Vivek Pharmachem India Ltd. Vs Commissioner (CESTAT Delhi): Refund Allowed as Unjust Enrichment Not Established on Reversed CENVAT Credit

Background and Overview

A significant ruling has emerged from CESTAT Delhi in the case of Vivek Pharmachem India Ltd. Vs Commissioner, where the Tribunal examined whether a refund claim arising out of reversed CENVAT credit could be denied on the ground of unjust enrichment. The central question before the Tribunal was whether the incidence of service tax had been passed on to customers — a condition that, if established, would have barred the refund under Section 11B of the Central Excise Act, 1944.

The case is particularly instructive for assessees who reverse CENVAT credit under departmental pressure and subsequently obtain relief from an appellate authority, only to face resistance when claiming a refund of the amounts so reversed.

Material Facts of the Case

The assessee, Vivek Pharmachem India Ltd., is engaged in the manufacture of medicaments. It had availed CENVAT credit amounting to Rs. 70,08,629/- in respect of input services related to service commission.

The department raised an objection to the eligibility of such credit, following which the assessee reversed the CENVAT credit through entries in RG-23A Part-II as under:

  • Rs. 54,29,291/- reversed on 26.07.2013
  • Rs. 9,30,348/- reversed on 01.01.2014
  • Rs. 6,48,988/- reversed on 09.09.2014

Subsequently, the Tribunal, by Final Order No. 57580/2017 dated 01.11.2017, held that the assessee was indeed entitled to the CENVAT credit and allowed it. Armed with this order, the assessee filed a refund claim for the full amount of Rs. 70,08,629/-.

However, the matter did not conclude there. A Show Cause Notice dated 19.03.2019 was issued by the department, alleging that the assessee had failed to rebut the statutory presumption of unjust enrichment. The department's contention was that since the reversed CENVAT credit had been treated as revenue expenditure in the financial accounts, this indicated that the service tax burden had been passed on to customers.

Procedural History

  1. The assessee reversed the disputed CENVAT credit following departmental objection.
  2. The Tribunal allowed the CENVAT credit vide Final Order No. 57580/2017 dated 01.11.2017.
  3. The assessee filed a refund claim of Rs. 70,08,629/-.
  4. The Assistant Commissioner sanctioned the refund but directed that the amount be credited to the Consumer Welfare Fund under Section 12C of the Central Excise Act, 1944.
  5. On appeal, the Commissioner (Appeals) upheld this order.
  6. The assessee preferred an appeal before CESTAT Delhi.

The Tribunal was called upon to adjudicate the following core issue:

Whether the refund claim filed by the assessee after reversal of CENVAT credit was barred by the doctrine of unjust enrichment under Section 11B of the Central Excise Act, 1944, on the ground that the incidence of service tax had allegedly been passed on to customers.

Relevant Statutory Provisions

  • Section 11B of the Central Excise Act, 1944 — Governing refund claims
  • Section 12B of the Central Excise Act, 1944 — Statutory presumption that incidence of duty has been passed on
  • Section 12C of the Central Excise Act, 1944 — Provision relating to the Consumer Welfare Fund

Submissions Made by the Parties

Assessee's Arguments

The assessee's counsel advanced several compelling arguments against the application of unjust enrichment: