COMMNR. OF CENTRAL EXCISE, CHENNAL-111versusGRASIM INDUSTRIES

                   (2015] 4 S.C.R. 515


     COMMNR. OF CENTRAL EXCISE, CHENNAl-111                  A
                            v.
                  GRASIM INDUSTRIES

             (Civil Appeal No. 8359 of 2003)
                                                             B
                    MARCH 13, 2015

         [A.K. SIKRI AND R. F. NARIMAN, JJ.]

     Doctrine of Unjust Enrichment - Applicability of - In c
the case of refund of duty paid on 'capital goods' used
captively - Held: The doctrine is applicable in case of
refund of duty paid on 'capital goods' used captively,
unless it is proved by the assessee that in costing of a
particular product, the cost of 'capital goods' was not taken D
into consideration - In the present case, claim for refund
of duty paid on such goods, to be decided after the
assessee demonstrates to the authorities concerned that
cost of 'capital goods' was not included in the costing of
the product - Central Excise Act, 1944.                       E

    Allowing the appeal, the Court

    HELD: 1. If a particular material is used for
manufacture of a final product, that has to be F
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 G
particular product. In order to come out of the
applicability of the doctrine of unjust enrichment, it
therefor becomes necessary for the assessee to

                           515                               H
516         SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A     demonstrate that in the costing of the particular
      product, the cost of 'capital goods' was not taken
      into consideration. [Para 9] [526-E-F,G-H; 527-A]

      2. However, in the facts of the present case, one
s opportunity should be granted to the respondent 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 respondent is able to
  prove the aforesaid aspect, it shall be entitled to the
C refund and not otherwise. [Para 11] [527-D-E-]

      Union of India vs. Solar Pesticides Pvt. Ltd. 2000 (2)
  SCC 705: 2000 (1) SCR 629; Indian Farmers Fertiliser
  Coop. Ltd. vs. C.C.E. Ahmedabad 1996 (86) ELT 177
D (S.C.) - relied on.

          Mafatlal Industries Ltd. and Ors. vs. Union of India
      and Ors. 1997 (5) SCC 536:1996 (10) Suppl. SCR 585
      - followed.
E                      Case Law Reference

        2000 (1) SCR 629              relied on.       Para 3

        1996 (10) Suppl. SCR 585 followed              Para 6
F                                                      Para 8
        1996 (86) ELT 177 (S.C.)      relied on.

         CIVIL APPELLATE JURISDICTION: Civil Appeal No.
      8359 of 2003.

G         From the Judgment and Order dated 17.06.2003 of the
      Customs Excise & Service Tax Appellate Tribunal, Southern
      Zonal Bench,Chennai in Appeal No. E/47/2001/Md.

      Ashok Panda, Arijit Prasad, Sushma Manchanda, B.
H Krishna Prasad for the Appellant.
    COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.                   517
              GRASIM INDUSTRIES

    A. K. Chitale, Sumit Kumar Sharma, Niraj Sharma for A
the Respondent.

    The Judgment of the Court was delivered by

    A.K. SIKRI, J. 1. The issue involved in the present
                                                                 8
case pertains to .the applicability of the doctrine of unjust
enrichment in the case of refund of duty paid on 'capital
goods' used captively. The factual matrix under which the
aforesaid issue arises for consideration is taken note of,
in short, hereinbelow:                                           c
     2. The respondent herein purchased Electro Static
Precipitators (ESPs for short) from M/s. BHEL, Ranipet.
In terms of Notification No.78/1990-CE dated 20.3.1990,
                                                                 D
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. This concession rate becomes payable on
the condition that an officer not below the rank of Deputy       E
Secretary in the Ministry of Environment and Forests
(MoEF)certifies that the goods manufactured are meant
for pollution control purpose. The dispute arose as to
whether the respondent was entitled for concessional              F
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. Respondent succeeded in its
attempt before the judicial fora. In view thereof,               G
question of refund of duty paid which was in the tune of
 Rs.27,66,970/-,arose for consideration. The Revenue/
 appellant herein, refused to release this refund and
 rejected the application of the respondent in this behalf        H
518      SUPREME COURT REPORTS               [2015] 4 S.C.R.


