CBEC: Manipulative law & devious interpretation cannot be hallmark of a just taxation regime

The law needs to be transparent & implemented in a just manner & there are no two ways about it. However, the miraculous Indian bureaucracy does not believe in this basic tenet. The law is written in such a difficult manner that the lawmakers in themselves are not clear that what is the true intention leave aside the implementers & the beneficiaries. Therefore, the businesses are compelled to succumb to illegalities more so because there is absolutely no accountability in the system.

This is a telling story about how manipulative the Indian bureaucracy can be to misappropriate the refunds of the exporters. The Refund of accumulated Modvat/Cenvat credit existed as early as 1987. This effectively means that if you were effecting exports under bond then there would be a situation that the credit in respect of inputs going into the manufacture of exports will accumulate & this accumulated credit needs to be refunded to the exporters.  The Notification No. 85/87 CE (NT) dtd. 1.3.1987 as amended was the applicable notification under which the refund of accumulated Cenvat credit was allowed because of the simple reason that local taxes cannot be exported. The significant point to note is that taxes going into the manufacture of exports or export clearances never belonged to the government & therefore the department is obligated to refund the money to the exporters but that is not to be. In any other country, the administration would facilitate the exporters as the emphasis is on legitimate refunds. The administration will ask the exporters to claim their refunds & put them to notice if they are not claiming them. The truth is that the administration is a facilitator & they conduct themselves in that manner to promote exports in real sense of the word. However, the bitter truth is that the department does not facilitate refunds but places a number of obstacles for misappropriation.

There was a complete review of the Cenvat Credit Rules in 2002. The Rule 5 of CCR, 2004 permitted refund in terms of Notfn. No. 5/2006 CE (NT) dtd. 14.3.2006 as amended. The comparison of Notification No. 85/87 CE (NT) dtd. 1.3.1987 with Notfn. No. 5/2006 CE (NT) dtd. 14.3.2006 reveals that the contents of the refund of accumulated Cenvat credit remains exactly the same in respect of limitation post the reviewed Rules/Notification in 2004.

The Notification No. 85/87 dtd. 1.3.1987 has been put to test of interpretation at the level of the High Court. In 2008 (232) E.L.T. 413 (Guj.); COMMISSIONER OF C. EX. & CUSTOMS, SURAT-I Versus SWAGAT SYNTHETICS wherein it is ruled that Assessee is seeking refund of unutilized deemed credit, provisions of Section 11B of Central Excise Act, 1944 can have no play and cannot be applied. As a matter of fact, this has been the consistent view expressed in several judicial pronouncements.

However, this settled law was reversed in 2012 (281) E.L.T. 185 (Mad.) COMMISSIONER OF CENTRAL EXCISE, COIMBATORE Versus GTN ENGINEERING (I) LTD. However, there is apparently a grave error in arriving at conclusion in this case.

A. We agree with the fact relied upon by Hon’ble HC Madras that Section 11B of Central Excise Act, 1944 & Rule 5 of the CCR, 2004 has to be read in conjunction with Notification No. 5/2006-CE (NT) as amended to proceed with the refund but then the fact remains that limitation of time period cannot be applied.  On perusal of Explanation B of Section 11B giving definition of “relevant date” in respect of claims for refund of excise duty on the goods exported out of India, it is seen that this definition of ‘relevant date’ is applicable only in respect of rebate claim available on export of goods out of India. However, cash refund under Rule 5 of the Central Excise Rules is not a rebate or refund of the duty paid on excisable goods exported out of India or excise duty paid on input used in manufacture of the goods exported out of India. The refund under Rule 5 is the cash refund of Cenvat credit accumulated due to export of goods without payment of duty under bond or LUT, which cannot be used by a manufacturer for payment of duty on clearances for home consumption and thus this refund claim depends not only upon the accumulation of Cenvat credit due to clearances without payment of duty for export under bond or LUT, but also on the inability of the manufacturer to use the accumulated credit for payment of duty on domestic clearances. Unlike export rebate under Rule 18 of the Central Excise Rules, 2002, where an exporter becomes eligible for rebate immediately after export, for cash refund of accumulated Cenvat credit under Rule 5 of the Cenvat Credit Rules, 2002/2004, a manufacturer does not become eligible immediately after export but he has to make an attempt to utilize the Cenvat credit accumulated due to exports under bond/LUT for payment of duty on clearance for home consumption. Therefore, the definition of ‘relevant date’ as given in clause (a) of Explanation B to Section 11B in respect of export rebate claims, cannot be applied to Rule 5 refund claims. There is no other clause of Explanation B to Section 11B which is applicable to the refund claims under Rule 5 of the Cenvat Credit Rules. A limitation prescribed in law always has two components – the period of limitation during which the application is to be filed or something is to be done and the date from which the limitation period is to be counted. Without prescribing the relevant date, a statutory provision prescribing limitation period is meaningless. Since, the second component of the limitation i.e. the relevant date from which the limitation period is to be counted is missing in Clause 6 of the Notification No. 11/2002-C.E. (N.T.), dated 1-3-2002, in my view the limitation provision in this notification is meaningless. (2014 (302) E.L.T. 132 (Tri. – Del.) DEEPAK SPINNERS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, INDORE).

