Custom, Excise & Service Tax Tribunal
Larsen &Amp; Toubro Ltd vs Hyderabad-Iii on 28 September, 2018
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CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
REGIONAL BENCH AT HYDERABAD
Division Bench
Court - I
Appeal No. Appellant(s) Respondent(s) Impugned Order
OIA: 26/2009 (H-III) (D) CE, ST/1017/2010 Larsen & Dt.16.12.2009 passed by CCCE Toubro Ltd CCE, CC, & ST (Appeals-I & III), Hyderabad - III Hyderabad OIA: 112/2012 (H-III), E/1267/2012 L & T Ltd Dt.27.01.2012 passed by CCCE & ST (Appeals-III), Hyderabad Appearance:
Shri N. Viswanathan, Advocate for the Appellant. Shri V.R. Pavan Kumar, Superintendent/AR for the respondent. Coram:
HON'BLE Mr. M.V.Ravindran, MEMBER (JUDICIAL) HON'BLE Mr. P. Venkata Subba Rao, MEMBER (TECHNICAL) Date of Hearing: 21.08.2018 Date of Decision: 28.09.2018 FINAL ORDER No. A/31238-31239/2018 [Order per: P.V. Subba Rao.]
1. Both these appeals arise out of a single Order-in-Original No. 24/2008 dated 10.11.2008, passed by the Asst. Commissioner of Central Excise partly sanctioning and partly rejecting the refund claim filed by the appellant/assessee claiming benefit on Notification No. 06/2006 dated 01.03.2006. The assessee paid the duty under protest and later applied for refund claiming the benefit of the notification with necessary documents to support their claim. Both the department and the assessee appealed against this Order-in-Original. The assessee's appeal was on the ground that the amount of refund was wrongly calculated by the Asst. Commissioner in his Order-in-Original by shifting the relevant date for reversal of CENVAT credit under Rule 11 (3) of CENVAT Credit Rules, 2004 (herein after referred to as CCR, 2004) from 01.03.2007 to (2) 21.04.2007. As a result, they argued that their refund claim was unduly reduced. This appeal was decided by the first appellate authority vide Order-in-
Appeal No. 06/2009 (H-III) CE dated 27.02.2009 in which he modified Order- in-Original passed by the Asst. Commissioner by holding that the cut off date for the purpose of reversal of CENVAT credit under Rule 11 (3) of CCR, 2004 should be 28.02.2007 only. Based on this Order-in-Appeal, the appellant submitted a letter to the Asst. Commissioner seeking refund of the differential amount. The department's appeal against the Order-in-Original was on the ground that the Asst. Commissioner has not correctly considered the question of unjust enrichment before deciding the matter and sanctioning the refund. This appeal was decided by the first appellate authority vide Order-in-Appeal No. 26/2009 dated 16.12.2009 directing the Asst. Commissioner to examine the matter on the question of unjust enrichment and decide. Against this Order- in-Appeal No.26/2009, assessee has filed an appeal ST/1017/2010. Meanwhile, the Asst. Commissioner had, in response to the letter submitted by the assessee seeking refund consequent upon the changing of the cut off date under Rule 11 (3) of CCR, 2004 by the first appellate authority vide Order-in- Appeal No. 06/2009 passed Order-in-Original No. 06/2011. In this order, the Asst. Commissioner held that since CESTAT is seized of the matter in view of appeal ST/1017/2010 filed by the assessee, the application for refund is premature. Aggrieved by this Order-in-Original No. 06/2011, assessee preferred an appeal which was decided by the first appellate authority vide Order-in-Appeal No. 112/2011 dated 27.01.2012. In this Order-in-Appeal the first appellate authority held that the application for refund by the appellant was hit by the principle of unjust enrichment. Although the claim for Rs.43,95,928/- was admissible on merits in terms of Order-in-Appeal No. 06/2009 (H-III) CE dated 27.02.2009, the said amount should be sanctioned and transferred to the consumer welfare fund in terms of Sub-Sec. (2) of Sec. 11B of Central Excise (3) Act. He further held that an amount of Rs.20,15,500/- which was already sanctioned to the appellant vide Order-in-Original No. 24/2008 dated 10.11.2008 was erroneous as the said amount was also hit by the principle of unjust enrichment. Aggrieved by this Order-in-Appeal, the appellant filed an appeal E/1267/2012.
