The Principal Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that merely accounting the reversed CENVAT credit as an expense in the financial statements does not establish that the tax burden was passed on to customers.
Setting aside the orders of the lower authorities, the bench of Binu Tamta (Judicial Member) and P. V. Subba Rao (Technical Member) directed that the refund be granted to the assessee instead of being credited to the Consumer Welfare Fund.
The dispute arose after the assessee, a manufacturer of medicaments, had availed CENVAT credit of ₹70.08 lakh on input services relating to service commission. The department disputed the admissibility of the credit, prompting the company to reverse the amount in its CENVAT records on different dates.
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Subsequently, in an earlier round of litigation, the Tribunal held that the CENVAT credit had been rightly availed. Pursuant to that decision, the assessee filed a refund claim for the reversed amount.
While the Assistant Commissioner sanctioned the refund, the amount was ordered to be credited to the Consumer Welfare Fund under the principle of unjust enrichment on the ground that the assessee had failed to prove that the burden of service tax had not been passed on to its customers. The Commissioner (Appeals) affirmed this view, leading to the present appeal before the Tribunal.
The principal question before the Tribunal was whether the refund was barred by the doctrine of unjust enrichment under Section 11B of the Central Excise Act because the reversed CENVAT credit had allegedly been treated as an expenditure in the financial statements.
The Revenue argued that Section 12B creates a statutory presumption that the incidence of duty has been passed on to the buyer and contended that the accounting treatment indicated that the tax burden had been embedded in the cost of the finished goods.
The department also relied on the Supreme Court’s judgment in Union of India v. Solar Pesticides Pvt. Ltd., arguing that even indirect passing on of the duty burden would attract the doctrine of unjust enrichment.
The assessee submitted that no invoice had ever been raised to recover the reversed CENVAT amount from any customer and that the burden of the reversal had been borne entirely by the company.
It further explained that although the amount had initially appeared in the profit and loss account, it had subsequently been reflected as a receivable under current assets in the balance sheet, demonstrating that the amount was expected to be recovered from the Government and not from customers.
Significantly, the assessee produced a Chartered Accountant’s certificate dated 4 July 2026, certifying that the entire amount of ₹70.08 lakh had been borne by the company itself and had never been recovered from any customer through invoices or otherwise.
The Tribunal accepted the assessee’s submissions and held that the accounting treatment adopted in the books cannot, by itself, determine whether the burden of duty has been passed on.
It observed that no evidence existed to show that the assessee had recovered the reversed CENVAT amount from its customers. The Chartered Accountant’s certificate constituted credible evidence that the incidence of duty had remained with the assessee. Such a certificate could not be disregarded without any contrary evidence from the department. Merely debiting the amount to the profit and loss account does not establish unjust enrichment, particularly when the amount is subsequently reflected as recoverable in the balance sheet.
The Bench relied on its earlier decisions, including Barmer Lignite Mining Co. Ltd., Chambal Fertilizers and Chemicals, and National Aluminium Co. Ltd., reiterating that amounts deposited during investigation or adjudication proceedings are in the nature of deposits rather than duty. The method of accounting followed by an assessee cannot be the sole basis for concluding that the burden of tax has been passed on. Reflection of the disputed amount as expenditure in financial statements does not automatically trigger the bar of unjust enrichment.
The Tribunal distinguished the Supreme Court’s decision in Solar Pesticides Pvt. Ltd., noting that the apex court dealt with imported raw materials where the duty component became part of the cost of finished goods sold to customers.
In the present case, however, the reversed CENVAT credit had not been recovered from any buyer. Instead, the assessee had itself borne the financial burden while reversing the credit, making the Supreme Court ruling inapplicable to the facts of the case.
Allowing the appeal, the Tribunal held that the refund claim was not hit by the doctrine of unjust enrichment. It set aside the orders of the lower authorities and directed that the refund be granted to the assessee with consequential relief instead of being transferred to the Consumer Welfare Fund.
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