B. The Hon’ble HC Madras clearly acknowledges in paragraph 12 the fact that Section 11B of Central Excise Act, 1944 does not strictly 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. The plain reading of S 11B makes it amply clear that the legislature imposed limitation on the refund of duty & interest alone & this cannot be stretched to accumulated Cenvat Credit.

C. Another pertinent point is that if the S 11B imposes restriction of time limit for filing the refund application then the same could have been specified directly in the Rule/Notification itself but then it is not carried out because actually the restriction does not apply. The reason being that the Rule/Notification cannot be contrary to the CEA, 1944 & that the CBEC is well aware of the fact. Why we reach this incontrovertible conclusion is the fact that the C. Ex. Act was passed by the Parliament in 1944 & at that point of time, nobody knew that India will have a modified Value Added Taxation system in the future & the accumulated credit will have to be refunded to the exporter. (Please note that condition 2 (b) exists in the S 11B of the CEA, 1944 since inception & there is no amendment effected after the Modvat credit was introduced). Therefore, reading limitation period of 1 year into the law by way of S 11B is untenable. Therefore, if CBEC needed to apply the limitation period of 1 year to the accumulated Cenvat credit then the CEA, 1944 needed to be amended appropriately. It cannot be the case of the CBEC that they are the law unto themselves & just by making a cross reference to S 11B of the CEA, 1944 the legitimate rights of the assessee/exporter can be misappropriated if the refund of accumulated credit is not filed within 1 year. It is very difficult to comprehend that why the CBEC will not amend the CEA, 1944 but adopt manipulation & devious interpretation to deprive the exporters of their legitimate claims. The S 11B very specifically states to what it applies & refund of accumulated credit dies not find a mention. What we are trying to say is that any conclusion contrary to the S 11B of Central Excise Act, 1944 cannot be upheld or allowed to proceed. If the limitation was to apply to all refunds then the S 11B of Central Excise Act, 1944 would have not restricted itself to cover only duty & interest alone.

D. Under the Bond/LUT, the goods could be exported within 6 months from the date of removal & if the goods were removed on the last day of the quarter & exported on the last day of the six month period then the exporter would be left with less than 3 months for filing the refund claim after the receipt of the export documents. Further if the period of export was extended as permitted in the law then it cannot be the case of the CBEC that the exporter will be deprived of the legitimate claim. It is incumbent upon the CBEC to ensure that the applicable law serves the defined purpose under different permutations & combinations & does not deprive the exporters of their legitimate vested rights. Under the extended period, the law cannot be applied therefore limitation period of 1 year fails & cannot be upheld in terms of the law. This is once again incontrovertible.

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

i. In case of a particular removal of manufactured goods the duty is paid twice. Please note that both the times, the amount paid is duty but the amount paid for the2nd time is not duty but excess lying with the government as a deposit. This amount paid for the2nd 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 11B of Central Excise Act, 1944, the limitation is not applicable. Therefore, it is essential that the law has to be seen in the right perspective & applied correctly.

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 11B 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. Further, even in cases where 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.

F. Another pertinent point is that the application for the refund of the accumulated Cenvat credit has to be filed on quarterly basis. Therefore, 1 year limitation cannot be practically applied even if it is presumed that S 11B of Central Excise Act, 1944 is applicable. Take for e.g. that export is conducted on 1.4.2014 & the next export is conducted on 28.6.2014 only. The refund application for the quarter i.e. April- June 2014 is to be made within 1 year i.e. application can be made up to 30.6.2015. The application is made on 30.6.2015. However, please note that export conducted on 1.4.2014 is not within a period of 1 year. Therefore, once again, this application of limitation period is flawed & not applicable.

G. 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. Notification No. 5/2006 CE (NT) dtd. 14.3.2006 as amended clearly acknowledges the fact 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. It is an accepted fact that a lapse of procedural nature cannot result in denial of substantive rights of the beneficiary.

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 performance are subject to EA 2000 audit therefore there is a double check in existence. It is incontrovertible fact that the input Cenvat credit never belonged to the department because it is 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 this case.

H. The filing of Refund of accumulated credit is a procedural requirement & the S 11B of the CEA, 1944 does not specify limitation period of 1 year therefore the benefit of doubt has to be given to the assessee. For this we rely on 1993 (63) E.L.T. 42 (Bom.) in case of KASHI CONDUCTORS Versus UNION OF INDIA where it is ruled that in Interpretation of taxing statute – Benefit of doubt should go to the Assessee. – This is apart from the settled legal position that taxation statutes have to be construed strictly, and the benefit of doubt, if any, has to be given to the assessee”. [cited from AIR 1990 SC 2190]. Thus, in the present case, the benefit of doubt should be allowed to us as Notification No. 27/2012 CE (NT) dtd. 18.6.12 specifically says that filing of Refund of accumulated credit is a procedural requirement & the S 11B of the CEA, 1944 does not specify limitation period of 1 year in respect of accumulated Cenvat credit.