A on the ground that the respondent had passed on the
  burden and therefore refunding the extra duty paid would
  result in unjust enrichment to the respondent. Against
  that order the respondent filed the appeal before the
8 Commissioner of Central Excise (Appeal) Chennai, who
  also dismissed the said appeal vide order dated
  21.9.2000. Challenging that order the respondent filed
  further appeal before the CESTAT. In this appeal the
  respondent has succeeded as vide impugned judgment
C 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 respondent.
D
       3. A perusal of the order of the CESTAT would
   reveal that the CESTAT was grapping with the question
  as to whether the doctrine of unjust enrichment will be
  applicable in case of refund of duty paid on capital
E goods, which are used captively. The CESTAT has
  taken note of certain judgments including judgment of this
  Court in case of Union of India vs. Solar Pesticides Pvt.
  Ltd. (2000 (2) sec 705 which was relied upon by the
F Revenue. However, the said judgment is distinguished as
  not applicable in the instant case on the ground that this
  Court in the said case was not concerned with the
  issue of unjust enrichment in connection with capital
  goods used captively.
G
       4. It is in this backdrop the issue, as formulated in
  the firstpara above, arises for consideration.

     5. Since the judgment Solar Pesticides Pvt. Ltd.
H has been distinguished and held not applicable to the
   COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.             519
       GRASIM INDUSTRIES [A.K. SIKRI, J.]

facts of the present case, we shall start our discussion by A
analysing the said judgment. In the said case the
question which was formulated for decision was as under:

     "Whether the doctrine of unjust enrichment is
     applicable in respect of raw material imported and B
     consumed in the manufacture of a final product is the
     question which arises for consideration in these
     appeals."

    6. The Court in detail discussed the principle of
                                                           c
unjust enrichment At the outset it took note of the
Constitution Bench judgment in Mafatlal Industries Ltd.
and Others vs. Union of India and Others (1997 (5) SCC
536) and the principles laid down therein. Thereafter the D
position in law on this aspect is succinctly summed up in
paras 17 to 20 which are reproduced below:

    "17. Section 11-B, along with Section 11-A, was
    introduced by Customs, Central Excises and Salt and E
    Central Board of Revenue (Amendment) Act, 1978
    with effect from 17-11-1980, a fact mentioned
    hereinbefore. Until the enactment and enforcement of
    Sections 11-A and 11-B, the recovery and refund F
    of excise duties was governed by the Rules. Rule 11
    which dealt with claims for refund of duty, as in force
    prior to 6.8.1977 read as follows.

       11. No refund of duties or charges erroneously paid, G
       unless claimed within three months.- No duties or
       charges which have been paid or have been
       adjusted in an account current maintained with the
       Collector under Rule 9, and of which repayment H
520    SUPREME COURT REPORTS                [2015] 4 S.C.R.


A       wholly or in part is claimed in consequence of the
        same having been paid through inadvertence, error
        or misconstruction, shall be refunded unless the
        claimant makes an application for such refund
8       under his signature and lodges it with the proper
        officer within three months from the date of such
        payment or adjustment, as the case may be."

      18. Rule 11 was amended with effect from 6-8-1977
c     and it remained in force till the coming into force of
      Section 11-8. Rule 11, as it obtained during the said
      period, read as follows:

        11.Claim for refund of duty.-
D
        (1) Any person claiming refund of any duty paid
        by him may make an application for refund of
        such duty to the Assistant Collector of Central
        Excise before the expiry of six months from the date
E       of payment of duty.

