S 11B limitation held applicable in accumulated Cenvat credit refund is bad law—Part 2

In the first part of the article, it was evidently clear that the English language cannot do magic to imply limitation to be read in the law (when it is concluded by independent reading of the S 11B that no limitation is specified) merely by way of reference to the Section in the Notification. The reason being simple that it is well-settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. The learned judges of the Honourable High Court have themselves unambiguously acknowledged that there is no dispute that it is (read S 11B) applicable only in case of duty paid and not on the CENVAT credit facilities (read refund of accumulated Cenvat credit). Further, the purpose of the judiciary is to do justice & not save the inefficient & incompetent bureaucracy out to cheat the citizens. In this part, we deal with the reasons that why {Commissioner of Central Excise versus GTN Engineering (I) Ltd.; 2012 (281) E.L.T. 185 (Mad.)} is bad law.

1. Please see the heading of the S 11B & that reads as Claim for refund of duty and interest, if any, paid on such duty, therefore it is crystal clear that the S 11B deals with the refund of duty & interest thereon only. It is pertinent to point out that accumulated Cenvat Credit is not Duty or interest thereon therefore it cannot be covered under S 11B in any case. It is thus apparent that the CBEC officials very well knew all along that the S 11B applies to the refund of duty & interest only. The other refund such as refund of accumulated Cenvat credit will then be covered by limitation, if specified in the Rule/Notification specifically or under any other Act, if applicable. Therefore, the CBEC purposefully avoided specifying the limitation period in Rule 5 or notifications issued there-under & amended from time to time as this would result in the breach of the Act of the Parliament. Even, while laying down the limitation period for the refund of Service Tax vide Notification No. 14/2016-Central Excise (N.T.) Dated: 01.03.2016, the CBEC officials refrained from specific mention of the 1 year period in case of the manufacturer/100% EOU exporters because the same does not appear in S 11B of the CEA, 1944 though they have very clearly laid out the same in case of Service Tax by specifying the event from which this one-year period be counted.

2. Further, the pertinent point is that S 11B lists out very specifically those instances of refund of duty where the limitation period of 1 year is applicable. These read as:

(a) rebate of duty of excise on excisable goods exported out of India or, on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant’ s account current maintained with the Collector of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise paid by the manufacturer, if he had not passed on the incidence of such duty to any other person;

(e) the duty of excise borne by the buyer, if he had not passed on the incidence of such duty to any other person;

(f) the duty of excise borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify: Provided further that no notification under clause (f) of the first proviso shall be issued unless in the opinion of the Central Government the incidence of duty has not been passed on by the persons concerned to any other person.

Under, these circumstances, it is once again crystal clear that the limitation period of 1 year only applies in the very specific instances, which are very clearly laid out in the S 11B. Further, the limitation cannot be read in the law by way of a mere reference in respect of the refund of accumulated Cenvat credit for obvious reason. This manipulation & distortion of the law in the name of interpretation cannot be allowed under any circumstances to disentitle the exporters of the legitimate refund of accumulated Cenvat credit, which never belonged to the government (local taxes & duties cannot be exported). It was therefore incumbent on the government to amend the S 11B of the CEA, 1944 through the intervention of the Parliament if the limitation period is to be made applicable but the same has not been carried out & therefore cannot be wrongly made applicable.

3. The judicial authorities will note that in 1944 no concept of Modvat/Cenvat credit existed. As a matter of fact, Modvat was introduced much later in 1986. Therefore, there is no reason to believe that the legislature made a provision in S 11B in 1944 itself pertaining to the limitation period in respect of the accumulated Cenvat credit. In 1944, there was duty & interest thereon in implementation & therefore the laws in reference to that only exists. Subsequently, no provision in S 11B has been made in respect of the refund of accumulated Cenvat credit & the same has been upheld at the level of the High Courts. However, the same has been distorted later unnecessarily.

4. Please see the Explanation given in the Section 11B. The explanations are given for the purpose of the application of the law in proper perspective. The explanation says “refund” includes rebate of duty of excise on exciseable goods exported out of India therefore it is specific that excise duty payment must take place as defined in the S 11B for this Section to be applicable. Further, this view is fortified by the fact that the relevant date is defined in terms of refund of Excise duty therefore once again the conclusion is that there has to be the payment of excise duty in the first instance before the S 11B can be applied. As explained several times by way of specifics in the law, the S 11B cannot therefore apply to the refund of accumulated Cenvat credit because it is not duty payment under any circumstances. The judicial authorities cannot ignore the specific provisions of the S 11B & the explanations appearing in the Section to deprive the exporters of the legitimate accumulated Cenvat credit when the same cannot be utilized by the exporter. It is not for the judicial authorities to save the CBEC/bureaucracy in respect of the errors discernible in the law.

