Case Law Details
Commissioner of GST & Central Excise Vs Royal Enfield (CESTAT Chennai)
CESTAT Chennai held that unjust enrichment is not applicable to refund consequent upon finalization of provisional assessment under Rule 9B of Central Excise Rules, 1944.
Facts- The issue relates to refund of duty paid on After-Sales Services, Pre-Delivery Inspection charges, Automobile Cess. It has been argued that the claim of refund is hit by the bar of unjust enrichment and therefore the Commissioner (Appeals) ought not to have held that the respondent is eligible for refund of duty paid on these charges on finalization of provisional assessment. It was also argued that amount has to be treated as cum duty under Section 11B and therefore the respondent has to establish that the duty has not been passed on to another.
Conclusion- Prior to 25.06.1999, the bar of unjust enrichment was not applicable to a refund arising out of finalisation of provisional assessment. In the case of CCE Mumbai-II Vs Allied Photographics India Ltd. – 2004 (166) ELT 3 (SC) it was held that unjust enrichment is not applicable to refund consequent upon finalization of provisional assessment under Rule 9B of Central Excise Rules, 1944. We therefore find that the view taken by the Commissioner (Appeals) that the respondent is eligible for refund does not require any interference.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The above appeal is filed by the Department aggrieved by the order passed by Commissioner (Appeals) dated 01.12.2011. Brief facts of the case are that the respondents, M/s. Royal Enfield are engaged in the manufacture of motor vehicles and parts falling under Chapter Heading 8711.3020 of Central Excise Tariff Act, 1985. The appeal has chequered history and the chronological events are as below :
(i) Provisional assessment of the respondent for the period 31.12.1983 to 30.06.2000 was finalized vide Order-in-Original No.5/2006 dt. 23.02.2006 wherein a demand of Rs.28,09,480/- was confirmed along with interest.
(ii) Aggrieved by the above order, respondents preferred an appeal before the Commissioner (Appeals) and vide OIA No.83/2006 (M-I) dated 28.09.2006, the respondent’s appeal was dismissed for non-payment of predeposit.
(iii) Respondents preferred an appeal before the Tribunal and vide Final Order No.21/2007 dated 08.01.2007, the matter was remanded to the Commissioner (Appeals) to decide the case on merits.
(iv) Based on such remand directions of the Tribunal, the Commissioner (Appeals) considered the appeal on merits along with the appeal filed by the Department against the very same OIO No.5/2006 dated 23.02.2006. Commissioner (Appeals) passed OIA No.65/2007 & 10/2007 both dt. 31.10.2007. By this order, the Commissioner (Appeals) remanded both the appeals to the adjudicating authority for fresh adjudication.
(v) Against such remand order, the respondents preferred an appeal before Tribunal and by Final Order No.586/2008 dated 17.06.2008 the Tribunal remanded the matter to the original authority to pass fresh speaking order. While remanding, the Tribunal directed to issue fresh show cause notice and to finalize the provisional assessment.
(vi) As per the remand order, the adjudicating authority issued show cause notice dt. 07.10.2008 with corrigendum dt. 20.10.2008 proposing to demand Rs.3,14,69,952/- (Rs.47,18,567/- towards packing charges and Rs.2,67,51,385/- towards post-manufacturing expenses).
(vii) Aggrieved by the issue of show cause notice, the respondents preferred an ROM application along with stay application before the Tribunal. These applications were dismissed vide Misc.Order No.23, 24/2009 dt. 15.01.2009.
(viii) Thereafter, the original authority passed order finalizing the provisional assessment and confirmed the demand of above amounts along with interest under Section 11AB of the Central Excise Act, 1944 vide OIO NO.14/2009 dt. 22.06.2009 for the period 30.12.1983 to 30.06.2000.
(ix) Aggrieved by the order, the respondents preferred an appeal before the Commissioner (Appeals) and vide OIA which is the impugned order in this appeal, it was held as under:
(a) The duty demand in respect of post-manufacturing expenses (PME) was limited to Rs.12,01,418/-.