        Provided that the limitation of six months shall not
        apply where any duty has been paid under
        protest.
F
        Explanation.- Where any duty is paid provisionally
        under these rules on the basis of the value or the
        rate of duty, the period of six months shall be
G       computed from the date on which the duty is
        adjusted after final determination of the value or
        the rate of duty, as the case may be.

        (2) If on receipt of any such application the
H       Assistant Collector of Central Excise is satisfied
COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.            521
    GRASIM INDUSTRIES [A.K. SIKRI, J.]

  that the whole or any part of the duty paid by the A
  applicant should be refunded to him, he may make
  an order accordingly.

  (3) Where as a result of any order passed in appeal
  or revision under the Act, refund of any duty B
  becomes due to any person, the proper officer
  may refund the amount to such person without his
  having to make any claim in that behalf.

  (4) Save as otherwise provided by or under these
                                                       c
  rules no claim for refund of any duty shall be
  entertained.

  Explanation.       For the    purposes of this D
  rule, 'refund' includes rebate referred to in
  Rules 12 and 12A."

19. We may now set out Section 11-B, as amended by
Act 40 of 1991. (Even subsequent to 1991, there E
have been certain minor amendments to the said
section.) As it stands today, Section 11-B reads as
follows (portions not necessary for the purposes of the
present controversy omitted):
                                                        F
     "11 B. Claim for refund of duty.- (1) Any person
    claiming refund of any duty of excise may make
    an application for refund of such duty to the
    Assistant Commissioner of Central Excise before
                                                        G
    the expiry of six months 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 H
522   SUPREME COURT REPORTS               [2015] 4 S.C.R.


A     applicant may furnish to establish that the amount of
      duty of excise in relation to which such refund is
      claimed was collected from, or paid by, him
      and the incidence of such duty had not been
8     passed on by him to any other person:

      Provided that where an application for refund has
      been made before the commencement of the
      Central Excises and Customs Laws (Amendment)
c     Act, 1991, such application shall be deemed to have
      been made under this sub-section as amended by
      the said Act and the same shall be dealt with in
      accordance with the provisions of sub-section (2)
      substituted by that Act
D
      Provided further that the limitation of six months
      shall not apply where any duty has been paid under
      protest.
E     (2) If, on receipt of any such application, the
      Assistant Commissioner of Central Excise is
      satisfied that the whole or any part of the duty
      of excise paid by the applicant is refundable,
F     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 as
      determined by the Assistant Commissioner of
G     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-
H     (a) rebate of duty of excise on excisable goods
COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.                523
    GRASIM INDUSTRIES [A.K. SIKRI, J.]

  exported out of India or on excisable material used      A
  in the manufacture of goods which are exported
  out of India;

  (b) unspent advance deposits lying in balance in
  the applicant's account current maintained with the      8
  Commissioner of Central excise;

  (c) refund of credit of duty paid on excisable goods
  used as inputs in accordance with the rules C
  made, or any notification issued, under this Act;

  (d) duty of excise paid by the manufacturer, if he had
  not passed on the incidence of such duty to any
  other person;                                          D
  (e) the duty of excise borne by the buyer, if he had
  not passed on the incidence of such duty to any
  other person;
                                                           E
  (f) the duty of excise borne by any other such class
  of applicants as the Central Government may, by
  notification in the Official Gazette, specify:

  Provided further that no notification under clause (f)   F
  of the first proviso shall be issued unless in the
  opinion of the Central Government the incidence
  of duty has not been passed on by the persons
  concerned to any other person.
                                                           G
  (3) Notwithstanding anything to the contrary
  contained in any judgment, decree, order of
  direction of the Appellate Tribunal or any Court or in
  any other provision of this Act or the rules made H
524    SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A       thereunder or any other law for the time being in
        force, no refund shall be made except as provided
        in sub-section (2).

        Explanation.- For the purposes of this section,
B       .... ..... (B) 'relevant date' means -

        (f) in any other case, the date of payment of duty."

      20. The said Amendment Act also amended Section
C     11-C, besides introducing Section 11-D and an entire
      new chapter, Chapter II-A. Since Section 11-C does
      not fall for our consideration, we need not refer to it.
      Section 11-0 reads as follows:
D       110. Duties of excise collected from the buyer to
        be deposited with the Central Government (1)
        Notwithstanding anything to the contrary contained
        in any order or direction of the Appellate Tribunal or
E       any court or in any other provision of this Act or
        the rules made thereunder, every person who has
        collected any amount from the buyer of any goods
        in any manner as representing duty of excise,
        shall forthwith pay the amount so collected to the
F
        credit of the Central Government.

        (2) The amount paid to the credit of the Central
        Government under sub- section (1) shall be
G       adjusted against duty of excise payable by the
        person on the finalisation of assessment and where
        any surplus is left after such adjustment, the
        amount of such surplus shall either be credited to
        the Fund or, as the case may be, refunded to the
H
    COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.                  525
        GRASIM INDUSTRIES [A.K. SIKRI, J.]

       person who has borne the incidence of such A
       amount, in accordance with the provisions of
       section 11 B and the relevant date for making an
       application under that section in such cases shall
       be the date of the public notice to be issued by 8
       the Assistant Commissioner of Central Excise."

    7. Two things which emerge from the reading of
the aforesaid judgment and need to be emphasized are as
under:                                                             c
    (i) in attracting the principle of unjust enrichment it is
not only the actual burden which is passed on to the
another person that would be taken into consideration
even if the incident of such duty had not been passed on D
by him to any other person;

     (ii) the principle of unjust enrichment shall be applicable
in the case of captive consumption as well. According
to the Court the principle of unjust enrichment would be           E
applicable in both the circumstances.

     8. This case, therefore, makes it clear that the
principle of unjust enrichment is applicable even when the F
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 G
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 drawn some H
526         SUPREME COURT REPORTS                [2015] 4 S.C.R.


A sustenance from the judgment of this Court in the case
  of Indian Farmers Fertiliser Coop.Ltd. vs.
  C.C.E.Ahmedabad (1996 (86) ELT 177 (S.C.). Though
  that case is concerned with the exemption of Raw Naptha
8 was used to produce ammonia which is used in
  effluent treatment plant. Notification No.187 /61-CE
  provided for exemption to such Raw Naptha as is used
  in the manufacture of ammonia provided such ammonia is
  used elsewhere in the manufacture of fertilizers. The
C question was as to whether the ammonia used in the
  off-site plants is also ammonia which is used elsewhere in
  the manufacture of fertilizers. The court answered the
  question in the affirmative thereby holding that
D exemption provided under Notification 187/61-CE shall
  be available to the assessee.

           9. However, what follows from the reading of the said
      judgment is that if a particular material is used for
E     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
F     of variable cost. Both are the components which come
      into costing of a particular product. Therefore lt 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
G     into the costing of the goods. In order to come out
      of the applicability of the doctrine of              unjust
      enrichment, it therefor becomes necessary for the
      assessee to demonstrate that in the costing of the
H     particular product, the cost of capital goods was not taken
    COMMNR. OF CENTRAL EXCISE, CHENNAl-111 v.                   527
        GRASIM INDUSTRIES [A.K. SIKRI, J.]

into consideration. We, thus, are of the opinion that the view A
taken by the Tribunal is not correct in law.

     10. 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 8
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 c
the judgment of this Court in Indian Farmers Fertilisers
COOP. Ltd.

     11. Accordingly, the judgment of the Tribunal is set
aside. However, in the facts of the present case we are of D
the opinion that one opportunity should be granted to the
respondent 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 respondent is able to E
prove the aforesaid aspect it shall be entitled to the refund
and not otherwise.

    12. The appeal is allowed in the above terms.
Kalpana K. Tripathy                           Appeal allowed.    F