Axon Drugs (P) Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)
Introduction: The recent judgment by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) Chennai in the case of Axon Drugs (P) Ltd Vs Commissioner of GST & Central Excise has generated interest among legal experts and industry professionals. At its core, the case deals with the adjudicating authority’s decision to credit an excise refund to the Consumer Welfare Fund, a move deemed “unjust and improper” by the CESTAT Chennai. This article delves into the nuances of the case to provide a detailed understanding.
The Factual Matrix: The appellant, Axon Drugs, is in the pharmaceutical business, and they filed a rebate claim concerning the export of medicines. After scrutiny, a portion of the rebate claim was sanctioned to be credited to the Consumer Welfare Fund. Axon Drugs contested this decision, arguing that they bore the incidence of duty themselves and not the consumer.
The Core Controversy: CENVAT Account and Rebate Claims: Axon Drugs made a rebate claim of Rs.5,55,950/- for the exports. However, upon inspection, it was found that Rs.3,01,002/- pertained to duty-free inputs, which led to a show-cause notice. Eventually, this amount was ordered to be credited to the Consumer Welfare Fund under Section 11 B of the Central Excise Act, 1944, a decision Axon Drugs appealed against.
The Legal Interpretation: Section 11 B of the Central Excise Act: The original authority sanctioned the rebate but decided to credit Rs.3,01,002/- to the Consumer Welfare Fund citing sub-section (2) of Section 11 B. They claimed the duty was passed on to the overseas buyer, an assertion Axon Drugs vehemently denied, leading to the appeal.
The Tribunal’s Observation: Unjust Enrichment: The adjudicating authority’s argument was based on the principle of ‘unjust enrichment’. The tribunal, however, stated that the logic behind assuming that the duty has been passed on to a buyer outside India was faulty and not within the jurisdiction of the Central Excise Act.
The Final Verdict: The Tribunal concluded that the incidence of the duty had been borne by the appellant, Axon Drugs. Therefore, crediting the sanctioned refund to the Consumer Welfare Fund was deemed unjust and improper. The appeal was allowed, and Axon Drugs was granted a refund of Rs.3,01,002/-.
Conclusion: The CESTAT Chennai’s verdict in Axon Drugs Vs Commissioner of GST & Central Excise showcases the importance of precise legal interpretations and underlines the fact that the Consumer Welfare Fund cannot arbitrarily be credited with refunds, especially when the assessee has borne the incidence of the duty.
FULL TEXT OF THE CESTAT CHENNAI ORDER
1. Brief facts are that the appellants are engaged in the manufacture of P and P medicines falling under chapter 30 of the schedule to the Central Excise Tariff Act, 1985. They filed a rebate claim for an amount of Rs.5,55,950/- pertaining to the export of medicaments on payment of duty through CENVAT account. On scrutiny of the claim, it was found that Rs.3,01,002/- pertains to duty paid on exported goods which were manufactured using the inputs procured without payment of duty in terms of notification no.43/2001 dated 26/6/2001. Show Cause Notice dated 28/4/2010 was issued proposing to reject the claim to the extent of Rs.3,01,002/-. After due process of law, the original authority sanctioned rebate of Rs,2,54,948/- and allowed re-credit of Rs.45/- in their CENVAT account. The amount of Rs.3,01,002/- though sanctioned as refund under Section 11 B of Central Excise Act, 1944 was ordered to be credited to the Consumer Welfare fund as under sub Section (2) of Section 11 B of the Central Excise Act, 1944. Aggrieved by such order, directing to credit the amount to the Consumer Welfare Fund, the appellant is now before the Tribunal.
2. The Ld. counsel Shri M. Karthikeyan appeared and argued for the appellant. It is submitted that during the period from July 2009 to October 2009, the appellant made exports on payment of duty under claim of rebate and preferred a rebate claim for Rs.5,55,950/- in respect of export made vide 5 file nos. ARE-1’s. However, in the said covering letter claiming the rebate, the appellant had also mentioned that some of the export goods had been manufactured using inputs procured duty free in terms of notification no.43/2001/CE (NT) and accordingly requested to reduce the cash rebate claim to Rs.2,54,948/- and allow the balance amount of Rs.3,01,002/- as re-credit to their CENVAT account. The Show Cause Notice was issued proposing to restrict the rebate claim to the extent of duty payable on the FOB value and the reject the rebate claim of Rs.3,01,002/- on the ground that the export goods were manufactured using imported duty free inputs. The appellant vide letter dated 17.06.2010 had explained that they are not eligible for cash rebate of Rs.3,01,002/- and was requesting for re-credit of the said amount. To the surprise of the appellant, the adjudicating authority, though sanctioned the refund of Rs.3,01,002/- has ordered to credit the amount to the Consumer Welfare Fund observing that the incidence of duty has been passed on to the overseas buyer. There was no whisper of the allegation of unjust enrichment in the Show Cause Notice. The appellant had submitted copies of the excise invoice, export invoice, shipping bill etc. before the adjudicating authority along with the rebate claim and also before the first appellant authority. The bank realization certificate was also produced as proof of realization of the export proceeds.
3. From the documents furnished by the appellant, it can be seen that export invoice is raised on the foreign buyer in foreign exchange on the CIF value. The excise duty is paid by appellant only on the FOB value in INR after excluding the freight and insurance. In the shipping bill, the export invoice in foreign currency has been mentioned and it also shows the invoice value both in INR as well as foreign exchange. The CIF value billed on the foreign buyer vide their export invoice does not include the excise duty paid for such exports. The bank realization certificate would substantiate this. For this reason, the order of the adjudicating authority holding that the incidence of duty has been passed on to the foreign buyer is erroneous. The Ld. counsel prayed that the appeal may be allowed.
4. The Ld. AR Mr. R. Rajaraman appeared and argued for the department. The findings in the impugned order was reiterated.
5. Heard both sides.
6. The adjudicating authority though sanctioned the refund claim has ordered to credit the amount to the Consumer Welfare Fund observing that the amount is hit by the principle of unjust enrichment. It is thus, held by the authorities below that the incidence of duty has been passed on to the foreign buyer. We do not understand the logic of such view taken by the adjudicating authority that the duty has been passed on to a buyer outside India; i.e., outside the jurisdiction of the Central Excise Act. This apart it is brought out from records and also explained by the Ld. counsel that the Excise duty is paid on FOB value and the export invoice reflected in the shipping bill is on CIF value. The excise duty is paid only on FOB value and therefore the appellant has not collected excise duty from the foreign buyer. After verification of the records and appreciating the evidence, we are convinced that the incidence of duty has been borne by the appellant. In such circumstances, the order passed by the authorities below directing to credit the sanctioned refund to Consumer Welfare Fund is not just and proper.
7. In the result, the impugned order is modified to the extent of sanctioning the refund of Rs.3,01,002/- and the appellant is eligible to receive refund of this amount. The appeal is allowed in the above case with consequential reliefs, if any.
(Pronounced in court on 28.08.2023)