Confirmation of duty demand unjustified in absence of any loss of revenue

Ozone Pharmaceuticals Limited Vs Commissioner of Central Excise & Service Tax (CESTAT Kolkata)

CESTAT Kolkata held that confirmation of demand of duty unjustified if in the totality of the facts and circumstances of the case, no actual loss has been caused to the revenue. Thus, duty demand set aside in absence of any loss of revenue.

Facts- M/s. Ozone Pharmaceuticals Limited as well as M/s Ozone Ayurvedics are engaged in manufacturing of medicines falling under sub heading 3003 10 of the 1^st Schedule to the Central Excise Tariff Act, 1985.

The appellant contested that the intent with which the amendments of Notification No. 61/2002 were given retrospective effect, vide Finance Act, 2003, was met by the Appellants upto the date of its enactment. Even the provisions of Section 153(4) have been wrongly interpreted by the department in the present case to mean that the said provision mandates the recovery of refund by only confining the duty payment and credit accumulation to the period upto 22.12.2002. This is neither brought out from the express language of the provision nor from the intent thereof. The Appellants by utilizing the entire Cenvat credit upto the enactment of Finance Act, 2003 never got any refund under the Notification in excess, thus, there is no question of recovery by invoking the said provision.

Conclusion- Held that demand of duty cannot be confirmed against the assessee if in the totality of the facts and circumstances of the case, no actual loss has been caused to the revenue.

Held that the refund claim of the appellants for the subsequent period, could not be rejected on the ground that the appellant has taken excess refund for the period prior to 22.12.2002, therefore, no demand is sustainable against the appellant as demanded in view of the letter dated 03.06.2003 by the Deputy Commissioner and the refund for the period August, 2006 to October, 2006 were not required to be appropriated.

FULL TEXT OF THE CESTAT KOLKATA ORDER

As the issue in both the appeals is common, therefore, both are disposed off by a common order.

2. The facts of the cases in both the appeals are as under :

M/s. Ozone Pharmaceuticals Limited as well as M/s Ozone Ayurvedics are engaged in manufacturing of medicines falling under sub heading 3003 10 of the 1^st Schedule to the Central Excise Tariff Act, 1985 and is registered with the department vide Registration No. AAACO0056HXM002 and AATPS8259CXM002 respectively.

Being aggrieved with the said orders, the appellants are in appeal.

3. The ld. Advocate for the appellants submits that on the basis of the facts reproduced above, it is submitted that, immediately after the amendment of NN-32/99-CE, vide NN-61/02-CE w.e.f. 23.12.2002, the Appellants started utilizing the accumulated CENVAT credit on inputs as well as capital goods available with it diligently towards the payment of duty for subsequent months. Starting from 23.12.2002, the Appellants utilized CENVAT credit for the payment of duty and on the continuous utilization by the Appellant, the balance in the CENVAT account became “Nil” in June 2003.

3.1. Therefore, as soon as the NN-32/99-CE was amended on 22.12.2002, the Appellants very obediently followed the same and utilized the accumulated CENVAT credit for the payment of duty. Such was the impact of utilization of the CENVAT credit that no refund was claimed/sanctioned to the appellants during the months of February 2003 to May 2003 and in the month of June 2003, duty was paid from PLA and refund was claimed only after completely exhausting the CENVAT credit balance. It is submitted that upto the month of May 2003 (when NN-61/02 was given retrospective effect), the appellants had fully utilized the accumulated CENVAT credit.

3.2. He further submits that because of such utilization of CENVAT credit during the period from 23.12.2002 to May 2003, the refunds in these subsequent months i.e., from 23.12.2002 to May 2003 were reduced to the extent of accumulated balance of input CENVAT credit as on 22.12.2002. It is reiterated that no refund was sanctioned to the appellants for the period February 2003 to May 2003 on account of such utilization. Thus, in light of these facts, it is submitted, that the excess refund that the department claimed to have sanctioned to the Appellants upto 22.12.2002 was adjusted by sanctioning lower/nil refund claims during the period from 23.12.2002 to May 2003 on account of the subsequent utilization of the accumulated CENVAT credit. 3.3 The intent with which the amendments of Notification No. 61/2002 were given retrospective effect, vide Finance Act, 2003, was met by the Appellants upto the date of its enactment. Even the provisions of Section 153(4) have been wrongly interpreted by the department in the present case to mean that the said provision mandates the recovery of refund by only confining the duty payment and credit accumulation to the period upto 22.12.2002. This is neither brought out from the express language of the provision nor from the intent thereof. The Appellants by utilizing the entire Cenvat credit upto the enactment of Finance Act, 2003 never got any refund under the Notification in excess, thus, there is no question of recovery by invoking the said provision.

3.4. In this regard, reliance is placed the ratio of the judgment of the Hon’ble CESTAT, Delhi in the case of Commissioner of C. Ex., Jammu vs. New India Wire and Cables, 2008 (232) ELT 681 (Tri-Del), which has been delivered in identical set of facts. In the said case, the assessee working under the similar area-based exemption notification availed the Cenvat credit in one month but carried forward and utilized the same in subsequent months. The department disputed the same and sought to recover the excess refund sanctioned to the assessee in the initial month where the Cenvat credit was not fully utilized. The Hon’ble CESTAT, Delhi allowed the contention of the assessee that once the very same amount of Cenvat credit was utilized in the subsequent period, there is no loss to the revenue and thus, no demand is sustainable. It was also held that confirming demand in such a scenario would defeat the purpose of the notification.

3.5 Similar ratio has also been followed by the Hon’ble Tribunal Delhi in the case of M/s Singla Cables vs. Commissioner of Central Excise, 2015 (2) TMI 381 – CESTAT NEW DELHI.

3.6 Further, in a catena of judicial precedents it has been repeatedly held that demand of duty cannot be confirmed against the assessee if in the totality of the facts and circumstances of the case, no actual loss has been caused to the revenue. In this regard, reliance is placed on following cases holding the said proposition:

• Lili Foam Industries (P) Ltd vs. Collector of C. Ex, 1990 (46) ELT 462 (Tribunal), M/s Hindalco Industries Limited vs. Commissioner of Central Excise, Bhubaneswar-II, 2023 (5) TMI 720 – CESTAT KOLKATA –,
• Fedders Lloyd Corpn. Ltd vs. Collector of Central Excise, New Delhi, 1997 (78) ELT 207 (Tribunal) ,HMT Ltd vs. Commr. of Cus. & C. Ex., Hyderabad, 2001 (136) ELT 850 (Tri-Chennai).

3.7 He further submits that in the present case as well, the purpose for which the amendment in NN-32/99-CE by NN-61/02-CE was brought into effect was never frustrated by the Appellants and no excess benefit was availed by them upto the introduction of the Finance Act, 2003. This is because if duty payment and consequent refund starting from May 2001 till May/ June 2003 are taken into consideration together it comes equal of the total duty less the amount of CENVAT credit availed. This shows that even if the Appellants would have utilized the CENVAT credit from the beginning the situation would have been same as it stood in June 2003, because of subsequent utilization of accumulated CENVAT credit. Thus, the purpose for which amendment in NN-32/99-CE by NN-61/02-CE was brought into effect was fulfilled by the Appellants.

3.8. It is submitted that it is settled principle of law that demand is not sustainable when the situation is revenue neutral. The Appellants, in this regard, seek to place reliance on the following rulings:

• Commissioner of C. Ex., Pune vs. Coca-Cola India Pvt Ltd, 2007 (213) ELT 490 (SC)
• International Auto Ltd vs. Commissioner of Central Excise, Bihar, 2005 (183) ELT 239 (SC), and
• Commissioner of C. Ex. & Cus., Vadodara-II vs. In deos ABS Limited, 2010 (254) ELT 628 (Guj) affirmed by Hon’ble Supreme Court 3.9 It is further submitted that while arguing the aforesaid matter before the Hon’ble Supreme Court, the Ld. Counsel for the Appellants submitted that an order for recovery could not have been issued straightaway without issuing a notice to the Appellants because facts and circumstances of each case have to be looked into before making an order for recovery. It was submitted that no recovery could have been made by exercising power under Section 153(4) of the Finance Act, 2003 in the Appellants’ case because it had completely utilized the accumulated CENVAT credit amount before the Finance Act, 2003 came into effect and had not taken refund of such equivalent amount in cash.

3.9. It is further submitted that the Ld. Commissioner (Appeals) without considering the observations of the Hon’ble Apex Court in its true spirit went ahead to uphold the order of recovery passed by the Ld. Deputy Commissioner by observing that the fact that the Appellants had utilized the entire amount of accumulated CENVAT credit after 22.12.2002 is irrelevant since the Hon’ble Supreme Court’s direction does not indicate to treat “any point of time” beyond 22.12.2002.

3.10 It is also submitted that such a finding is completely erroneous and contrary to the context in which the Hon’ble Supreme Court had made the aforesaid observation. The Hon’ble Supreme Court after adverting to the specific submission of the Appellants regarding complete utilization of the accumulated CENVAT credit amount before the Finance Act, 2003 came into effect and not taking refund of such equivalent amount in cash had made such an observation. Therefore, the Hon’ble Supreme Court never intended the appellate authority not to consider the period after 22.12.2002, rather it directed the appellate authority to consider the totality of the facts and circumstances before making any order for recovery.

3.11 He further submits that the fact of the appellants having not utilized the credit upto 22.12.2002 was always on records before the Hon’ble Supreme Court. If the intent of the Hon’ble Supreme was to only confine the claim of refund to work out the demand for the period upto 22.12.2002, then, there was no reason for it to set aside the Hon’ble High Court’s order and direct the Appellants to file appeal to Commissioner (Appeals). The matter could have been disposed by the Apex Court itself, since it has always been the plea of the Appellants since inception that they have not got any excess refund equivalent to Cenvat credit pertaining to the period upto 22.12.2002 by virtue of utilizing the same before Finance Act, 2003 came into force.

3.12 It is further submitted that the Commissioner (Appeals) inspite of admitting the utilization of Cenvat credit by the Appellants post 22.12.2002, ignored such documentary evidence and violated the Hon’ble Supreme Court’s directions in the present matter and also the ratio of the judgment of the Hon’ble CESTAT, Delhi in the case of Commissioner of C. Ex., Jammu vs. New India Wire and Cables, 2008 (232) ELT 681 (Tri-Del), as elaborately explained in ground A above, wherein the utilization of Cenvat credit in subsequent month was held to have no revenue impact and within the intent and purposes of the area-based exemption notification.

3.13 It is submitted that recovery of Rs. 1,51,62,481/- (being Rs. 1,01,20,672/- towards the amount of allegedly excess refund + Rs. 50,41,809/- towards interest thereon) from Ozone Pharma and Rs. 88,54,980/- (Rs. 59,17,101/- alleged excess amount refunded + Rs. 29,37,879/- towards interest thereon) from Ozone Ayurvedics, has been done by the department by appropriating the amount from the refunds sanctioned under Notification No. 32/99-CE, vide the refund orders pertaining to the months of August 2006 to October 2006.

3.14 In view of the aforesaid submissions, inasmuch as the demand per se is not sustainable, the said amounts are liable to be refunded to the appellants, along with appropriate interest.

4. The ld. A. R. for the Revenue supported the impugned order.

5. Heard both sides and considered the submissions.

6. We find that the similar issue has been dealt with by this Tribunal in the case of M/s Singla Cables (supra), wherein this Tribunal has recorded as under :

“6. In this case, though during February 2006 to April 2006 period, the appellant for whatever reason, did not take Cenvat credit of Rs.10,72,419/- in respect of SAD resulting in higher quantum of exemption under Notification No. 56/2002-CE and thus higher quantum of refund, in December 2006 as soon as this was pointed out, they took the Cenvat credit of this amount, as a result of this in the month of December 2006 their refund claim was lesser to that extent. Thus, overall there was no excess availment of exemption under Notification No. 56/2002-CE, as the excess quantum of refund under Notification No. 56/2002-CE during February 2006 to April 2006, was neutralized by lesser quantum of refund under this notification during December 2006.

7. A similar case came up before this Tribunal in the case of New India Wire and Cables [2008 (232) ELT 681 (Tri-Del)] wherein the assessee did not take the available Cenvat credit during the period it was available and paid the excess from the PLA and took the refund thereof. Later on, they took Cenvat credit which was available and paid less duty. In that case, the excess refund availed by the assessee during the initial period was sought to be denied. In that case, this Tribunal held that it is situation of revenue neutrality, therefore denial of refund is not sustainable.”

7. Further, in the case of New India Wire & Cables (supra), this Tribunal, has observed as under :

“2. After hearing both the sides we find that in terms of Notification No. 56/2002, the respondent, who is located in Jammu was required to pay duty by first exhausting their Modvat credit available and then through their PLA. The duty paid in cash through PLA was available as refund to the assessee. It so happened that during the particular period duty was paid by the respondent by cash, without first exhausting the Cenvat credit. This, according to the assessee, happened on account of being not aware of the provisions of the notification. The refund of duty paid in cash was originally rejected by the original adjudicating authority but on appeal, allowed by the Commissioner (Appeals). The said order of the Appellate Authority is impugned before us.

3. For better appreciation of the reasoning adopted by the Commissioner (Appeals) we reproduce the relevant paragraph :-

“In the present instance the purpose of the policy of the Govt. is to refund the duty paid in cash and merely not following one of the condition does not debar the appellants from the benefit. Moreover, when the appellants have exhausted the Cenvat credit in subsequent months. To quote a few instances, I observe that during the months of May 05, Dec. 06, January. 07 and March 07 the balance with the Cenvat account was NIL and during the Months of February 05 the balance was Rs. 102/-, March 06 it was Rs. 4030/-, April 06 it was Rs. 6885/-, July 06 it was Rs. 180/- only. This shows that the appellants had exhausted the Cenvat balance at some point or other if not in the respective months for which they filed the refund claims. However, mandatory condition of the notification i.e. the manufacturer first utilizes whole of the Cenvat Credit available to him on the last date of the month shall be fulfilled invariably for the claim of refund of cash duty paid for that month. But keeping in view, the appellants’ applying for the benefit of notification No. 56/2002-C.E., dated 14-11-2002 in the month of February, 2005 and their case being finalized in the month of October, 2006 (w.e.f. 25-1­2005) i.e. after a period of one year and eight months, I take a lenient view towards non-fulfilment of condition of the notification by the appellants.”

4. As is seen above, the credit which was required to be utilized in the previous months was subsequently utilized by the assessee in the succeeding months, the entire situation is revenue neutral and the Appellate Authority has rightly held that an interpretation which defeat the purpose of the notification should be avoided. As such, we do not find any infirmity in the view adopted by the Appellate Authority and reject the appeal filed by the Revenue.”

8. In view of this, we hold that the issue is no more res integra. Acordingly, we hold that the refund claim of the appellants for the subsequent period, could not be rejected on the ground that the appellant has taken excess refund for the period prior to 22.12.2002, therefore, no demand is sustainable against the appellant as demanded in view of the letter dated 03.06.2003 by the Deputy Commissioner and the refund for the period August, 2006 to October, 2006 were not required to be appropriated.

9. In view of this, we aside the impugned order and allow both the appeals with consequential relief, if any.

(Pronounced in the open court on 26.09.2023)