TIOL-DDT 2684
14 09 2015
Monday

THIS is a refund claim pertaining to the excise duty paid during the period 1.10.1975 to 8.1.1976.

Panyam Cements and Minerals Industries Limited (PCMIL) filed a price list effective from 1.10.1975 in respect of Grey Portland cement and claimed the deduction of packing charges from the assessable value on the ground that the packing material is of durable nature and is returnable as provided. (in those days, price lists had to be filed by the assessees and they were to be approved by the Assistant Commissioner before clearance.) The Jurisdictional Assistant Commissioner did not accept the exclusion of packing charges from the assessable value and the price list was approved including the packing charges thereon. PCMIL after receipt of the approved price list started paying duty under protest. Though they paid the duty under protest, thereafter, they did not take any steps to challenge the approved price list by filing appeal questioning the inclusion of packing charges from the assessable value. Thereby the duty payable came to be crystallized as approved by the Assistant Commissioner.

On 7.5.1985, PCMIL filed the refund claim for an amount of Rs.17,68,481.56 ps., claiming the said amount has been paid as excise duty on packing charges during the period 1.10.1975 to 8.1.1976 on the ground the packing material i.e., gunny bags are of durable nature and is returnable within the meaning of Section 4(4)(d)(1) of the Act and thus the value is deductible from assessable value.

The Assistant Commissioner granted the refund by an order dated 19.08.1986. As usual, the department went in appeal. The Commissioner (Appeals) allowed the appeal of the department and set aside the Assistant Commissioner's order. He also directed the assessee to pay back the amount of refund which was in the meantime paid to the assessee.

On appeal by the assessee, the Tribunal confirmed the order of the Commissioner (Appeals) that the assessee was not entitled to claim refund of the amounts paid during 1.10.1975 to 8.1.1976. However, the Tribunal held that the said amounts were not recoverable from the assessee on the ground that no proceedings were initiated under Section 11A of the Act.

The Department appealed to the High Court in 2005, which was decided by the High Court recently.

The substantial questions of law raised by the department were:

1. Whether an appeal can be filed before the appellate authority under Section 35E of the Act and the recovery of erroneous refund can be based on the decision of the appellate authority;

or

2. Whether show cause notice is required to be issued within the time limit laid down in Section 11 A of the Act for recovery of such erroneously granted refund?

And the High Court added another question:

3. Whether in the fact and circumstances of the case, the resort to Section 11A of the Act is mandatory for recovering the refund granted pursuant to the adjudication order passed under Section 11B of the Act which adjudication order subsequently came to be declared as unsustainable.

The Counsel for the department submitted that:

1. the Tribunal has erred in holding that the independent proceedings under Section 11A of the Act are required to be initiated for recovering the sum of money which has been refunded to the assessee in the process of adjudicating claim under Section 11B of the Act in spite of the fact that on merits the Tribunal had found that the respondent was not entitled to such refund.

2. in the set of facts, the department is not seeking to recover erroneously refunded duty amount but was seeking to recover the duty amount refunded on account of the adjudication order passed on 19.9.1986 which order came to be set aside in the appeal proceedings.

3. In other words, the recovery was sought to be made by way of restitution and putting back the parties in the same position before passing the adjudication order.

4. the very refund claim was not maintainable and the same could not have been entertained by the Assistant Commissioner after a long lapse of time and thus the alleged exercise of power by the Assistant Commissioner under Section11B of the Act was itself erroneous and the said aspect stands confirmed by the orders of the appellate authorities which orders have become final.

5. Inasmuch as the very adjudication order holding that the respondent was not entitled to refund of the amount came to be set aside and the amount is recoverable from the respondent and the provisions of Section 11A have no application in such situations.

The assessee's counsel submitted that:

1. the scope of the appeal is limited to the questions of law which have been raised by the department, particularly in the facts of the present case.

2. it is impermissible for the department to resort to the provisions of Section 35E of the Act for recovering erroneously refunded duty amount and thus independent Section 11A proceedings are required to be initiated.

3. the only way to recover the erroneously refunded duty amount is under the provisions of Section 11A of the Act and there are no other provisions in the Act.

