Case Note & Summary
The Full Bench of the Bombay High Court was constituted to resolve a conflict regarding the interpretation of clause (c) to the proviso of section 11B(2) of the Central Excise Act, 1944. The core question was whether an assessee, who is unable to utilize CENVAT credit on inputs because the final products are exempted from duty, is entitled to a cash refund under that provision. The Division Bench in Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd. had held that cash refund is not permissible in such circumstances. However, another Division Bench disagreed and referred the matter to a Larger Bench. The Full Bench, after examining the statutory scheme, including the CENVAT Credit Rules, 2004, and the provisions of section 11B, held that cash refund is indeed permissible under clause (c) of the proviso to section 11B(2). The court reasoned that the proviso to section 11B(2) is a complete code for refund of duty, and clause (c) specifically applies to refund of credit of duty paid on inputs used in or in relation to the manufacture of final products which are cleared for export under bond or letter of undertaking. The inability to utilize credit does not bar cash refund. The court also addressed the principle of unjust enrichment, holding that it applies to refund claims under section 11B, and the assessee must establish that the incidence of duty has not been passed on. The Full Bench overruled the decision in Jain Vanguard and answered the reference in the affirmative, allowing the appeals accordingly.
Headnote
A) Central Excise - Refund - Section 11B(2) proviso (c) - Cash Refund of CENVAT Credit - The issue was whether cash refund is permissible under clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 when an assessee is unable to utilize credit on inputs because the final products are exempted. The Full Bench held that cash refund is permissible in such circumstances, overruling the contrary view in Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd. The court reasoned that the proviso to section 11B(2) is a complete code for refund of duty, and clause (c) applies to refund of credit of duty paid on inputs used in or in relation to manufacture of final products which are cleared for export under bond or letter of undertaking. The inability to utilize credit does not bar cash refund. (Paras 1-36)
B) Central Excise - CENVAT Credit - Refund - Unjust Enrichment - The principle of unjust enrichment applies to refund claims under section 11B of the Central Excise Act, 1944. The court clarified that the doctrine of unjust enrichment is not excluded in cases of refund of CENVAT credit. The assessee must establish that the incidence of duty has not been passed on to any other person. (Paras 20-30)
Issue of Consideration
Whether cash refund is permissible in terms of clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs?
Final Decision
The Full Bench answered the reference in the affirmative, holding that cash refund is permissible under clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs. The decision in Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd. was overruled. The appeals were disposed of accordingly.
Law Points
- Cash refund is permissible under clause (c) to the proviso to section 11B(2) of the Central Excise Act
- 1944 where an assessee is unable to utilize credit on inputs
- CENVAT Credit Rules
- 2004 do not bar cash refund in such circumstances
- principle of unjust enrichment applies to refund claims under section 11B
Case Details
2019 LawText (BOM) (06) 75
Central Excise Appeal No. 13 of 2007 with Central Excise Appeal No. 257 of 2007 and Central Excise Appeal No. 28 of 2008
S. C. Dharmadhikari, R. D. Dhanuka, Smt. Bharati Harish Dangre
Mr. M.H. Patil with Mr. Anil Wani, Mr. Sachin Chitnis and Ms. Padmavati Patil for the appellant in CEXA/13/2007 and for respondents in CEXA Nos.257/2007 and 28/2008; Mr. Pradeep S. Jetly with Mr. J.B. Mishra for the appellants in CEXA Nos. 257/2008 and 28/2008 and for the respondent in CEXA/13/2007
M/s. Gauri Plasticulture P. Ltd. (in CEXA/13/2007); The Commissioner of Central Excise, Mumbai IV (in CEXA/257/2007); The Union of India (in CEXA/28/2008)
The Commissioner of Central Excise, Indore (in CEXA/13/2007); Bombay Dyeing & Manufacturing Co. Ltd. (in CEXA/257/2007); M/s. Simplex Mills Co. Ltd. (in CEXA/28/2008)
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Nature of Litigation
Central Excise Appeals under section 35G of the Central Excise Act, 1944 against orders of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) regarding refund of CENVAT credit.
Remedy Sought
The assessees sought cash refund of CENVAT credit on inputs where the final products were exempted from duty, and the revenue challenged the allowability of such refund.
Filing Reason
The assessees were unable to utilize CENVAT credit on inputs because the final products manufactured were exempt from excise duty, and they claimed cash refund under clause (c) of the proviso to section 11B(2) of the Central Excise Act, 1944.
Previous Decisions
The Division Bench in Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd. had held that cash refund is not permissible in such circumstances. Another Division Bench disagreed and referred the question to a Larger Bench.
Issues
Whether cash refund is permissible under clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs?
Submissions/Arguments
The assessees argued that clause (c) of the proviso to section 11B(2) permits cash refund of credit on inputs when the final products are exported under bond or letter of undertaking, and the inability to utilize credit does not bar such refund.
The revenue argued that cash refund is not permissible under clause (c) when the credit cannot be utilized, and that the CENVAT Credit Rules provide for adjustment or reversal of credit, not cash refund.
Ratio Decidendi
Clause (c) to the proviso of section 11B(2) of the Central Excise Act, 1944 permits cash refund of credit of duty paid on inputs used in or in relation to the manufacture of final products which are cleared for export under bond or letter of undertaking, even if the assessee is unable to utilize such credit. The proviso is a complete code for refund, and the CENVAT Credit Rules do not bar cash refund in such circumstances.
Judgment Excerpts
Whether cash refund is permissible in terms of clause (c) to the proviso to section 11B(2) of the Central Excise Act, 1944 where an assessee is unable to utilize credit on inputs?
The Division Bench expressed its disagreement with a prior Division Bench view of this court taken in the case of Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd.
Procedural History
The matter originated from Central Excise Appeals filed under section 35G of the Central Excise Act, 1944. A Division Bench of the Bombay High Court, comprising Justices A.S. Oka and A.K. Menon, disagreed with the earlier Division Bench decision in Commissioner of Central Excise vs. Jain Vanguard Polybutylene Ltd. and referred the question to a Larger Bench. The Full Bench was constituted and heard the matter, reserving judgment on 21st December 2018 and pronouncing on 14th June 2019.
Acts & Sections
- Central Excise Act, 1944: Section 11B, Section 11B(2), proviso to Section 11B(2) clause (c)
- CENVAT Credit Rules, 2004:
