax matters also in terms of the provisions contained in Section 83 of the Chapter V of the Finance Act, 1994. Similar provisions are also there in the Customs Act, 1962 in sections 27, 28C and 28D . The succeeding paragraphs of this circular will refer to the relevant sections in the Central Excise Act, 1944. The contents of these paragraphs will apply , mutatis mutandis , to refunds .....

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ence of duty has been passed on by the person who has paid the duty. If duty is found not payable otherwise but the incidence has been passed on to some other person then excess amount of duty or interest is liable to be credited to Consumer Welfare Fund established under Section 12C of the CEA. This presumption however is a rebuttable presumption as the incidence of indirect taxes on goods and services is expected to be borne by the ultimate consumer only. 3.1 It has been observed that there ha .....

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which are common to all the situations covered in this circular are essentially two: 3.2.1 Balance Sheet of the applicant for the financial year in which the duty amount claimed as refund has been paid or credit note has been issued, should indicate the refund amount as Duty Receivable under the heading Current Assets . (It does not matter whether the differential duty/tax amount is reflected in the Duty Receivable account, invoice wise or a consolidated journal entry is passed at the end of th .....

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ther details with respect to the recording of transactions in the books of account, will be indicated in succeeding paragraphs, wherever required. 3.3 The certificates indicated as part of the documentary requirements would be self-certified by the applicants in all cases where the duty amount being claimed as refund amount is ₹ 25 lakhs or less. In cases, however, where the duty amount being claimed as refund is more than ₹ 25 lakhs, the certificates would be required to be certifie .....

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puts / input services that are used in the taxable activity as the test is whether the incidence of the duty / tax has been passed on or not and not whether the actual duty / tax has been passed on or not. The refund of duty / tax paid by the recipient to the manufacturer / service provider at the time of receipt of inputs / input services may arise in cases where it transpires subsequently that the duty / tax was not payable by the manufacturer / service provider. The manufacturer / service pro .....

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s, at the time of purchase, the purchase account would be debited with the value exclusive of duty. The recipient may transfer duty component to Input Tax Credit account if he desires to avail CENVAT CREDIT. Thereafter on submission of refund application, the Input Tax Credit account would be reversed by an amount equal to the refund amount, if he has availed CENVAT CREDIT and the said amount would be credited to Duty Receivable account. 4.2 The accounting requirements as indicated in paragraph .....

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ice wise for each purchase otherwise it would create complications as the recording of the purchase value inclusive of duty would mean that the said duty has become part of cost and, therefore, indirectly the incidence of duty has been passed on. Alternatively, the applicant may credit the purchase account at the end of the year with the amount of duty proposed to be claimed as refund and debit the same in the Duty Receivable account. 4.3 The documentary requirements are as follows: 4.3.1 Docume .....

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. 4.4 In the case of refund of duty relating to capital goods, in addition to the requirements indicated in paragraphs 4.1 to 4.3 above, the issue relating to depreciation will also require examination. The amount of duty paid on capital goods should not be availed as CENVAT Credit. Further in terms of sub-rule (4) of rule 4 of the CENVAT Credit Rules, 2004, the amount of duty paid on capital goods should not be claimed as depreciation under the provisions of Income Tax Act, 1961. In other words .....

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ices/ capital goods. Therefore as per the accounting principles the purchases would have been expensed out in the profit & loss account of the same financial year and it would be assumed that the incidence of duty has been passed on. But in such scenarios if the recipient reverses the CENVAT CREDIT in the financial year in which he claims the duty/tax amount as refund , this will satisfy the test of the principle of unjust enrichment . This is based on an application of the Supreme Court jud .....

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es are issued for full value and duty / tax is paid on the same accordingly. It is only at the end of the financial year that the amount of discount/incentives is adjusted according to the terms of contract. Normally, such transactions are settled through the mechanism of credit/ debit note whereby the supplier credits the account of the buyer in his books of account with the amount of discount/incentives given while the purchaser debits the account of supplier in his books of accounts with the .....

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ipient that he has reduced his CENVAT CREDIT on account of differential amount;( Annexure-B) - Details of Credit/ Debit note issued clearly indicating the differential duty amount; ( Annexure- D) 5.2 Finalisation of provisional assessment 5.2.1 The assessee may be eligible for refund on finalisation of provisional assessment under the provisions of Rule 7 of the Central Excise Rules 2002. 5.2.2 The accounting requirements as indicated in paragraph 3.2 will suffice. 5.2.3 The documentary requirem .....

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determined by the department is contested by the assessee (tax liability so determined being higher than the tax liability as self-assessed) but duty was paid at higher rate in accordance with such determination. The assessee may issue invoices for future transactions, if issue is recurring, in such a way that departmental assessment is followed and thus recovers higher amount from its customers; or he may continue to bear the extra burden himself and continue to issue invoices as before. If the .....

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tes regarding non recovery of the differential duty amount as shown in the invoices and non availment of Cenvat credit will be necessary only if the invoice / supplementary invoices reflects the differential duty amount. 6.0 REFUND OF PRE DEPOSIT 6.1 Section 35F of the CEA provides for the pre-deposit of a certain amount of duty before the filing of an appeal before the appellate authority by the assessee. In the eventuality of an order or judgement in favour of the assessee, he becomes eligible .....

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ers are requested to inform assessees and departmental officers about the contents of this circular ( ) ( ) Annexure -A( for manufacturer/service provider) Certificate for non-passing of incidence of duty/tax M/s...........(name of the applicant) /We* has / have* claimed an amount of Central Excise duty/Service Tax of Rs. ..................as refund vide application dated............. We have verified the books of accounts and it is certified that / it is certified that *: (i) incidence of Centr .....

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REDIT of amount of Central Excise duty/Service tax paid to manufacturer/service provider on inputs / input services / capital goods was availed but has been reversed at the time of filing the claim for refund *. (vi) the amount of duty/tax amount claimed as refund has been shown as Duty Receivable under the heading Current Assets in the Balance Sheets for the financial year (s) - to-. (vii) the amount of duty / tax claimed as refund was actually paid by the applicant / manufacturer / service pro .....

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