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Doctrine of unjust Enrichment Applies to Capital Goods Captively Consumed – Supreme Court
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Central Excise - refunds - Unjust Enrichment principle applicable to capital goods captively consumed: Supreme CourtBy TIOL News Service
NEW DELHI, APR 15, 2015: THE issue : Whether the doctrine of unjust enrichment is applicable in the case of refund of duty paid on 'capital goods' used captively. The Facts : The assessee, Garsim Industries purchased Electro Static Precipitators (ESPs) 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. 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. Assessee 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 in this case, refused to release this refund and rejected the application of theassessee 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 vide order dated 21.9.2000. Challenging that order the assessee filed further appeal before the CESTAT. In this appeal the assessee has succeeded as vide the 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 assessee. The Revenue is in appeal before the Supreme Court. Before the CESTAT, Revenue relied on the Supreme Court judgement in Union of India vs. Solar Pesticides Pvt. Ltd. Reported in 2002-TIOL-57-SC-CX- LB . The Tribunal however distinguished the judgement as not applicable in the instant case on the ground that the Supreme Court in the said case was not concerned with the issue of unjust enrichment in connection with capital goods used captively. In Solar Pesticides case, the question formulated was "Whether the doctrine of unjust enrichment is applicable in respect of raw material imported and consumed in the manufacture of a final product." The Supreme Court had in that case discussed in detail the principle of unjust enrichment taking note of the Constitution Bench judgment in Mafatlal Industries Ltd. and Others vs. Union of India and Others - 2002-TIOL-54-SC-CX-CB and the principles laid down therein. Supreme Court Findings : The Supreme Court observed: This case (Solar Pesticides), 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 draw some sustenance from the judgment of this Court in the case of Indian Farmers Fertiliser Coop.Ltd. vs C.C.E.Ahmedabad - 2002-TIOL-146-SC-CX though that case is concerned with the exemption of Raw Naptha was used to produce ammonia which is used in effluent treatment plant. 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. 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. So, the Supreme Court set aside the order of the Tribunal and allowed the Revenue Appeal. However, in the facts of the present case, the Supreme Court granted one more opportunity to the assessee 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 assessee is able to prove the aforesaid aspect it shall be entitled to the refund and not otherwise. (See 2015-TIOL-64-SC-CX)