(b) Duty on packing charges is payable only for the period from 01.04.1997 to 30.06.2000 and thus the duty was limited to Rs.16,08,062/-.
(c) On finalisation of assessment, respondent is eligible for refund of the duty paid on Aftersales services charges, Pre-Delivery Inspection charges, Automobile cess for the period upto 25.02.2009.
(d) It was also held that interest is payable on the amounts so finally determined.
2. The Department is now before the Tribunal aggrieved by the order of the Commissioner (Appeals) who had modified the order passed by the original authority by reducing the duty liability and also holding that the respondent is eligible for refund.
3. The Ld. A.R Shri R.Rajaraman appeared and argued for the Department. He submitted that the first ground of appeal is with regard to modifying and reducing the demand raised in respect of packing charges. Section 4 of Central Excise Act, 1944 was amended on 28.09.1996 whereby ‘depot’ was also included in the definition of ‘place of removal’. The Commissioner (Appeals) has analysed this issue and held that the period of dispute falls prior to 28.09.1996 and after 28.09.1996. It is submitted by Ld. A.R that this view taken by the Commissioner (Appeals) is erroneous as the amendment in the definition of ‘place of removal’ which included ‘depot’ also as place of removal is of no consequence for inclusion of packing charges in the assessable value. In the instant case, the packing was done within the factory. As the packing expenses was incurred by the appellant within the factory it has to be included in the assessable value even for the period prior to the amendment of the definition of ‘place of removal’.
4. Further, part of the demand on packing charges for the period from 30.12.1983 to 31.03.1997 has been set aside for the reason that as per Order No.9/1997, the demand was dropped by the adjudicating authority and the department had not taken up the matter in appeal. It was observed by the Commissioner (Appeals) that the issue for this period has attained finality and therefore, the demand cannot sustain. Ld.A.R argued that, this finding of Commissioner (Appeals) is not proper due to the reason that though the said order was accepted by the Department, it cannot be binding on the adjudicating authority in de novo proceedings as the Tribunal had remanded the matter by setting aside the orders of both the authorities. The matter for the entire period from 1983 to 2000 was considered afresh. The Commissioner (Appeals) having accepted that packing charges have to be included in the assessable value and duty has to be paid by the respondents should not have limited the demand to the period 01.04.1997 to 30.06.2000.
5. The second issue is with regard to the duty demand on Post-Manufacturing Expenses. The original authority had noted that there were discrepancies in the trial balance as well as the Chartered Accountant certificate produced by the respondents. However, the Commissioner (Appeals) has accepted the C.A certificate to hold that the respondents have established the quantum of post-manufacturing expenses. This observation of the Commissioner (Appeals) is incorrect.
6. The third issue is with regard to refund of duty paid on After sales services, Pre-delivery inspection charges and Automobile cess. The Commissioner (Appeals) has held that the period being prior to 25.06.1999, the doctrine of unjust enrichment will not apply for provisional assessment. The respondents had paid the duty under protest and therefore cannot be treated as provisional assessment. The respondent is therefore not eligible for refund as the amount claimed as refund is hit by the doctrine of unjust enrichment. He prayed that the Department appeal may be allowed.
7. Counsel Shri Raghavan Ramabadran appeared and argued for the respondents. The Ld. Counsel reiterated the grounds in the cross objections. On the issue of whether packing charges have to be included in the assessable value, the Ld. Counsel explained that during the impugned period, the motor cycles were not sold in packed condition either to dealer or to the ultimate buyer. Packing of the motorcycles was undertaken only for long distance transportation. The motorcycles were packed at the time of clearance from the factory to withstand the rigors of transportation from factory to outstation depots. The packing was done to prevent damage to motorcycles during loading, transport upto depots and unloading at depots. The packing was removed at depots before sale of motorcycle to the dealers. Motorcycles were not sold and delivered in packed condition. Upto 1992, the packing charges were included in the assessable value and duty was paid by the respondents. From 1992 to 2000, packing charges were not included in the assessable value since the packing was secondary only. In 1997, proceedings were initiated against the respondents to include the cost of packing in the assessable value. After adjudication the demand was dropped. The adjudicating authority in his order held that packing charges are not includible in the assessable value of motor cycles as these packings were only secondary packings. The judgement of the Hon’ble Apex Court rendered in various cases that packing charges which is absolutely necessary to put the product into the market alone is includible in the value was relied upon. This order was accepted by the department and no appeal has been filed. The said order actually covered the period from 01.05.1996 to 31.03.1997. The same has attained finality. The Ld. Counsel argued that the demand however is set aside by the Commissioner (Appeals) for the period from 30.12.1983 to 31.03.1997 and has to be sustained.
8. In regard to the demand of duty on post-manufacturing expenses, the Ld. counsel submitted that respondents had produced necessary documents along with C.A certificate before the authorities below. The adjudicating authority refused to accept the C.A certificate so as to allow the benefit of PME abatements. The adjudicating authority observed that the appellant has not furnished necessary documents to ensure correctness of PME abatements, and that there was difference in the figures of PME as given in C.A certificate and Trial balance. Ld. counsel submitted that the respondent had furnished annexure along with the reply to the show cause notice giving the reconciliation of the figures of PME. The respondents incurred expenditure on transportation of vehicles from factory to dealer situated in Chennai and factory to depots situated all over India and from depots to dealers. The cost of transit insurance thereon was also incurred by the respondents. In certain States of India, the State Government Authorities imposed Additional Sales Tax known as Turnover Tax which was also paid by the respondents. As the actual quantum of expenditure on outward freight, transit insurance and turnover tax would be known at the end of the year, the respondents sought provisional deduction of that expenditure at tentative rates in the price lists under the provisions of Rule 173C. These price lists were provisionally approved by the jurisdictional Assistant Commissioner of Central Excise. Motor cycles were cleared at the provisional value, on payment of duty. During the material period, the price lists and RT-12 monthly returns filed by the respondents were assessed provisionally by the jurisdictional officers. Further, the respondents also executed Bond in Form B-13 (Gen.Sec) as the assessments were provisional as required under the provisions of Central Excise Rules. After the close of each financial year, the C.A certificate showing the actual quantum of PME was submitted to the department for finalization of provisional assessment. The C.A certificate also took into account the amendment regarding ‘place of removal’ w.e.f 28.09.1996 and from that date onwards the cost of transportation from factory to depots is not mentioned in the C.A certificate. That is, the C.A certificate took into account the cost of transportation from depots to dealers only, for determining the assessable value. This is very much clear from the C.A certificate for the year 1996-97 and the letter dated 16.12.1997 issued by the respondent to the Department. After taking into consideration all these aspects and the reconciliation statements submitted by respondent along with their reply to SCN, the Commissioner (Appeals) has correctly held that the C.A certificate cannot be disregarded without any reliable evidence to controvert the certificate.
9. The third issue is whether refund is hit by doctrine of unjust enrichment. The SCN is issued for finalization of assessment. The orders passed by both the authorities also reflect that duty was paid provisionally and that the assessment has been finalized by the order of adjudicating authority dated 14/2009 dated 22.06.2009. However, the attempt of the Department is to deny refund of duty paid contending that respondent has paid under protest and therefore Section 11B will apply. Commissioner (Appeals) has correctly held that Rule 9B as it stood prior to 25.06.1999 would apply. Prior to 25.06.1999, refund cannot be denied alleging unjust enrichment for provisional assessment. He prayed that the appeal may be dismissed.
10. The Ld. Counsel put forward arguments against the demand of interest. It is submitted that interest is demanded under Section 11AB. Prior to 2001, a demand for interest will lie only if the department establishes any fraud, suppression of facts on the part of assessee. In this case, the duty was paid provisionally and the SCN has been issued for finalisation of assessment. As there is no fraud, or suppression of facts, the respondent is not liable to pay interest on any balance due.