I. Please note that the 100% EOUs exporting 100% of the manufactured goods cannot be put to a disadvantage in relation to the Domestic tariff Area unit. The export promotion policy is formulated by the GOI to promote exports & not create discrepancies/flaws so as 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. Please note the following:

J. Cenvat Credit was allowed to the 100% EOU vide Notification No. 18/2004 therefore at the same time, option to export under Rebate should have been allowed so as to remove the disadvantage in relation to the DTA units. When the Cenvat credit is allowed then the Rebate procedure cannot be blocked. Earlier, the exports under Rebate could not be allowed because there was no Cenvat credit allowed to the EOU.

K. 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.

L. Last but not the least important is the fact that if limitation is applied to the refund of duty & interest alone then it does not mean that restriction will vanish because under the General law of limitation, there is limitation applicable & that was sufficient to take care of all other cases of refunds.

The courts & Tribunals have rightly taken a consistent position that there is no limitation clause in S 11B in respect of the accumulated Cenvat credit therefore the limitation period cannot be applied even subsequent to the GTN Engineering decision of the Madras High Court. The list of judgement includes 1. 2013 (296) E.L.T. 426 (Tri. – Del.); COMMISSIONER OF C. EX., JALANDHAR Versus JCT LTD.  2. 2014 (302) E.L.T. 132 (Tri. – Del.) DEEPAK SPINNERS LTD. Versus COMMISSIONER OF CENTRAL EXCISE, INDORE  3. 2012 (279) E.L.T. 280 (Tri. – Del.) ELCOMPONICS SALES PVT. LTD. Versus COMMISSIONER OF CENTRAL EXCISE, NOIDA 4. 2010 (262) E.L.T. 627 (Tri. – Ahmd.) GLOBAL ENERGY FOOD INDUSTRIES Versus COMMISSIONER OF C. EX., AHMEDABAD. 5. 2011 (264) E.L.T. 275 (Tri. – Ahmd.)-COMMISSIONER OF C. EX., AHMEDABAD Versus RANGDHARA POLYMERS & 6. 2014 (304) E.L.T. 422 (Tri. – Chennai)-COMMISSIONER OF C. EX., CHENNAI-IV Versus CELEBRITY DESIGNS INDIA PVT. LTD. Therefore, the truth needs to be upheld & the exporters given the legitimate refund.

Last but not the least important is the fact that the issue stands settled by way of ratio decendi in 2015 (321) E.L.T. 45 (Mad.) in case of DY. COMMISSIONER OF C. EX., CHENNAI Versus DORCAS MARKET MAKERS PVT. LTD. wherein it is ruled that the Notification No. 19/2004, dated 6-9-2004 prescribes the conditions, limitations and procedures for considering the claim for refund. Under Clause 2(d) of the notification, the rebate claim may be allowed from such place of export and such date, as may be specified by the Board, by filing electronic declaration. This Notification dated 6-9-2004 superseded the previous Notification bearing No. 41/1994, dated 12-9-1994. At the time when the 1994 notification was issued, the procedure for filing electronic declaration had not been made. Since everything was made manually at that time, the notification of the year 1994 prescribed a time-limit for filing claim. But, the 2004 notification did not contain the prescription regarding limitation. This was a conscious decision taken by the Central Government and hence, the view taken by the learned Judge is fair and reasonable. Therefore, if the limitation is not specified in the notification, the same cannot be made applicable. This has attained finality by way of [Deputy Commissioner v. Dorcas Market Makers Pvt. Ltd. – 2015 (325) E.L.T. A104 (S.C.)] as the subject issue went before the Supreme Court & it is finally settled that Notification No. 19/2004-C.E., dated 6-9-2004 does not contain the prescription regarding limitation. Assessee actually having exported the goods and in absence of any prescription in the scheme, the rejection of application for refund as time-barred is unjustified. Therefore as settled by the Apex Court, the ratio decendi that the limitation period cannot be read into the law if the same is not specified. There is no limitation period specified even in S 11B of the CEA, 1944 in respect of the refund of the accumulated Cenvat credit & therefore cannot be applied in the case of accumulated Cenvat credit refund. It is pertinent to point out that this is despite the fact that Refund includes Rebate.

Notwithstanding, anything written above is that why the bureaucracy should not be transparent so that there is no scope for devious interpretation. The GoI is paying a handsome salary for doing mundane job of administration then why the officials should abuse their official position to hold the exporters to a ransom to extract a pound of flesh! If we are really serious about facilitating the exporters & ease of doing business then it is essential that the administration does not write law in terms of double meaning dialogues at the very least. This only brings about a bad name to the government & nothing beyond that & therefore avoidable. I detest all this because I don’t like to be cheated & robbed in broad daylight!

(Author Rajiv Gupta can be reached at rajiv.pec@gmail.com)