caselaws
Supreme Court of India
Commnr. Of Central Excise, … vs M/S. Grasim Industries on 13 March, 2015Bench: A.K. Sikri, Rohinton Fali Nariman
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8359 OF 2003
Commnr. Of Central Excise, Chennai-III Appellant(s)
VERSUS
Grasim Industries Respondent(s)
J U D G M E N T
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 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 respondent 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. Respondent
succeeded in its attempt before the judicial fora. In view thereof,
question of refund of duty paid which was in the tune of Rs.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 burden and therefore
refunding the extra duty paid would result in unjust enrichment to the
respondent. Against that order the respondent filed the appeal before the
Commissioner of Central Excise (Appeal) Chennai, who also dismissed the
said appeal vide order dated 21.9.2000. Challenging that order the
respondent filed further appeal before the CESTAT. In this appeal the
respondent has succeeded as vide impugned judgment dated 17.6.2003, 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
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 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.
It is in this backdrop the issue, as formulated in the first
para above, arises for consideration.
Since the judgment Solar Pesticides Pvt. Ltd. has been
distinguished and held not applicable to the facts of the present case, we
shall 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. and Others vs. Union of India and Others (1997
(5) SCC 536) and the principles laid down therein. Thereafter the position
in law on this aspect is succinctly summed up in paras 17 to 20 which are
reproduced below:
“17. Section 11-B, along with Section 11-A, was introduced by Customs,
Central Excises and Salt and Central Board of Revenue (Amendment) Act, 1978
with effect from 17-11-1980, a fact mentioned hereinbefore. Until the
enactment and enforcement of Sections 11-A and 11-B, the recovery and
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 misconstruction, shall
be refunded unless the claimant makes an application for such refund under
his signature and lodges it with the proper officer within three months
from the date of such payment or adjustment, as the case may be.”
18. Rule 11 was amended with effect from 6-8-1977 and it remained in force
till the coming into force of Section 11-B. Rule 11, as it obtained during
the said period, read as follows:
11.Claim for refund of duty.–
(1) Any person claiming refund of any duty paid 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 of the value or the rate of duty, as the case may be.
(2) If on receipt of any such application the Assistant Collector of
Central Excise is satisfied that the whole or any part of the duty paid by
the applicant should be refunded to him, he may make an order accordingly.
(3) Where as a result of any order passed in appeal or revision under the
Act, refund of any duty becomes due to any person, the proper officer may
refund the amount to such person without his having to make any claim in
that behalf.
(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 controversy omitted):
“11B. Claim for refund of duty.– (1) Any person claiming refund of any
duty of excise may make an application for refund of such duty to the
Assistant Commissioner of Central Excise before the expiry of six months
from the relevant date in such form and manner as may be prescribed and the
application shall be accompanied by such documentary or other evidence
including the documents referred to in section 12A as the applicant may
furnish to establish that the amount of duty of excise 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 sub-section (2) substituted by that Act:
Provided further that the limitation of six months shall not
apply where any duty has been paid under protest.
(2) If, on receipt of any such application, the Assistant Commissioner of
Central Excise is satisfied that the whole or any part of the duty of
excise paid by the applicant is refundable, he may make an order
accordingly and the amount so determined shall be credited to the Fund:
Provided that the amount of duty of excise as determined by the
Assistant Commissioner 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 duty paid on excisable goods used as inputs in
accordance with the rules made, or any notification issued, under this Act;
(d) duty of excise paid by the manufacturer, if he had not passed on the
incidence of such duty to any other person;
(e) the duty of excise borne by the buyer, if he had not passed on the
incidence of such duty to any other person;
(f) the duty of excise borne by any other such class of applicants as the
Central Government may, by notification in the Official Gazette, specify:
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 be made except as provided in
sub-section (2).
Explanation.– For the purposes of this section, ……… (B) `relevant
date’ means —
(f) in any other case, the date of payment of duty.”
20. The said Amendment Act also amended Section 11-C, besides introducing
Section 11-D and an entire new chapter, Chapter II-A. Since Section 11-C
does not fall for our consideration, we need not refer to it. Section 11-D
reads as follows:
11D. Duties of excise collected from the buyer to be deposited with 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 sub-
section (1) shall be adjusted against duty of excise payable by the person
on the finalisation of assessment and where any surplus is left after such
adjustment, the amount of such surplus shall either be credited to the Fund
or, as the case may be, refunded to the person who has borne the incidence
of such amount, in accordance with the provisions of section 11B and the
relevant date for making an application under that section in such cases
shall be the date of the public notice to be issued by the Assistant
Commissioner 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. According to the Court the principle of
unjust enrichment would be applicable in both the circumstances.
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. 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 provided for exemption to such Raw Naptha as is
used in the manufacture of ammonia provided such ammonia is used elsewhere
in the manufacture of fertilizers. The question was as to whether the
ammonia used in the off-site plants is also ammonia which is used elsewhere
in the manufacture of fertilizers. The court answered the question in the
affirmative thereby holding that exemption provided under Notification
187/61-CE shall be available to the assessee.
However, what follows from the reading of the said judgment is
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
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. We, thus, are of the opinion that the view taken by the
Tribunal is not correct in law.
We also find from the reading of the judgment of Tribunal that
the 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 law in view of the judgment of this Court in
Indian Farmers Fertilisers COOP. Ltd.
Accordingly, the judgment of the Tribunal is set aside.
However, in the facts of the present case we are of the opinion that one
opportunity should be granted to the respondent to demonstrate to the
assessing authority that the cost of the capital goods was not included in
the costing of the machinery. Only if the respondent is able to prove the
aforesaid aspect it shall be entitled to the refund and not otherwise.
The appeal is allowed in the above terms.
………………..J.
(A.K. SIKRI)
…………………..J.
(ROHINTON FALI NARIMAN)
New Delhi;
Date: 13.3.2015.
ITEM NO.103 COURT NO.14 SECTION III
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No(s). 8359/2003
COMMNR. OF CENTRAL EXCISE, CHENNAI Appellant(s)
VERSUS
M/S. GRASIM INDUSTRIES Respondent(s)
(with appln. (s) for ex-parte stay and office report)
Date : 13/03/2015 This appeal was called on for hearing today.
CORAM :
HON’BLE MR. JUSTICE A.K. SIKRI
HON’BLE MR. JUSTICE ROHINTON FALI NARIMAN
For Appellant(s) Mr. Ashok Panda,Sr.Adv.
Mr. Arijit Prasad,Adv.(Argued by)
Ms. Sushma Manchanda,Adv.
Mr. B. Krishna Prasad,Adv.
For Respondent(s) Mr. A.K.Chitale,Sr.Adv.
Mr. Sumit Kumar Sharma,Adv.
Mr. Niraj Sharma,Adv.
UPON hearing the counsel the Court made the following
O R D E R
The appeal is allowed in terms of the signed order.
| (SUMAN WADHWA) | (SUMAN JAIN) |
|AR-cum-PS |COURT MASTER |
(SIGNED ORDER IS PLACED ON THE FILE)
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