5. It is pertinent to point out that in 2012 (281) E.L.T. 185 (Mad.) COMMISSIONER OF CENTRAL EXCISE, COIMBATORE Versus GTN ENGINEERING (I) LTD., the Hon’ble HC Madras clearly acknowledges the fact that Section 11B of Central Excise Act, 1944 does not cover refund of accumulated Cenvat credit. Once, this position is accepted, then there is no way that limitation of one year can apply because the limitation of one year would have only applied in case there was a provision in S 11 B of Central Excise Act, 1944 but that is not the case as accepted by the hon’ble court. The plain reading of S 11 B makes it amply clear that the legislature-imposed restriction on duty & interest thereon alone & this intention cannot be stretched to the accumulated Cenvat Credit. The CBEC fully comprehends the position specified in the CEA, 1944 that limitation does not apply to refund of Cenvat credit but then trying to impose a restriction by way of a reference with let the courts decide attitude & this mischief cannot be allowed to proceed because it is antithetical to the letter & spirit of the law.

6. Rule 5 of CENVAT Credit Rules, 2004 provides that such accumulated credit can be refunded to the exporter subject to stipulated conditions. We agree with the fact that Rule 5 of the CCR, 2004 as amended has to be read in conjunction with Notification No. 05/2006-Central Excise (N.T.) as amended to proceed with the refund of accumulated Cenvat credit & there is a reference to S 11B but then the fact remains that limitation of time period cannot be applied because there is none specified in the S 11 B of Central Excise Act, 1944 as accepted by the high court. Further, it is pertinent to point out that any limitation for filing any claim, appeal, etc., prescribed under any law, has two components – the period of limitation during which the claim, appeal, etc., is to be filed and the date from which the limitation period is to be counted. If the date from which limitation period is to be counted is missing, it would amount to not prescribing any limitation period. This effectively means that application for the refund of the accumulated Cenvat credit can be made anytime & that refund has to be allowed. If the S 11 B imposes restriction of time limit for filing the refund application, then the same could have been specified directly in the Rule/Notification in itself (Like in the case of the refund of Service Tax) but then it is not carried out because the restriction does not apply. The Rule/Notification cannot be contrary to the CEA, 1944.

7. Please note that it is incontrovertible truth that time period of 1 year specified in the S 11 B of Central Excise Act, 1944 is not universally applicable. Please see the following:

i. In case of a removal of manufactured goods the duty is paid twice. Please note that both times, the amount paid is duty but the amount paid for the 2nd time is not duty but excess lying with the government as a deposit. This amount paid for the 2nd time belongs to the payee & cannot be pocketed by the GOI/department without the authority of law. Therefore, even though limitation of 1 year from the date of payment of duty is specified in the S 11 B of Central Excise Act, 1944, the limitation is not applicable. Therefore, it is essential that the law must be seen in the right perspective & applied correctly. In 2006 (206) E.L.T. 90 (Kar.) in case of COMMISSIONER OF C. EX., BANGALORE-III Versus MOTOROLA INDIA PVT. LTD., it is held that Amount paid by mistake in excess of duty – Such amount cannot be termed as duty, hence rule of time bar not applicable to excess amount paid over duty – Refund admissible – Section 11B of Central Excise Act, 1944.

ii. Take another instance where the ad valorem duty rate is 10% but inadvertently 15% duty is paid. The excess amount paid is not duty therefore once again limitation of 1 year from the date of payment of duty as specified in the S 11 B of Central Excise Act, 1944 is not applicable.

For both the above cases, Article 265 of the constitution is relevant. Thus, it is necessary to apply the law correctly & not in a manner which will jeopardize the legitimate rights of the assessee/exporter.

iii. Complete amount of duty is deposited in an ongoing litigation but then the refund cannot be subjected to S 11B because deposit is not duty payment though it is paid to cover the potential duty liability.  Similarly, Cenvat credit is deposit lying with the government in the Cenvat account & cannot be equated with duty. In 2017 (4) G.S.T.L. 53 (Tri.-Bang.) in case of ASHOK SHETY & ASSOCIATES C.A. Versus COMMISSIONER OF C. EX., MANGALORE, it is held that Deposit of entire duty during pendency of ongoing litigation between assessee and Department – Deposit to be deemed to be under protest – No limitation as prescribed under Section 11B of Central Excise Act, 1944 to be applicable.

8. Notification No. 27/2012-Central Excise (N.T.) dated: 18.06.2012 acknowledges that filing of the refund application continues to be a procedural requirement. This is upheld in 1. 2010 (19) S.T.R. 614 (M.P.); STI INDIA LTD. Versus COMMISSIONER OF CUS. & C. EX., INDORE & 2. 2013 (296) E.L.T. 426 (Tri. – Del.); COMMISSIONER OF C. EX., JALANDHAR Versus JCT LTD. It is an accepted fact that a lapse of procedural nature cannot result in denial of substantive rights of the beneficiary. This is accepted in 2006 (204) E.L.T. 632 (G.O.I.) GOVERNMENT OF INDIA, MINISTRY OF FINANCE [Department of Revenue, Revisionary Authority] IN RE : MODERN PROCESS PRINTERS wherein it is ruled that Procedural infractions of notification/circular are to condoned if export have taken place actually and substantive benefit should not be denied.

