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Commnr. of Central Excise, Chennai v. M/s. Grasim Industries

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 8359 of 2003)Decided 13 Mar 2015
Civil Appeal No. 8359 of 2003
Justice A.K. Sikri · Justice Rohinton Fali Nariman

Background

Grasim Industries bought Electro Static Precipitators (pollution-control equipment) and paid excise duty at the normal 15% rate instead of a concessional 5% rate it was entitled to, then sought a refund of the excess duty (about Rs. 27.67 lakh). The Revenue refused the refund on the ground that allowing it would amount to unjust enrichment, since the cost had already been absorbed into Grasim's own accounts. The Tribunal (CESTAT) sided with Grasim, reasoning that because the equipment was used only captively for pollution control (not in making a saleable product), the unjust-enrichment doctrine did not apply.

Decision Breakdown

The Supreme Court held that the doctrine of unjust enrichment does apply to capital goods used captively, not just to raw materials, because the cost of capital goods, like raw materials, forms part of a product's overall costing. It held the Tribunal's reasoning (that captive use for pollution control automatically rules out passing on the duty burden) to be legally erroneous. The Court set aside the Tribunal's order but gave Grasim one further opportunity before the assessing authority to prove that the cost of these specific capital goods had in fact not been factored into the costing of its final product, only if it could prove that would it be entitled to the refund.

Lesson Learnt

A business cannot assume it is automatically entitled to a duty refund merely because the goods were used internally rather than sold: it bears the burden of proving the cost was not already passed on through its pricing, even for capital equipment used only for in-house purposes like pollution control.

Official source (sci.gov.in)View Judgment (PDF)

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