4. In that view of the matter, the order of the Tribunal is sustainable.

The High Court after referring to the various Rules and sections of the Act applicable during the relevant time observed that, the real question that is required to be considered is the validity or otherwise of the refund order granted by the Assistant Commissioner on 19.09.1986. In the refund order, the Assistant Commissioner went on to decide the issue the validity or otherwise of the duty demanded as if the same was in issue, which could have been done by him only in the process of considering the protest petition filed under Rule 233B read with Rules 173B and 173CC. In other words, the consideration of refund application was erroneous as the same was not maintainable. The Appellate Commissioner rightly set aside the same which also came to be confirmed by the Tribunal. In that view of the matter, the refund of money which has been made to the respondent was in the process of adjudicating his claim under Section 11B of the Act. A careful analysis of the Sections 11A and 11B of the Act would leave no manner of doubt that there is an adjudication process involved in the processing of the applications made under Sections 11A and 11B of the Act and further the orders passed under Sections 11A and 11B of the Act are appealable. The determination of an application made under Section 11B of the Act would result in the entitlement of an applicant for refund of any excise duty paid. If a very determination does not result in declaration of entitlement of refund any money paid in obedience to an order by an authority in the process of adjudication of such claims cannot be termed as granting of erroneous refund. Such payment would fall in the category of implementation of an order, subject to finality of such order. In other words, such refund would be outside the scope of the erroneous refunds contemplated under Section 11A of the Act. In a way Section 11A and 11B of the Act operate in two different streams.

The High Court compared the situation to a civil proceedings of money suit. Pending adjudication of an appeal amount deposited / paid in honouring the judgment and decree would have been repaid back without there being any requirement of a separate suit. Present facts of the case are similar to the above illustration.

The High Court further observed that in the light of the conclusion arrived at that Sections 11A and 11B of the Act are two independent provisions and parameters which are required to be considered in the process of application under Sections 11A and 11B of the Act being totally different and independent there is no interconnection between the same. The orders passed under both the Sections 11A and 11B of the Act are amenable for appeal and further appeal to the higher forums. There is no warrant for one to conclude for implementing the orders passed under Section 11B of the Act recourse is to be taken to the provisions of Section 11A of the Act.

So, the High Court answered all the three questions in favour of the revenue and against the assessee.

The assessee is now required to pay back to the Government the amount of refund it received in 1986 - unless of course, the case is taken to the Supreme Court.

The assessee is not required to pay any interest.

Some dates in this case are interesting:

The same High Court passed a similar order 16 years ago - I covered that issue in DDT ten years ago - DDT 167 28 07 2005.

In that case, the High Court had made an observation, "Legal ingenuity knows no bounds. It baffles an ordinary person whether the pleas such as those put forward in the present case could be available at all. The petitioners having got the refund pursuant to the judgment of this court which was later on reversed by the Supreme Court tries to resist the move of the Excise Department to recover back the amount refunded to it."

Interestingly, the question as to whether the cost of returnable gunny bags is includible in the value of excisable goods is not yet settled as can be seen from the Supreme Court decision recently reported by us in Tata Chemicals Ltd. (2015-TIOL-177-SC-CX). Also see DDT 2658/07.08.2015. So, in all probability, this case will celebrate its golden jubilee in a decade from now!

Please see 2015-TIOL-2127-HC-AP-CX

CESTAT Allahabad Bench Functional?

THE CESTAT President has transferred Mr. Anil Choudhary, Member (Judicial), CESTAT, Mumbai  to Allahabad. He is asked to report for duty at CESTAT Allahabad by 01.10.2015.

The CESTAT Registrar had informed the Allahabad High Court on 7.9.2015 that the regular functioning of the Regional Bench at Allahabad will start from 1st October, 2015.

The Registrar had also told the Court that the circuit Bench of the Tribunal will sit at Allahabad from 14th September to 18th September, 2015. Accordingly a Circuit Bench will also be sitting at Allahabad from today till Friday.

What happens to Hyderabad and Chandigarh benches?

Exemption to Ordnance factories - Confusion in field formations and trade

VIDE Notification No 23/2015 CE dated 30.04.2015 (w.e.f 01.06.2015) , two old Notifications in Central Excise, i.e., 62/95 and 63/95 have been amended. In Notification No 62/95 CE, the following entries of exemption were omitted:

So, after this amendment, the above goods manufactured by the ordnance factories became dutiable and the exemption is not allowed.

Similarly, in Notification No 63/95, the following entries were omitted:

See DDT 2589 /01.05.2015

However, there is one more exemption Notification which also needed an amendment, but the authorities have lost sight of the same at the time of amending the above two Notifications.

Notification No 64/95 CE dated 16.03.1995 provides exemption to parts of motor vehicles supplied to Central Government Ordnance factories for the purpose of manufacture of vehicles falling under Chapter 87 of the Schedule. Sl No 6 of the Notification reads:

Obviously after the amendments made vide Notification No 23/2015 CE, the ordnance factories are required to pay duty on all goods manufactured by them. So, even if these parts are supplied duty free, there is no exemption to finished goods manufactured by the Ordnance factories.

It appears that there are some doubts as to what needs to be done in cases where parts of motor vehicles are supplied by one ordnance factory to another ordnance factory. In such cases, the supplying ordnance factory can avail the exemption under Notification No 64/95 CE.

CBEC should consider issuing a clarification as doubts are being expressed by departmental officers.

Until Tomorrow with more DDT

Have a nice day.

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