Excise duty refund for trade-turnover discounts not allowable unless duty passed on to the ultimate consumer – Supreme Court

Excise duty refund for trade-turnover discounts not allowable unless duty passed on to the ultimate consumer  else it would result in unjust enrichment – Supreme Court

Excise duty refund for trade-turnover discounts

ABCAUS Case Law Citation:
1004 2016 (08) SC

Important Judgments cited:
Mafatlal Industries Ltd. and Others Vs. Union of India And Ors., (1997) 5 SCC 536
Union of India and Others Vs. Bombay Tyre International Pvt. Ltd. (1984) 1 SCC 467 and (2005) 3 SCC 787
Addison & Company Ltd., Madras Vs. Collector of Central Excise, Madras (1997) 5 SCC 763

Brief Facts of the Case:
In the instant case, the respondent assessee claimed refund towards the excise duty paid on account of additional discounts and turnover discounts given. However, the Excise Department was of the opinion that the assessee was not eligible for refund towards turnover discount and additional discount. As per the Assistant Collector of Excise the burden of proof to show that the full incidence of duty had not passed on to the buyers was on the assessee as per Section 12-B of the Central Excise Act, 1944, (Act).

The dispute traveled to the Madras High Court and it was held that the refund towards deduction of turnover discount cannot be denied on the ground that there was no evidence to show who is the ultimate consumer of the product and as to whether the ultimate consumer had borne the burden of the duty. It was further held by the High Court that the claim for refund made by the manufacturer was not dependent on the identification of the ultimate consumer. The word ‘buyer’ used in Section 12-B of the Act does not refer to ultimate consumer and has reference only to the person who buys the goods from the person who has paid duty i.e. the manufacturer.

Contentions of the Revenue:
It was contended on behalf of the Revenue that a claim for refund could be entertained only when the claimant had not passed on the duty to any other person.  It was submitted that there is a presumption, though rebuttable, that the full incidence of the duty has passed on to the buyer of the goods. It was pleaded that refund would amount unjust enrichment. It was further stated that the refund could be granted only to the person who had paid the duty and not to anyone else and if the ultimate consumer cannot be identified, the amount would be retained and utilized for the benefit of Consumers.

Contentions of the Assessee:
It was submitted that as per section 4 read with Section 11-B of the Act claim for refund of turnover discount given after the sale is permitted provided the scheme of discount had been agreed upon prior to the removal of the goods. It was contended that the scheme of turnover discount was known to the buyer even at the time of sale, discount was given on the basis of the turnover of sales made by the buyer and that the credit notes issued to the buyer contains the discounts and the duty element. It was also contended that that trade discounts should not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.

It was also submitted that there was absolutely no necessity for any verification to be made as to who was the ultimate consumer and as to whether he had borne the burden of the duty. So long as the manufacturer did not retain the benefit he is entitled to the refund.

Observations made by the Supreme Court
The Apex Court observed that it had already held in Addison & Company that the turnover discount was an admissible deduction. Also in Bombay Tyre International it had held that trade discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.

It was observed that under Section 12-B of the Act there is a statutory presumption that the duty has been passed on to the ultimate consumer but there was no material on record to show that the buyer to whom the incidence of duty was passed on by the Assessee did not pass it on to any other person.

The Court disapproved the contention of the assessee that the claim for refund can be made only by the manufacturer or his buyer and any enquiry pertaining to unjust enrichment should be restricted only to the manufacturer and his buyer as the concept of the ultimate buyer/ consumer was not present in Sections 11B, 12A, 12B and 12C of the Act.

The Court opined that as held by it in Mafatlal Industries a consumer can also make an application for refund and the word ‘buyer’ in Clause (e) to proviso to Section 11-B (2) of the Act could not be restricted to the first buyer from the manufacturer.

Regarding the requirement of verification to be done for the purpose of finding out who ultimately bore the burden of excise duty. The Court opined that though it might be difficult to identify who had actually borne the burden but such verification would definitely assist the Revenue in finding out whether the manufacturer or buyer who makes an application for refund are being unjustly enriched. If it is not possible to identify the person/persons who have borne the duty, the amount of excise duty collected in excess will remain in the fund which will be utilized for the benefit of the consumers as provided in Section 12-D.

Accordingly the Supreme Court allowed the appeal of the Revenue holding that in the instant case the assessee was not entitled to excise duty refund for trade-turnover discounts given.

Excise duty refund for trade-turnover discounts

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