The Chennai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CA certificate and buyer confirmation sufficient to rebut unjust enrichment.
The Tribunal comprising Ajayan T.V. (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has allowed a refund of ₹4.42 crore to Oil and Natural Gas Corporation Limited (ONGC), holding that excess Oil Industry Development (OID) Cess paid due to an incorrect valuation methodology cannot be retained by the Department when the burden of the cess was never passed on to the buyer.
The bench set aside the appellate order that had rejected ONGC’s refund claim on the ground of unjust enrichment and directed grant of consequential relief in accordance with law.
The dispute arose from the period between March 2016 and May 2016, when ONGC cleared crude oil to Chennai Petroleum Corporation Limited under a Crude Oil Sale Agreement (COSA). Following a notification issued on March 28, 2016, OID Cess became leviable at an ad valorem rate of 20% of the value of crude oil instead of a specific rate.
ONGC later discovered that it had paid OID Cess on an incorrect assessable value by treating the sale price as an ex-duty value rather than a cum-duty value. Consequently, it filed a refund claim of ₹4,42,08,044 under Section 11B of the Central Excise Act, 1944. The Department rejected the claim, alleging that ONGC had failed to establish that the incidence of the cess had not been passed on to the buyer.
The Tribunal examined two principal questions: Whether ONGC had actually paid excess OID Cess due to adoption of an incorrect valuation methodology; and whether the refund was barred by the doctrine of unjust enrichment under Sections 11B and 12B of the Central Excise Act.
The Bench noted that after OID Cess became an ad valorem levy, valuation principles under Section 4 of the Central Excise Act became applicable. Under settled law, where the sale price does not separately recover duty, the transaction value has to be treated as a cum-duty price, requiring the duty component to be backed out before computing the assessable value.
According to the Tribunal, ONGC had incorrectly calculated cess by applying the 20% rate directly on the sale price instead of first excluding the duty component. This resulted in payment of duty on a value that already included the duty element, effectively leading to “duty on duty.” The refund verification report itself acknowledged that excess payment arose because ONGC adopted an ex-duty value instead of a cum-duty value.
The Bench observed that ONGC corrected the methodology from June 2016 onwards, further supporting its claim that the earlier payments had been made under a mistaken understanding of valuation principles.
A crucial factor in the Tribunal’s analysis was the Crude Oil Sale Agreement executed between ONGC and CPCL.
The Bench found that Schedule B of the agreement exhaustively prescribed the pricing mechanism and specifically identified components recoverable from the buyer. While the agreement expressly provided for payment of VAT and certain other levies in specific situations, it did not include OID Cess as a recoverable component.
According to the Tribunal, this contractual structure demonstrated that OID Cess was intended to be borne by ONGC and was not part of the transaction value charged to CPCL. The invoices also supported this conclusion because they reflected only the base value and VAT and contained no separate recovery of OID Cess.
While Section 12B of the Central Excise Act creates a presumption that duty incidence has been passed on to another person, the Tribunal emphasized that such a presumption is rebuttable.
ONGC produced a Chartered Accountant’s certificate certifying that the excess OID Cess had been borne by ONGC and not passed on to CPCL; A certificate issued by CPCL expressly confirming that it had not paid any amount towards OID Cess during the relevant period; and Contractual documents and invoices demonstrating that OID Cess was not included in the sale price.
The Tribunal held that these documents constituted cogent and corroborative evidence sufficient to rebut the statutory presumption under Section 12B. Significantly, the Department failed to produce any contrary evidence showing that CPCL had actually borne the burden of the cess.
The Bench referred to several decisions holding that unjust enrichment does not apply where contractual terms prevent recovery of duty from the buyer and where documentary evidence establishes that the burden has not been passed on. It also relied on an earlier CESTAT ruling in ONGC’s own case involving Education Cess and Secondary & Higher Education Cess paid on OID Cess, where similar evidence had been accepted to establish non-passing of duty incidence.
The Tribunal further emphasized the constitutional principle embodied in Article 265, which prohibits collection or retention of tax without authority of law. Once excess payment was established and the burden had not been passed on, the Department could not legally retain the amount.
Allowing the appeal, the CESTAT held that ONGC had successfully demonstrated excess payment of OID Cess due to incorrect valuation; non-passing of the duty burden to CPCL; and inapplicability of the doctrine of unjust enrichment.
The Tribunal set aside the impugned order and held that ONGC is entitled to refund of ₹4.42 crore along with consequential relief as admissible under law.
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