2. The grounds of appeal of the appellant in E/1267/2012 are as follows:
(a) The first appellate authority has passed an order with bias and prejudice and did not consider the evidences brought on record clearly showing that they had not directly or indirectly passed on the incidence of duty paid by them to their customers.
(b) The first appellate authority has admitted the fact that duty was not directly collected by them from their customers and ought not to have 'merely because they treated the duty payment as a cost' come to the conclusion that they have recovered the same indirectly from their customers.
(c) The conclusion drawn by the first appellate authority that "once the amounts claimed as refund were treated as an expenditure or cost in respect of the goods manufactured, it certainly tantamounts to loading that amount as a part of the basic price of the goods or services manufactured / removed / provisioned / rendered" is incorrect.
(d) The first appellate authority recorded that the concept of unjust enrichment would be attracted even when the duty was recovered indirectly but they have not passed on the burden even indirectly to anyone.
(e) The first appellate authority relied on the judgment of the Hon'ble Apex Court in the case of Solar Pesticides Ltd [2000 (116) ELT 401 (SC)] but the ratio of that judgment does not apply to their case. (4)
In the case of Solar Pesticides it was held that even if the duty paid on the raw materials used in the manufacture of final goods is taken into costing of price of final goods it would amount to passing the incidence of the duty within the meaning of Central Excise Act.
(f) If the order of the first appellate authority is accepted it would lead to anomalous results as in every case where the balance sheet of the assessee shows the duty as an expense, the principle of unjust enrichment would apply whether or not the burden to that cost has been passed on to the customers.
(g) The first appellate authority has traversed beyond the scope of the appeal filed by them and decided on matters extraneous to the issue to deny them the benefit of refund to which they are legally entitled.
3. Appeal No. ST/1017/2010 has challenged the Order-in-Appeal No. 26/2009 on the following grounds:
i. Order-in-Appeal is bad in law, lacks jurisdiction and the first appellate authority should not have remanded the matter back to the original authority directing him to examine the matter with respect to the concept of unjust enrichment. ii. The appellate authority ought not have remanded the matter and instead should have passed a speaking order in view of the amended Sec. 35A (3) of Central Excise Act, 1944 with effect from 11.05.2001.
iii. The appellate authority failed to appreciate that the appellant is a contractor in the execution of massive project for a lump sum price and is required maintain books of accounts in terms of prescribed Accounting Standard and further the Excise Duty exemption is (5) covered by a Certificate dated 07.04.2007 provided by the client themselves.
iv. The appellate authority ought to have passed an order in finality instead of remanding the matter back to the original authority.
4. The learned consultant for the appellant submits that they are manufacturers of steel pipes coated with cement which they have supplied to the Hyderabad Metropolitan Water Supply and Sewerage Board (HMWSSB) and they were entitled to the benefit of exemption notification 06/2006 dated 01.03.2006. This exemption notification required a Certificate to be issued by the Collector / District Magistrate / Dy. Commissioner to the effect that such goods are cleared for intended use as specified in the notification and they have produced such Certificate. After examining the certificate and the records which they have submitted, the lower authority vide Order-in-Original No. 24/2008 dated 10.11.2008 found that they were eligible for the refund. However, he also found that if they are claiming the exemption notification they are required to reverse the CENVAT credit in respect of inputs availed, contained in the finished goods and work-in-progress as per Rule 11 (3) of CCR, 2004. After adjusting this amount and some interest payments, the lower authority had sanctioned them a net refund of Rs. 20,15,500/- as opposed to their claim of Rs. 64,08,609/-. It is his submission that in terms of Rule 11 (3) they were required to reverse the amount of credit on the inputs and finished goods lying in stock on the date on which they started availing the exemption notification i.e., on 01.03.2007. Therefore, they are required to reverse the amounts lying in stock on this date. Instead, the Asst. Commissioner had shifted this date to 21.04.2007 i.e., date on which they started paying duty through PLA without any legal basis. This defect was rectified by the first appellate authority vide Order-in-Appeal No. 06/2009 dated 27.02.2009. Thus, on merits they are entitled to the benefit of the exemption notification and this is not in dispute. (6) However, when they approached the Asst. Commissioner with a letter seeking refund of the differential amount in consequence of Order-in-Appeal No. 06/2009, he did not sanction the sum stating the claim to be premature on the grounds that another appeal ST/1017/2010 filed by them is pending with the CESTAT. Aggrieved by this rejection as premature they filed an appeal before the first appellate authority who vide Order-in-Appeal No. 112/2011 went beyond the scope of their appeal and held that the entire refund claim including what was already sanctioned and paid to them was hit by the grounds of unjust enrichment. Thus, in both these appeals the following three issues need to be decided.
1) Whether they are entitled to the benefit of the exemption notification.
2) If they are entitled to the benefit of notification, what is the cut off date to be taken for calculating the amount of CENVAT credit to be reversed?
3) Whether the question of unjust enrichment applies in their case.
5. Regarding the issue of eligibility of exemption notification, he submitted all necessary documents including Certificate from District Collector to satisfy the authorities that they are entitled to the benefit of exemption notification. It has been accepted in the first Order-in-Original that they are entitled to be benefit of notification and it has not been disputed since then.
6. On the question of CENVAT credit under Rule 11 (3) of CCR, 2004 the original authority had wrongly reckoned the cut off date as 21.04.2007 which should be 28.02.2007, since they started claiming the benefit of this exemption notification with effect from 01.03.2007. There is nothing in Rule 11 (3) which entitles the Asst. Commissioner to change the cut off date. The first appellate authority has correctly rectified this mistake.
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7. On the question of unjust enrichment learned consultant would submit that their contract with HMWSSB is a comprehensive contract of the entire project for the full amount. The contract which they have with their client was for manufacture, supply, lowering, laying, jointing, testing and commissioning of 1600 mm dia MS gravity main with cement mortar factory in-lining and out- coating from L.B. Nagar 'X' Roads to Habsiguda 'X' Roads. As per the agreement, the price quoted is inclusive of basic price of fabrication and the price for supplying of pipes at project sites as well as price for lowering, placing, erection and testing. He would draw our attention to the statement showing the excise duty calculations for manufacturing of MS pipes in the agreement signed by their clients which shows the rate of manufacturing of MS pipes plus the excise duty and education cess thereof and thereafter deducts the excise duty and education cess paid to arrive at the amounts payable by their clients. In other words, the client confirms that they have not paid the excise duty to the appellant. Learned consultant further draws our attention to the Certificate issued by the General Manager (Engg) of the client which says "as requested by M/s L&T we had provided the break-up of supply price without excise duty i.e., base price of the pipes and the working is provided, which works out to Rs. 19,831.46/- for the cost of pipe, Rs.2318.54/- for lowering, placing, erection, testing and commissioning. The total payment made is for Rs.22,150/- as mentioned above and we have not reimbursed the ED component of pipe". He further produced before us a Certificate from M/s PRSP & Associates, Chartered Accountants dated 24.05.2011 certifying that they are absorbing the excise duty as part of their cost in the books of accounts without the same being passed on to their customers. He, therefore, submits that they may be sanctioned refund of the excise duty which they are entitled to.
