Brief Facts of the Case
The assessee 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 assessee was entitled to buy the said ESPs at concessional rate of duty which was 5% ad valorem in contra distinction to the normal rate of 15% ad valorem duty. This concession rate becomes payable on the condition that an officer not below the rank of Deputy Secretary in the Ministry of Environment and Forests (MoEF) certifies that the goods manufactured are meant for pollution control purpose. The dispute arose as to whether the assessee was entitled for concessional rate of duty or not. It paid the duty 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. The Revenue refused to release this refund and rejected the application of the assessee in this behalf on the ground that the assessee had passed on the burden and therefore refunding the extra duty paid would result in unjust enrichment to the assessee. Against that order the assessee filed the appeal before the Commissioner of Central Excise (Appeal) Chennai, who also dismissed the said appeal. Challenging that order the assessee filed further appeal before the CESTAT. In this appeal the assessee has succeeded and the CESTAT has allowed the appeal and set aside the order of the Commissioner (Appeal) thereby directing the refund of the additional duty paid by the assessee.
Held By Hon’ble Supreme Court of India
The Hon’ble Supreme Court states that on perusal of the order of the CESTAT, it was revealed 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 which was relied upon by the Revenue. However, the said judgment is distinguished as not applicable in the instant case on the ground that this Court in the said case was not concerned with the issue of unjust enrichment in connection with capital goods used captively.
The Hon’ble Supreme Court referred the judgement in the case of Union of India vs. Solar Pesticides Pvt. Ltd. 2000 (2) SCC 705. In this case, the court took the note of Constitution Bench judgment in Mafatlal Industries Ltd. and Others vs. Union of India and Others (1997 (5) SCC 536) and the principles laid down therein. The Hon’ble Supreme court states that two things which emerge from the reading of the aforesaid judgment and need to be emphasized are as under:
This case, therefore, makes it clear that the principle of unjust enrichment is applicable even when the goods are used for captive consumption. No doubt, in the said case the goods with which the Court was concerned was raw material, imported and consumed in the manufacture of the final product. The question is as to whether this principle would be extended to capital goods also, as it was in respect of raw material. This was left open in Mafatlal Industries case.
The Hon’ble Supreme Court further referred to the judgement in the case of India Farmers Fertiliser Coop Ltd. Vs. C.C.E.Ahmedabad (1996 (86) ELT 177 (S.C.). The Hon’ble Supreme court states that 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 concerned, it may include capital goods which are a part of fixed cost as well as raw material which are a part of variable cost. Both are the components which come into costing of a particular product. Therefore it cannot be said that the principle laid down by the Court in Solar Pesticides would not extend to capital goods which are used in the manufacture of a product and have gone into the costing of the goods. In order to come out of the applicability of the doctrine of unjust enrichment, it therefore becomes necessary for the assessee to demonstrate the costing of the particular product, the cost of capital goods was not taken into consideration. It has been observed that the 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 anyone. Accordingly, the order of the Tribunal is set aside.
However, in the facts of the present case the Hon’ble Supreme court is of the opinion that one opportunity should be granted to the assessee to demonstrate to the assessing authority that the cost of the capital goods was not included in costing of the machinery. Only if the assessee is able to prove the aforesaid aspect it shall be entitled to the refund and not otherwise.