9. Another important fact is that a registered user files the quarterly/monthly returns, which contain the complete details in respect of the credits & the turnover i.e. the export as well as the domestic turnover & also the clearance of exports without the payment of terminal excise duty therefore the return in itself contains the complete details to effect the refund of the accumulated Cenvat credit on quarterly basis. The EOU is not allowed to conduct exports under the rebate procedure. Once the return of the exporter is accepted then the refund of the accumulated Cenvat credit becomes imperative & cannot be denied under any circumstances because refund of accumulated Cenvat credit is the only route to get back the local taxes suffered by the exports. These returns & actual performances are subject to EA 2000 audit therefore there is a double check in existence. If there is any discrepancy find at the time of audit, then the recovery is applicable as per the law. The returns once accepted, refund becomes absolute & cannot be denied.

10. If the 100% EOU has not conducted a single transaction for DTA clearance then under that circumstances, any Cenvat credit earned by the 100% EOU is required to be refunded to the EOU because there is no way to utilize the same. It is incontrovertible fact that the input Cenvat credit never belonged to the department because i.e. arising out of the inputs going into the manufacture of exports therefore it is very difficult to comprehend that why frivolous litigation should arise in the case of EOU.

11. Even if it is presumed that citation 2012 (281) E.L.T. 185 (Mad.) COMMISSIONER OF CENTRAL EXCISE, COIMBATORE Versus GTN ENGINEERING (I) LTD. applies then too it is pertinent to point out that the Notification No. 27/2012-Central Excise (N.T.) dated: 18.06.2012 specifically says that filing of Refund of accumulated credit is a procedural requirement & the S 11 B of the CEA, 1944 does not specify limitation period of 1 year therefore the benefit of doubt has to be given to the assessee. In 1993 (63) E.L.T. 42 (Bom.) in case of KASHI CONDUCTORS Versus UNION OF INDIA, it is ruled that in Interpretation of taxing statute – Benefit of doubt should go to the Assessee.

12. Please note that the 100% EOU who are exporting 100% of the manufactured goods cannot be put to a disadvantage in relation to the Domestic Tariff Area (DTA) unit. The export promotion policy is formulated by the GOI to promote exports & not create discrepancies/flaws to deprive the exporters of the legitimate entitlements. It is incumbent on the GOI/MOF to remove any flaws so that the exporters do not suffer for any reason.

13. Cenvat Credit was allowed to the 100% EOU vide Notification No. 18/2004-C.E. (N.T) dtd. 6.9.2004 therefore at the same time, option to export under Rebate should have been allowed to remove the disadvantage in relation to the DTA units. When the Cenvat credit is allowed then the Rebate procedure cannot be blocked in respect of the EOUs. Earlier, the exports under Rebate could not be allowed because there was no Cenvat credit allowed to the EOU.

14. Please note that 100% EOU can opt out of the 100% EOU scheme & effect exports under the Rebate procedure to claim the rebate & extinguish the accumulated Cenvat credit. Therefore, the refund of the accumulated Cenvat credit is the inherent right of the exporter & cannot be denied any way you look at it. The exporter will not only get the refund of Cenvat credit on the raw materials but even the capital goods. This once again establishes that there cannot be any limitation applicable for the refund of accumulated Cenvat credit in respect of the 100% EOU to put them to a disadvantage. This is simply preposterous, which strangulates the EOUs.

15. The EOUs are required to export 100% of the goods manufactured as such. The EOU is not allowed the claim of Duty drawback & exports under Rebate therefore the only way out for the EOU is to claim the refund of accumulated Cenvat credit in case the procurement is done on the payment of duty.

16. On the other hand, please refer to the RULE [5. Refund of CENVAT Credit. We invite the attention of the readers to the specific condition viz. condition (1) A manufacturer who clears a final product or an intermediate product for export without payment of duty under bond or letter of undertaking, or a service provider who provides an output service which is exported without payment of service tax, shall be allowed refund of CENVAT credit as determined by the following formula subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette. Further condition 1 (C) reads as “Export turnover of goods” means the value of final products and intermediate products cleared during the relevant period and exported without payment of Central Excise duty under bond or letter of undertaking; This is antithetical to the provisions contained in S 11B of the CEA, 1944 (S 11B requires duty payment to be applicable) therefore S 11B cannot be applied in any case where the Rule 5 is governing the refund. There is no way that S 11B can be applied which relates to the refund of duty & interest thereon in respect of Rule 5- Refund of CENVAT Credit under which export goods must be done without payment of duty under bond or letter of undertaking & being antithetical.

In my personal understanding, I am 100% sure that no limitation period applies in case of accumulated Cenvat Credit refund. If there was any such provision then it was open to the bureaucracy to specify it clearly, failing which the exporters of this country should not be cheated because it is shameful & disgusting. After all, why should the Indian Bureaucracy indulge in outright cheating! Why the law cannot be framed in a manner which has no ambiguity & no scope for dubious interpretation.