8. Learned departmental representative reiterates the arguments made in the Order-in-Appeal No. 112/2011 and asserts that as per the decision of the (8) Hon'ble Supreme Court in the case of Solar Pesticides Ltd (supra) the assessee is not entitled to the refund and the same has to be credited to the consumer welfare fund unless it is shown that they have not passed on the burden of the excise duty directly or indirectly to their customers. The Hon'ble Supreme Court has held that for the unjust enrichment clause to be attracted not only can the cost be passed on directly but it can also be passed on indirectly. He, therefore, submits that both the appeals are liable to be rejected.
9. We have considered the arguments on both sides in this complex web of orders passed on the same issue. The points for our consideration are as follows:
(a) Whether the appellant is entitled to the benefit of the exemption notification is claimed.
(b) Whether the appellant is required to reverse the CENVAT credit under Rule 11 (3) of CCR, 2004.
(c) If so, what is the relevant date for determining the amount of credit to be reversed?
(d) Whether the refund claim is hit by the principle of unjust enrichment.
10. On the first issue of eligibility of exemption notification there is no dispute that the appellant has entered into contract with HMWSSB for supply and laying of the pipes and that they had paid the duty under protest. It is also not in dispute that they have subsequently obtained the Certificate from the District Collector which has been examined by the lower authority and found in order while deciding on the refund claim. Therefore, the appellant is entitled to the benefit of exemption notification. Since the appellant is entitled to the full exemption under the notification they are required to reverse the CENVAT credit in terms of Rule 11 (3) of CCR, 2004 from the date on which they have started (9) claiming the exemption notification. In other words, they are supposed to reverse the CENVAT credit of the inputs lying in stock and the inputs which have been gone into the goods lying in stock on that date. In this case, the date is 01.03.2007. The lower authority has erroneously shifted this date to 21.04.2007 without any legal basis. As far as the issue of unjust enrichment is concerned, the appellant has entered into a composite contract which included supply of pipes as well as laying, commissioning, etc. The bill of materials as per the contract indicates the cost of the pipes plus the applicable excise duty and determines the amount payable for the pipes after deducting the duty element. The client has also given a Certificate to the effect that they have not reimbursed any excise duty to the appellant. Further, the CA's Certificate produced by the appellant also indicated that they have absorbed the cost of excise duty paid by them and they have not passed on the same to their clients. In view of these facts and circumstances we find that the appellant has not passed on the burden of excise duty either directly or indirectly to their client. In Order-in-Appeal No. 112/2011, the learned first appellate authority has relied on the judgment of the Hon'ble Apex Court in the case of Solar Pesticides Ltd (supra) and held that unless it is proved that the appellant has not passed on the burden of the excise duty either directly or indirectly the amount should be credited to the consumer welfare fund and not given to the appellant. He, further, argues that in their books of accounts the excise duty element has been shown as a cost and therefore, he concludes that this cost must have been passed on to their client and indirectly recovered from them. However, as discussed above, in this case, the bill of materials in the contract shows that the amount to be paid per pipe includes only the basic cost of the pipe (not the excise duty) plus cost of laying the pipes, etc. This is further strengthened by the CA's Certificate produced by the appellant. In view of the above, we find that the appellant has not passed on the burden of the excise (10) duty either directly or indirectly to their clients and satisfies the requirement to claim refund without being hit by the clause of unjust enrichment in terms of the law laid down by the Apex Court in the case of Solar Pesticides (supra). Therefore, their application for refund is not hit by the principle of unjust enrichment.
11. In conclusion, the appellant is entitled to the refund of excise duty paid by them after adjusting the amount of CENVAT credit under Rule 11 (3) of CCR, 2004 calculated as on the date on which they have claimed the benefit of the exemption.
12. The appeals are disposed of as herein above.
(Pronounced in the Open Court on 28.09.2018)
(P.VENKATA SUBBA RAO) (M.V. RAVINDRAN)
MEMBER (TECHNICAL) MEMBER (JUDICIAL)
Veda