SRF LTD. Vs. COMMISSIONER OF CUSTOMS

JUDGEMENT

(1.) THESE two appeals arise from common Order -in -Appeal No. M. Cus 392 & 393/96, dated 26 -2 -96 passed by the Commissioner (Appeals) rejecting refund claim on the duty paid on the capital goods on the ground of unjust enrichment and has given direction for crediting refund amount to the Consumer Welfare Fund in both the cases, thus confirming the order of the lower authority. The appellants had relied on the Chartered Accountant's certificate dated 22 -1 -96 to contend that the excess cess paid has not been passed to the customer or buyer either directly or indirectly. The Commissioner had sought clarification from the appellants to show from books of account as to how it has been shown and accounted. They took time to do the same and by their letter dated 21 -2 -96 explained that the "a product also has indirect costs like interest, depreciation, overhead etc. Interest and depreciation arise out of cost of capital incurred in manufacturing a product. In this case the additional cess that we have paid has increased the cost of twisters by Rs. 1,04,647/ -. This cost has been capitalised as can be seen from our assets register. The direct impact of this additional cess on the cost of the product is only to the extent of the interest and depreciation on this additional cost of capital goods". On the basis of this submission the Commissioner (Appeals) has given his finding in Para 6 is as follows :

(2.) ARGUING for the appellants ld. Counsel, Shri Murugappan accompanied with Ms. Pramila submits that the doctrine of unjust enrichment will not apply to capital goods. He submits before the Tribunal that they have produced the Chartered Accountant's certificate to show that the duty has not been passed to the customer directly or indirectly. The capital goods have been consumed and the amount has not been amortised as supported by the certificate of the Chartered Accountant. He submits that the Apex Court judgment rendered in the case of UOI v. Solar Pesticides as reported in 2000 (116) E.L.T. 401 (S.C.) upheld the provisions of unjust enrichment with regard to raw materials and there is no finding or ratio laid down insofar as the capital goods are concerned. He submits that the Madras High Court judgment in the case of CC v. Indo -Swiss Synthetic Gem Manufacturing Company Ltd. and Anr. as reported in 1996 (13) RLT 379 dealt with the goods that is raw materials used in the end -product and discussed the issue that it does not apply to goods used for manufacturing of end -product but not consumed the silica crucibles which had been imported had not been consumed in the manufacture of final product and therefore the Madras High Court in the light of Bombay High Court judgment rendered in Solar Pesticides [1992 (57) E.L.T. 201 (Bom.)] that the provision "unjust enrichment" would not apply in such cases. He drew the analogy from this judgment. Although, he contended that the Solar Pesticides cases rendered by Bombay High Court relied by the Hon'ble High Court of Madras has since been overruled but he contends that the provisions of "unjust enrichment" would not apply on capital goods in the form of capital cess and the duty incidence is not passed to the consumers.

(3.) ON a careful consideration of the submission we notice from the judgment of the Apex Court rendered in the case of UOI v. Solar Pesticides [2000 (116) E.L.T. 401 (S.C.) the Hon'ble Supreme Court in Para 17 while analysing the use of the words "incidence of such duty ..." has held that the said words mean the burden of duty. The Apex Court further analysed the Section 27(1) of the Act and noted that the said section talks of the incidence of duty being passed on and not the duty as such being passed on to another person. It held that to put it differently the expression "incidence of such duty" in relation to its being passed on to another person would take within its ambit not only the passing of the duty incidence directly to another person but also cases where it is passed on indirectly. The duty is paid on raw material or capital goods. The refund claim being the claim of refund of duty paid on such goods which are in the nature of capital goods or raw materials therefore it falls within the ambit of Section 27(1) of the Act which deals with the provisions of unjust enrichment. It is significant to note that duty paid on capital goods are eligible for benefit of Modvat credit. The assessee avails the benefit of Modvat credit and gets the duty incidence on the final product reduced. Therefore the term "incidence of duty" referred to in Section 27(1) of the Customs Act brings within its ambit duty paid on all types of goods. Goods include both raw materials, final goods as well as capital goods. Therefore we hold that the duty paid on capital goods are covered within the ambit of unjust enrichment. What is required to be seen is as to whether the burden has been passed on to the customer or not, directly or indirectly. We are also supported by the judgment of the Tribunal rendered in Xerox Modi Corporation v. CC as reported in 2001 (134) E.L.T. 523 wherein in Para 7 the Tribunal relying on the judgment of UOI v. Jain Spinners as reported in 1992 (61) E.L.T. 321 (S.C.) has held that the provisions of unjust enrichment in Section 11B have retrospective effect and are applicable to all refund claim. Therefore, what was paid by the appellant was excess cess which is a duty. They have filed refund claim. Therefore they cannot now contend that it is "not duty" and the provisions of "unjust enrichment" would not apply. The only question which is required to be examined is to whether the duty has been passed directly or indirectly to any person in the form of sale of final goods and while recovered along with the price of goods. The appellants rely on the Chartered Accountant's certificate to show that the amount have not been amortised and not recovered and the amount have been retained as capital assets. The Commissioner had posed to them to show the books of account at the time of hearing. They had produced the Chartered Accountant's certificate to show that the same has been accounted in capital goods and the said amount had not been recovered in the form of amortisation. They have produced further certificate of Cost Accountant's before us. This aspect of the matter requires further scrutiny to show as to whether cess paid was in any way reflected in the price structure of the final goods and recovered from the customers. If that is the case then it is deemed to have been passed on to the customers and the appellant will not be eligible for the benefit of the refund. We remand the matter to the original authority to give another opportunity to the appellant to demonstrate that the cess paid by them on the capital goods have not been amortised in the form of depreciation or interest and the same has not been included in the final price structure of the goods. Thus the appeals are allowed by way of remand for this limited purpose. The appellant shall be given an opportunity to produce evidence and file additional submissions if they so desire and the lower authority shall pass a detailed considered order on the said evidence produced and the submissions made before him. Appeals allowed by way of remand to the original authority.