Refund mechanism are based on thebasic principle of unjust enrichment. This principle ensures eradication of claim of same benefit more than once. Refunds were introduced to bring about a boost in certain sectors in an economy but with the rising applications,numerous issues have been encountered seeking clarifications.
In view of the provisions of the Central Excise Act, it is provided that the principle of unjust enrichment is not applicable in case of duty paid on export, duty paid on inputs / input services used in the manufacture of exported goods / for provision of exported services and unspent balance lying in PLA. In order to bring uniformity and resolve varying issues encountered in application of the principle of unjust enrichment, a Circular was issued vide F. No. 137/29/2016-Service Tax, indicating the manner of accounting and documentation requirements to be adhered by the assessees.
The amount of the refund should be indicated as “Duty Receivable” under the heading “Current Assets” in the Balance Sheet till the refund is proposed to be sanctioned. Self-certification will suffice where the refund amount is Rs. 25 lakhs or less and for amount over Rs. 25 lakhs, the certificates would be required to be certified by a Chartered Accountant / Cost & Management Accountant.
Hon’ble Supreme Court in the judgement of Union of India Vs. Solar Pesticides Pvt. Ltdheld that the refund sanctioning authority has to satisfy himself that the amount of duty / tax claimed as refund has neither been included in the cost nor the cenvat credit has been claimed. Further CBEC has clarified that in case of Capital goods only the ex-duty value of capital goods should be capitalized and the amount of duty on capital goods has to be transferred to “Duty Receivable” account. In the case of refund of duty relating to capital goods, the amount of duty paid on capital goods should not be availed as cenvat credit. Further, the amount of duty paid on capital goods should not be claimed as depreciation. If the Cenvat was availed in the year of making paymentbut the recipient reverses the cenvat credit in the financial year in which he claims the duty/tax amount as refund, will satisfy the test of the principle of “unjust enrichment”.
In the transactions of discounts documents like duty payment document, contract specifying terms of discount/incentive, certificate for calculation of discount, certificate from the recipient, etc. should be obtained to prove that refund is duly claimed.
The documents required in case of refund on finalisation of provisional assessment will include duty payment document,certificate that the differential duty amount has not been recovered from the recipient, certificate from the recipient that he has not availed cenvat credit of differential duty amount and details of Credit/ Debit note issued clearly indicating the differential duty amount.
Also in cases involving mandatory pre-deposit before the filing of an appeal before the appellate authority which shall be refundable in the event of issue of judgement in favour of the assessee. The said amount is not a duty and therefore, the principle of unjust enrichment is not applicable in such cases.