By TIOL News Service

MUMBAI, DEC 02, 2016: THIS is an appeal filed in the year 2005.

The appellant claimed exemption under notification no. 195/86-CE dated 13th March 1986 in respect of ‘sodium hypo chlorate' [CTH 2828.90].

Although the classification list had been approved with effect from 1 st March 1988, appellant was issued a notice dated 30th January 1989 for revocation of this approval followed by notice dated 28th April 1989 demanding duty of Rs.1,31,888.55 for the period from 1 st February 1988 to 20th January 1989.

The notices were challenged and the Bombay High Court granted a stay subject to the petitioner furnishing a bond for the amount demanded in the notice and discharge of further duty liabilities by paying duty ‘Under Protest'.

Accordingly, the appellant paid an amount of Rs.50,02,398/- till the disposal of the writ petition on 10th November 2003.

Thereafter, a refund claim was filed on 5th December 2003.

This was rejected by the lower authorities on the ground that duty paid ‘Under Protest' had been allegedly collected from the customers. The sole ground for rejection of the claim is the failure to satisfy the original authority that the burden of duty had been borne by the appellant. This, according to that authority, was an inescapable obligation as the letter of protest did contain an endorsement to the effect that marketing department should arrange to recover the duty from their customers.

Dejected, the appellant filed an appeal before the CESTAT.

It is submitted that since the duty collected was without authority of law, they are not required to comply with requirements of section 11B of CEA, 1944 that the burden of duty had not been passed on to others. Case laws were cited in support.

In the grounds of appeal, the appellant also pleaded that the endorsement on the letter of protest was an internal communication which was not sufficient to establish that the burden of duty had been passed on without a more detailed scrutiny.

None appeared for the appellant when the appeal was heard in July.

The Bench observed that in the order of the original authority, there is no reference found to any notice to show cause as to why the claim should not be rejected and, therefore, in the absence of such notice, the appellant was, undoubtedly, hard put to produce evidence to the satisfaction of the original authority. That, without such notice, the competent authority had failed to discharge the burden to place the assessee under notice of the proposed grounds of rejection and the lower appellate authority too had failed to take cognizance of this glaring lapse thus vitiating the impugned order.

The CESTAT added that the amended provisions of section 11B of CEA, 1944 predicating release of refund to applicant only upon satisfying the competent authority that incidence of duty had been borne came into effect only on 20 th September 2001 by notification no. 30/91-CE (NT);that the presumption, in Central Excise Act, 1944, of having passed on the burden as per section 12B and requirement of declaration of duty in documents as per section 12A came into effect from that date [20.09.1991] whereas the refund had been claimed of duty collected between 21 st January 1989 and February 1997. Inasmuch as the original authority had failed to distinguish the effect of the said amendment, the Bench noted.

The CESTAT further observed -

++ The original authority has rejected the refund claim on the ground of failure to discharge the obligation to evidence having borne the incidence of duty. Under Section 11B of Central Excise Act, 1944, the competent authority is required to sanction the refund and credit the amount to the Consumer Welfare Fund implying that claims that are found to be correct in establishing that duty has been collected in excess of that authorized by law cannot be retained in the Consolidated Fund of India but should be transferred to the Fund created for the welfare of the mass of unknown consumers who have borne the burden of duty. Therefore, while the authority may not have erred in not allowing the refund to the appellant, the rejection of the refund claim in the context of the finding, such as it is, is not in accordance with the law. The first appellate authority, by concurring, has participated in this unauthorized exercise of retaining the unauthorizedly collected duty.

++ The proper course of action to be pursued when the applicant for refund has not been able to satisfy that duty collected without authority of law has not been passed on to customers is to sanction the refund and credit it to the Fund. For having failed to notice this departure from legality and propriety and for not remedying the flaw, the impugned order is liable to be set aside.

And the parting shot by the Bench -

"It is surprising that the authorities empowered to review the two orders also failed to enable the necessary rectification despite being mandated to call for and examine orders-in-original and orders-in-appeal to ascertain their legality and propriety. Apparently, an order that was not detrimental to revenue, no matter its abundance of illegality, is justification sufficient for disregarding statutorily mandated obligations. We suggest that the Central Board of Excise & Customs issue suitable instructions to its field formations to avoid recurrence of such blatant disinclination to discharge duties of office."

The order was set aside and the matter was remanded.

(See 2016-TIOL-3120-CESTAT-MUM)