Excise Duty Refund on Post-Clearance Discounts Allowed Where Duty Incidence Not Passed On and Dealers are Unregistered: CESTAT [Read Order]

The Kolkata Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that excise duty refund on post-clearance discounts is admissible when the duty incidence has not been passed on and the dealers are unregistered.

Shyam Steel Industries Ltd., the appellant, is engaged in the manufacture of MS ingots, MS billets, and TMT bars at its factory in Durgapur. The goods were sold through a dealer network. As part of its regular business practice, the appellant offered various promotional schemes to its dealers, including turnover discounts, cash discounts for prompt payment, and compensatory discounts to adjust for market price reductions.

These discount schemes were declared in advance through an annual discount policy issued at the beginning of each financial year. Each year was divided into three discount periods of four months each, and the applicable discounts were communicated to dealers before clearance of goods.

Since the exact quantum of discount depended on performance factors such as quantity lifted, the discounts were quantified only after clearance of goods at the end of each discount period. The appellant issued cum-duty credit notes after clearance, neutralising the excess excise duty paid on the discounted portion. The dealers were not registered under the Central Excise law and did not avail CENVAT credit.

The appellant applied for provisional assessment, which was initially rejected by the department. The Tribunal later allowed provisional assessment, and the order was upheld by the Calcutta High Court. As provisional assessment was not granted during the relevant period, the appellant filed refund claims for excess excise duty paid on account of post-clearance discounts.

Show cause notices were issued, and the adjudicating authority rejected the refund claims on the ground that the appellant had no authority to issue cum-duty credit notes. On appeal, the Commissioner (Appeals) rejected the claims on the ground of unjust enrichment, holding that the appellant had failed to prove that the duty incidence was not passed on and that any refund would be payable only to the ultimate consumer. Aggrieved by this order, the appellant approached the Tribunal.

The appellant’s consultant argued that the discount schemes were known prior to clearance and were actually passed on through credit notes. It was argued that the duty burden on the discounted amount was borne by the appellant alone, as supported by Chartered Accountant certificates and dealer certificates. Since the dealers were unregistered and could not pass on or take credit of duty, unjust enrichment did not arise.

The consultant also argued that the Supreme Court decision in Addison & Co. Ltd. supported the appellant’s case, as it recognised credit notes as valid instruments for passing discounts and claiming refunds.

The revenue argued in support of the impugned order and contended that the appellant had not proved that the duty incidence was not passed on to consumers, making the refund hit by unjust enrichment.

The two-member bench comprising Ashok Jindal (Judicial Member) and K. Anpazhakan (Technical Member) observed that the discount schemes were known in advance and that excess duty was refunded to dealers through credit notes. It observed that the adjudicating authority itself recorded that credit notes had been issued.

The Tribunal explained that the dealer certificates and Chartered Accountant certificates clearly showed that the duty incidence was borne by the appellant. It also observed that since the dealers were unregistered, they could not pass on the duty burden.

The Tribunal pointed out that the Supreme Court’s decision in Addison & Co. Ltd. supported the appellant’s case and that the issue was already settled in the appellant’s own earlier cases.

The Tribunal set aside the impugned orders and allowed the refund claims with consequential relief.

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