11. Heard both sides.
12. The first issue is as to whether packing charges has to be included in the assessable value or not. The Ld. Counsel for respondent has argued that the packing of motorcycles is undertaken only for long distance transportation and that the nature of packing is a secondary packing. The said issue stands settled by the judgment of Apex Court in the respondent’s own case as reported in Royal Enfield Vs CCE Chennai – 2011 (270) ELT 637 (SC). The relevant paragraphs of the Hon’ble Apex Court judgement are reproduced as under :
“16. Almost similar are the facts of the present case. The authorities below as also the Tribunal found that the facts of the present case entirely fit in the facts of the aforesaid decision in the case of Madras Rubber Factory Ltd. [supra]. The said three authorities as also the Tribunal on analyzing the records came to a finding that the packing which is given by the appellant-company to their motorcycles is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate and, therefore, such cost is liable to be included in the value of the goods and the cost of such packing cannot be excluded. The aforesaid conclusions are based on cogent reasons and are also supported by a well-reasoned decision of three Judges Bench of this Court.
17. Although, the counsel appearing for the appellant-company vehemently submitted that the facts of this case are more akin to the cases of Bombay Tyre International Ltd. [supra] and also to the that of Godfrey Philips India Ltd. & Ors. case [supra] having considered the above situation of facts and law, we are of the considered opinion, that all the aforesaid decisions, which are relied upon by the counsel appearing for the appellant, were taken notice of in the subsequent decision in Madras Rubber Factory Ltd. [supra] and this Court after detailed discussion of such cases has given a very reasoned order which is applicable to the facts of the present case in full force.”
13. Applying the ratio laid down in the respondent’s own case, we hold that packing charges has to be included in the assessable value. However, for the period 01.05.1996 to 31.03.1997 there has been already an order passed in favour of the respondent dropping the proposal to demand duty on packing charges. In page-11 of the impugned order, the Commissioner (Appeals) has discussed that the very same issue as to whether packing charges has to be included in the assessable value was analysed in the assessee’s own case for the period 30.12.1983 to 31.03.1997 and vide Order No.9/97 dated 30.09.1997 the demand was dropped holding the issue in favour of the respondent. The period of dispute in OIO No.9/97 is 01.05.1996 to 31.03.1997 and not 30.12.1983 to 31.3.1997. The department has not filed any appeal against such order. However, the show cause notice for finalization of the assessment had included this period also and confirmed the demand. For this reason, the Ld. A.R has argued that OIO No.9/97 cannot be taken into account. In the case of Days Inn Deccan Plaza Vs CST Chennai – 2017 (52) STR 248 (Mad.), the jurisdictional High Court held that when the Order-in-Original has attained finality in earlier round the same cannot be disturbed in the second round of litigation. The relevant paragraphs of Hon’ble High Court order are reproduced as under :
“7.4 It is settled law that statutory forums and/or Courts, can and/or do decide matters both rightly and wrongly, albeit, within the limits of their respective jurisdictions. Erroneous orders of statutory forums and/or courts can only be corrected by a procedure known to law. The relevant observations made by the Supreme Court in this behalf in Ujjam Bai v. State of U.P., AIR 1962 SC 1621, at pages 1629 to 1631 (paragraphs 15 to 17), being opposite, are extracted hereunder :
“…. 15. ……. Whenever a judicial or quasi-judicial Tribunal is empowered or required to enquire into a question of law or fact for the purpose of giving a decision on it, its findings thereon cannot be impeached collaterally or on an application for certiorari but are binding until reversed on appeal. Where a quasi-judicial authority has jurisdiction to decide a matter, it does not lose its jurisdiction by coming to a wrong conclusion, whether it is wrong in law or in fact. ……………………… A Tribunal may lack jurisdiction if it is improperly constituted, or if it fails to observe certain essential preliminaries to the inquiry. But it does not exceed its jurisdiction by basing its decision upon an incorrect determination of any question that it is empowered or required, (i.e., has jurisdiction) to determine. The strength of this theory of jurisdiction lies in its logical consistency…………….. The characteristic attribute of a judicial act or decision is that it binds, whether it be right or wrong. An error of law or fact committed by a judicial or quasi-judicial body cannot, in general, be impeached otherwise than on appeal unless the erroneous determination relates to a matter on which the jurisdiction of that body depends. These principles govern not only the findings of inferior courts strito sensu but also the findings of administrative bodies which are held to be acting in a judicial capacity. Such bodies are deemed to have been invested with power to err within the limits of their jurisdiction; and provided that they keep within those limits, their decisions must be accepted as valid unless set aside on appeal.
……….
16. In Malkarjun Narhari, (1901) ILR 25 Bom 337 (P.C.), the Privy Council dealt with a case in which a sale took place after notice had been wrongly served upon a person who was not the legal representative of the judgment-debtor’s estate, and the executing court had erroneously decided that he was to be treated as such representative. The Privy Council said :
“In so doing the Court was exercising its jurisdiction. It made a sad mistake, it is true; but a Court has jurisdiction to decide wrong as well as right. If it decides wrong, the wronged party can only take the course prescribed by law for setting matters right; and if that course is not taken the decision, however wrong, cannot be disturbed” (page 347).
17. The above view finds support from a number of decisions of this Court.
1. Aniyoth Kunhamina Umma v. Ministry of Rehabilitation, AIR 1962 SC 1616. …….. This Court dismissed the petition observing :
“We are basing our decision on the ground that the competent authorities under the Act had come to a certain decision, which decision has now become final the petitioner not having moved against that decision in an appropriate court by an appropriate proceeding. As long as that decision stands, the petitioner cannot complain of the. infringement of afundamental right, for she has no such right”. …….. ”
(emphasis is ours)
… … … ..
7.6 In so far as the first ground is concerned, that is, the order-in-original was passed in breach of principles of natural justice, we can only state that, if, this assertion is correct, it is an error pertaining to jurisdiction, which could have, perhaps, been corrected, if, appropriate timely steps had been taken by the appellant, which could include a remedy by way of a petition filed under Article 226 of the Constitution. The appellant, by his own conduct, as is evident from the narration of facts above, has allowed the order-in-original to remain intact. With the Division Bench passing an order in the earlier round, the order-in-original has attained finality; which, as indicated above, cannot be disturbed by us, in what is a second round of litigation.”
14. The above view of the Hon’ble High Court was maintained by the Hon’ble Apex Court as reported in Days Inn Deccan Plaza Vs Commissioner – 2017 (7) G.S.T.L J71 (SC). Applying the ratio of the above decision, we are of the considered opinion that the demand for the period 01.05.1996 to 31.03.1997 cannot sustain. On such score, the order passed by the Commissioner (Appeals) setting aside the demand on the basis of OIO No.9/97 does not require any interference. However, the period for which the duty demand has to be set aside on the basis of OIO No.9/97 would be from 01.05.1996 to 31.03.1997 only. We therefore hold that respondents are liable to pay duty on packing charges for the balance period.
15. The second issue is with respect to duty demand on the amounts of post-manufacturing expenses (PME). The original authority had rejected the claim of the respondent to consider these amounts as post-manufacturing expenses. The observation made by the adjudicating authority is that there are discrepancies in the C.A certificate when compared with the trial balance. In page-9, the Commissioner (Appeals) has discussed this issue and also observed that the respondent had furnished the reconciliation statement along with their reply dt. 05.06.2009. The difference in the figures when compared with the trial balance was explained by the Ld. Counsel for the respondents. The same has been noted by the Commissioner (Appeals) wherein it is stated that the difference is due to the fact that insurance and freight from factory to depot alone is claimed as abatement. This is reflected in the C.A certificate whereas the trial balance reflects the total value of both freight charges from factory to depot and from depot to dealer’s premises. It is also observed that the respondent has furnished relevant extract of the trial balance and C.A certificate both for the disputed period in the annexure to reply of the SCN. In respect of Additional Sales Tax also, they have given the reconciliation figures and explained the reason that there is difference in the figure given in the C.A. certificate and the trial balance. The lower adjudicating authority has summarily dismissed the veracity of the C.A certificate. The Ld. A.R has stressed that as the respondent has failed to produce documents the C.A certificate cannot be accepted. It has to be noted that the respondent has been paying the duty provisionally and they have been filing returns reflecting the duty paid by them along with C.A certificate. The argument put forward by the Ld. A.R that the respondent has not produced necessary documents in the nature of trial balance to verify the veracity of the C.A certificate does not find favour with us. On going through the discussions made in pages-9, 10 & 11 of the impugned order, we have to say that the Commissioner (Appeals) has correctly proceeded to accept the C.A certificate and modify the demand of duty on post-manufacturing expenses to Rs.12,01,418/-. This issue is found against the Revenue.
