Case Law Details
Indian Oil Corporation Ltd. Vs Commissioner of Central Excise (CESTAT Mumbai)
Introduction: The case of “Indian Oil Corporation Ltd. vs. Commissioner of Central Excise” heard by the Central Excise and Service Tax Appellate Tribunal (CESTAT) Mumbai revolves around the concept of ‘unjust enrichment’ in the context of excise duty and the role of a CA (Chartered Accountant) certificate.
1. Background of the Case: The dispute in this case arises from a refund claim made by Indian Oil Corporation Ltd. (IOC) concerning deposits made during an investigation. These deposits, totaling ₹1,74,13,087, were made even before the demand was adjudicated. The primary issue revolves around whether the ‘unjust enrichment’ test applies to the claim for the return of these deposits.
2. Key Arguments: IOC had previously availed MODVAT credit on ‘tin cans’ used for packaging and selling lubricants. When proceedings were initiated to deny this credit due to the inputs not being deployed at the manufacturing facility, IOC contested the matter. Following the setting aside of the recovery of ₹2,46,84,459 by the Tribunal, IOC applied for a refund of the deposited amount. However, the jurisdictional Commissioner of Central Excise appealed, citing ‘unjust enrichment’ as a bar to refund.
3. CESTAT Mumbai’s Decision: The first appellate authority had based its decision on a letter from IOC, dated 4th April 2012, which indicated that the amount had been treated as ‘income’ in 2011-12. The authority held that this indicated that the amount had been entered as ‘expenditure’ in 2000-01 and was, therefore, subject to ‘unjust enrichment.’
However, IOC argued that the debit of the ‘personal ledger account (PLA)’ was a reversal of CENVAT credit and not related to the clearance of any goods. They contended that as the claim was established and realized in the same year, it was treated as ‘income’ in 2011-12. A Chartered Accountant’s certificate supported their position.
4. Conclusion: CESTAT Mumbai ruled in favor of IOC, setting aside the impugned order and allowing the appeal. The tribunal held that the duty legalized by the utilization of MODVAT credit was not the same as the payment made on 7th August 2000. The issue concerned the payment made on that date, which could not have been considered an ‘expense’ of 2000-01 or ‘duty’ of 2000-01. The tribunal concluded that recognizing the payment as ‘income’ in the year of sanction did not automatically classify it as an ‘expense’ of earlier years.
The tribunal also noted that the Chartered Accountant’s certification provided by IOC was sufficient to demonstrate that the incidence of such duty had not been passed on, thereby satisfying the ‘unjust enrichment’ requirement.
5. Conclusion: In summary, CESTAT Mumbai’s ruling in the case of Indian Oil Corporation Ltd. vs. Commissioner of Central Excise provides relief to IOC by clarifying the ‘unjust enrichment’ issue and highlighting the importance of a Chartered Accountant’s certificate in excise duty cases. The appeal was allowed, and the impugned order was set aside, ensuring that IOC could claim the refund without ‘unjust enrichment’ concerns.
The decision provides clarity on the ‘unjust enrichment’ aspect in excise duty cases and underscores the significance of proper documentation, such as Chartered Accountant certificates, in such disputes.
FULL TEXT OF THE CESTAT MUMBAI ORDER
The limited issue in this dispute of M/s Indian Oil Corporation Ltd, against order1 of Commissioner of Central Excise (Appeals), Mumbai-II which, on appeal at the behest of jurisdictional Commissioner of Central Excise, set aside the sanction of refund allowed by the competent authority under section 11B of Central Excise Act, 1944, is the applicability of test of ‘unjust enrichment’ on claim for return of ‘deposits’ made during investigation. That such was nature of the remittance is apparent from the orders of the lower authorities which have recorded that ₹ 1,74,13,087 had been debited in the ‘personal ledger account (PLA)’ on 7th August 2000 even as the demand, for the period from August 1994 to November 2006, was adjudicated only on 27th February 2001.
2. Briefly, the facts are that appellant had been availing MODVAT credit on ‘tin cans’ used for packing and sale of ‘lubricants’ manufactured by them and proceedings were initiated for denial of the credit as the inputs had not been deployed at the factory of manufacture but in their filling facility. The confirmation of recovery of ₹ 2,46,84,459, contested by them before the Tribunal, was set aside following which application for refund of the amount deposited in the run up to adjudication was filed and sanctioned. In the appeal thereafter preferred on behalf of the jurisdictional Commissioner of Central Excise, several grounds were cited but the order of the first appellate authority that
‘…Accordingly, the impugned order cannot be sustained and has to be set aside. The amount shall be recovered from the respondents and credited to the Consumer Welfare Fund established under Sec. 12C of the Act.’
leaves no doubt on eligibility for sanction with that only the bar of ‘unjust enrichment’ standing in the way of the appellant herein from receiving the amount.
3. The first appellate authority had relied upon the decision of the Hon’ble Supreme Court in Union of India v. Solar Pesticides Pvt Ltd [2000 (116) ELT 401 (SC)] and found the letter of the respondents dated 4th April 2012, intimating the accounting treatment of the amount as ‘income’ in 2011-12 following the order of the Tribunal on 28th July 2011, logically implied that it had been entered in the books of accounts as ‘expenditure’ in 2000-01 to hold as supra.
4. According to Learned Counsel for appellant, the issue stands covered by the decision of the Tribunal in Commissioner of Central Excise, Kanpur v. Kanpur Plastipack Ltd [2001 (127) ELT 826 (tri-Del)] holding that
‘3. ……… Proviso (c) to sub-section (2) of Section 11B of the Central Excise Act makes an exception in respect of cases involving credit of duty. This provision refers to payment of refund of duty to the applicants of credit of duty paid on inputs in accordance with Rules or Notification. Thus, refund of credit of duty to the applicants is permitted. Our finding is supported by the decisions of the Tribunal in the cases of C.C.E., Bhubaneshwar v. Orient Paper Mills, 1994 (73) E.L.T. 648 and C.C.E., Kanpur v. Brooke Bond Lipton, 1999 (107) E.L.T. 228.
4. In the light of the above decisions, the finding of the lower Appellate Authority that requirement of cost data on HDPB tapes is irrelevant since duty on tape was paid at specific rate and that verification of modvatable documents showed the total credit available, amount of duty paid, amount of duty to be debited against sale of fabrics and the total amount refundable and that, therefore, the respondents were entitled to refund of Rs. 1,16,28,268.60 P, does not suffer from any legal infirmity. Following the ratio of the decisions cited supra, we accept the contention of the respondents that credit of the above mentioned amount is admissible to them, uphold the impugned order and reject the appeal of Revenue.’
It was further argued that the debit of ‘personal ledger account (PLA)’ was tantamount to reversal of CENVAT credit already utilized and not against clearance of any goods and that, as the claim was established and was realized in the same year, it found reflection in the books of accounts as ‘income’ in 2011-12. Reliance was placed on the certificate dated 8th September 2012 of Chartered Accountant.
5. According to Learned Authorized Representative and relying on several decisions, it is amply evident that payment ‘under protest’ is not entitled to the statutory treatment of ‘provisional assessment’ upon finalisation. Most of his submissions are beyond the limited coverage considered by the first appellate authority which alone has been contested in appeal of M/s Indian Oil Corporation Ltd. In the absence of appeal of Revenue for taking up these aspects, we are not required to examine those aspects in the narrow compass of this dispute.
6. It would appear that the facts were not properly appreciated by the first appellate authority and thus the decision of the Hon’ble Supreme Court in re Solar Pesticides Pvt Ltd, which held that even refund of duties wrongly collected on raw materials and goods used for captive consumption would be subject to the test of ‘unjust enrichment’ before release to the claimant, came to be misapplied
7. The appellant had taken MODVAT credit on ‘tin cans’ between August 1994 and November 2006 which was held as ineligible; consequently, the utilization of such credit for payment of duty on excisable goods cleared by debit thereof was held as improper requiring proper discharge of duty liability upon completion of adjudication and, of the ₹ 2,46,84,459 in dispute, ₹ 1,74,13,087 was debited in the ‘personal ledger account (PLA)’ on 7th August 2000 long after any of these goods had been cleared by the appellant. The amount thus substituted by payment, as well as that remaining, continued to be disputed in appeal without any effect on the MODVAT credit already utilized; effectively, during the continuity of the dispute, disputed duty payment by debit of MODVAT credit account and that debited in the ‘personal ledger account (PLA)’ on 7th August 2000 constituted duty payment on the same goods to the extent of ₹ 1,74,113,087. With disposal of appeal by the Tribunal, the MODVAT credit utilized was rendered legal and the other debit being moneys paid other than as duty. That the duty so legalized may be presumed to have been passed on with the value of the goods cleared is not in issue. The issue concerns the payment made again on 7th August 2000 and could neither have been ‘expense’ of 2000-01 nor ‘duty’ of 2000-01. The conclusion that recognition as ‘income’ in the year of sanction, which it undoubtedly was, does not automatically turn that into ‘expense’ of earlier years.
8. In re Solar Pesticides Pvt Ltd, it was held that evidence of duty incidence not having been passed on cannot be claimed to be unavailable and, therefore, entitling claimant to exclusion from the onus of section 11B of Central Excise Act, 1944 does not bar the test of unjust enrichment. Appellant has furnished certification from Chartered Accountant that amount was not debited against any particular clearance. Without evaluation of the pricing practice of the appellant for ‘lubricant’, discard of the certification on supposition of it having been treated as ‘expense’ and, therefore, built into the manufacturing cost of products cleared after 2000 is neither logical nor consistent with obligation of appellate authorities to restrict fact finding only upon evidence. In a departmental appeal, that should have been preferred as a ground of appeal on the basis of computation; a finding without such factual evaluation, in circumstances of that onus resting on the reviewing authority, cannot sustain. The certification by Chartered Accountant, considering the contents therein, suffice for discharging obligation to demonstrate that incidence of such duty has not been passed on.
9. Accordingly, impugned order is set aside and appeal allowed.
(Order pronounced in the open court on 05/09/2023)
Notes
1 [order-in-appeal no. US/742/M-II/2012 dated 30th October 2012]
