Madras HC rejects excise duty refund claim

When one hears the word ‘refund’, we feel fortunate that we are going to be united with our funds which were once paid as taxes. There are many situations where a refund arises in direct as well as indirect taxation. Understanding the refund norms and criteria’s is extremely important so that we do not excessively partake with our money. Let us refer to the case of M/s. Chennai Petroleum Company Ltd. (CPCL) v. Commissioner of GST & Central Excise, where the Madras High Court rejected the refund of excise duty under Section 11B of the Central Excise Act, 1944 (Central Excise Act) on the basis of credit notes issued.

Let us refer to the provision of law before moving forward:

Section 11B of the Central Excise Act pertains to“Claim for refund of duty and interest, if any, paid on such duty. According to the said section:

Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year 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 and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person
If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty 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 and interest, if any, paid on such duty as determined by the Assistant Commissioner of Central Excise or Deputy 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:
1. rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;
2. unspent advance deposits lying in balance in the applicant’s account current maintained with the Principal Commissioner of Central Excise or Commissioner of Central Excise;
3. 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;
4. the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;
5. the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person
6. the duty of excise and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette

Facts of the Case:

Appellant Company was an oil refinery and was manufacturer of petroleum products which were sold at the instance of or on the purchase orders placed by their marketing company M/s Indian Oil Corporation Ltd., (IOCL) to yet another Government Company, M/sPPN Power Generating Company Ltd., (PPN) which manufactured power, out of the Raw Naptha, which was manufactured by the Appellant M/s CPCL and sold to M/s PPN on the basis of purchase orders placed by their marketing company M/s Indian Oil Corporation Ltd.
Appellant company raised invoice including Excise Duty component on its marketingcompany M/s IOCL, which in turn raised its own invoice on the purchasing company M/s PPN.
Appellant company had a Running Account with the Marketing Company M/s IOCL.
Some reduction in price happened, when M/s IOCL informed the Appellant Corporation that excess price was charged by the Appellant Corporation from M/s PPN and accordingly it had issued Credit Notes to M/s PPN.
Accordingly, refund claims were made by the manufacturer M/s CPCL with the Respondent Excise Department which were rejected by the Excise Department on the basis of the impugned show cause notice issued to the Appellant Corporation.
This further resulted in adverse orders against the Appellant Corporation passed by the Commissioner of Appeals and impugned order passed by the learned CESTAT.

Observations of HC

HC was of the clear opinion that there was no merit in the appeal filed by the Assessee M/s. CPCL and they deserved to be dismissed. The reasons were as follows:

The scheme of the Act contained in Section 11B of the Act read with other relevant provisions of the Central Excise Act as it then prevailed before the introduction of GST regime with effect from 1 July 2017, with regard to refunds was very clear.
It was only the person who had borne the incidence of Excise Duty, which was not leviable in law was entitled to claim refund of the same, subject to his locus standi and the limitation prescribed in Section 11B of the Act.
The law on the said issue was propounded beyond doubt by the Constitution Bench of the Supreme Court in the case of Mafatlal Industries Ltd. (supra).

The said judgment was correctly applied, with great respects, by the Supreme Court in the case of Addison and Co Ltd., (supra).
There was hardly any doubt on facts in the present case, where, admittedly, the invoice of the appellant for the supply of raw naptha which was a dutiable product, was raised by the appellant M/s CPCL on its marketing company M/s IOCL, which was a separate company, who in turn raised invoice on the buyer of the said raw naptha M/s PPN, who in turn, manufactured power by use of such raw naptha and other raw materials.
If at all, duty could be said to have been collected in excess on account of over valuation of the supplies, it was the consumer of the said raw material/raw naptha, viz., M/s PPN who could have claimed the refund of Excise Duty as per the settled legal position.
Merely because M/s IOCL issued a credit note to the buyer M/s PPN, it could not be said that the incidence of Excise Duty was not passed on to the purchaser M/s PPN.
Once the incidence of Excise Duty was passed on, whether it was further passed on to the ultimate buyer or consumer or not, was not the relevant question.

The appellant Assessee M/s CPCL, could not be said to have borne any incidence of Excise Duty illegally levied and therefore, the right of the appellant Assessee to claim any refund could not arise.
The law in this regard of unjust enrichment was settled by the Constitution Bench Judgment of the Supreme Court in the case of Mafatlal Industries Ltd., reiterated and followed by the Supreme Court in the case of Addison & Co Ltd., wherein the contentions which were now raised before HC and almost similar contentions having been raised there, were negatived by the Supreme Court.
The question raised before HC related to question of locus standi of the person who was claiming the refund and not on what basis it was claimed.
Whether on the basis of Credit Note issued by M/s IOCL, a refund of Excise Duty could be made or not was not the question, and the claim of the Assessee was not fortified merely because the show cause notice refuted the claim of the Assessee on the basis of credit note alone.
The facts before HC were clear and undisputed and there was no material or facts available on record which even prima facie could indicate that the appellant Assessee had borne the incidence of Excise Duty which in law could not be charged from it.
The moment it raised the invoice on M/s IOCL and M/s IOCL issued Invoice on M/s. PPN, the incidence of Excise Duty is definitely passed on to the buyer or consumer of raw naptha, viz., M/s PPN.
Therefore, the right to claim refund by the Appellant was completely lost.

In simple words, only the person who had borne the incidence of Excise Duty, is entitled to claim refund of the same.

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