16. The third issue is refund of duty paid on After-Sales Services, Pre-Delivery Inspection charges, Automobile Cess. Ld. A.R has argued that the claim of refund is hit by the bar of unjust enrichment and therefore Commissioner (Appeals) ought not to have held that the respondent is eligible for refund of duty paid on these charges on finalization of provisional assessment. It is argued by the Ld. A.R that amount has to be treated as cum duty under Section 11B and therefore the respondent has to establish that the duty has not been passed on to another. In our opinion, the Department is trying to blow both hot and cold by contending that the refund is under Section 11AB of Central Excise Act and not under Rule 9B of Central Excise Rules. In SCN dt. 07.10.2008, it is stated in para 2(i) that provisional assessment for the period 30.12.1983 to 30.06.2000 was finalised vide OIO No.5/2006 dt. 23.02.2006. The show cause notice as well as the adjudication has been carried out as finalization of provisional assessment. To deny the refund, the Department cannot now contend that the claim of refund is under Section 11B. The attempt is to deny the refund on the ground of unjust enrichment. Prior to 25.06.1999, the bar of unjust enrichment was not applicable to a refund arising out of finalisation of provisional assessment. In the case of CCE Mumbai-II Vs Allied Photographics India Ltd. – 2004 (166) ELT 3 (SC) it was held that unjust enrichment is not applicable to refund consequent upon finalization of provisional assessment under Rule 9B of Central Excise Rules, 1944. We therefore find that the view taken by the Commissioner (Appeals) that the respondent is eligible for refund does not require any interference.
17. Ld. Counsel for respondent has also put forward arguments on the demand of interest. It is submitted that as per Section 11AB as it stood prior to 2001, the demand of interest can be made only when there is fraud, suppression of facts. In the present case, there is no allegation of fraud or suppression and it is demand of duty upon finalization of provisional assessment. Respondent has relied upon the decision in the case of CCE Bangalore Vs Scorpio Engineering Pvt. Ltd. – 2015 (322) ELT 667 (Kar.) and CCE Coimbatore Vs CEGAT, Chennai – 2005 (183) ELT 343 (Mad.) to argue that respondent is not liable to pay any interest on the demand of duty in respect of packing charges. We do not find any relief claimed in the Cross Objections regarding the demand of interest. From the records, it is seen that Commissioner (Appeals) has erroneously set aside the demand from 30.12.1983 to 31.03.1997 on the basis of OIO 9/97. The period covered by this OIO is actually from 01.05.1996 to 31.03.1996 only. The respondent accepted the impugned order and has not filed any appeal. The department has filed appeal against such order. The Ld. Counsel for respondent has argued that the interest upto the period set aside by the Commissioner (Appeals) may be waived. We are not able to find any grounds to grant such a relief. There is no ground raised in the Cross Objections with regard to the demand of interest. The respondent cannot claim a relief in an appeal filed by the Department. It is made clear that respondent is liable to pay interest on all balance duty demand on packing chares and PME if not paid by them.
18. In the result, we order the following :
(i) the demand of duty on packing charges for the disputed period (31.12.1983 to 30.06.2000) is upheld except for the period 01.05.1996 to 30.03.1997.
(ii) the duty confirmed on Post-Manufacturing Expenses (PME) is sustained (Rs.12,01,418/-).
(iii) the order passed by the Commissioner (Appeals) holding that the respondent is eligible for refund of duty paid on After Sales Service (ASS) Charges, Pre-Delivery Inspection (PDI) charges and Automobile Cess is upheld.
(iv) the relief claimed by the respondent in regard to liability to pay interest on the duty demand is rejected.
The appeal filed by Department and the cross objection filed by the respondent are disposed of in above terms.
(pronounced in court on 07.03.2023)
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