Case Law Details
Brief Facts
The assessee is engaged in the manufacture of automobile parts and components. The assessee cleared waste and scrap and replacement of defective products without payment of duty. The period in question pertains to September, 1998. On the ground that the investigation revealed that the assessee cleared waste and scrap and replacement for defective products without payment of duty and also resorted to under-valuation of the goods, adjudication proceedings were initiated and pending adjudication, the assessee deposited Rs.1.55 Crores under protest for the purpose of co-operating with the investigation of the Department. A show cause notice dated was issued on the assessee invoking the extended period of limitation as provided under proviso to Section 11A (1) of the Central Excise Act, demanding duty, interest and also penalty. After adjudication, the demand was confirmed by the Commissioner of Central Excise. Against the said order of the Commissioner, an appeal was filed to the Tribunal and the Tribunal set aside the impugned order of adjudication and allowed the appeal of the assessee.
Pursuant to the same, the assessee filed a claim for refund of deposit made under protest, including the deposit made at the time of filing the appeal to the Tribunal. The said refund application was sanctioned by the jurisdictional Assistant Commissioner. However, no appeal was filed against the order of the Assistant Commissioner of Central Excise, ordering refund.
The Commissioner of Central Excise, however, took up the matter in exercise of powers conferred under Section 35E (2) of the Act and directed the authority to file an appeal to the Commissioner (Appeals) within the time limit prescribed thereunder. On the appeal filed by the Department, the Commissioner (Appeals) took up the same and allowed the appeal filed by the Department and directed the jurisdictional authority to verify the plea with regard to unjust enrichment.
The assessee went on appeal before the Tribunal against the said order of the Commissioner (Appeals). The Tribunal, in the said appeal, came to hold that there was no case of unjust enrichment on the facts of the said case, as the assessee had produced the Chartered Accountant’s certificate to the effect that refund claim has not been passed on to the customers.
Aggrieved against the said order of the Tribunal, the Department was before this Court by filing the present appeal.
Contentions of the assessee
The assessee contended that even though the appeal was filed well within the time limit as specified under Section 35 (E) (3) of the Act, however, no notice, as contemplated under Section 11-A of the Act has been issued for making recovery of the erroneous refund. The Assessee placed reliance on the Board’s circular No.423/56/98-CX dated 22.9.1998 and the decision of the Supreme Court in Commissioner of Central Excise Vs. Re-Rolling Mills (1997 (94) ELT 8 (SC)), which in turn relied upon the decision in Union of India Vs Jain Shudh Vanaspathi Ltd. & Anr. (1196 (86) ELT 460 (SC): 1996 (10) SCC 520). In the Circular No.423/56/98-CX dated 22.9.1998, the CBEC had issued the following clarification:-
“Certain doubts have been raised regarding whether the erroneous refunds granted could be recovered by recourse to review under Section 35-E of the Central Excise Act or demands under Section 11A within the statutory time limit as laid down.
The SC in the case of CCE Vs. Re-rolling Mills (reported in 1997 (94) ELT 8 (SC) has inter alia held as following.
“The learned Counsel for the parties do not dispute that this appeal is covered by the decision of this Court in Union of India & Ors. Vs. Jain Shudh Vanaspati Ltd. & Anr. 1996 (86) ELT 460 (SC) = (1996) 10 SCC 320. In that case the court was dealing with Section 28 of the Customs Act which is in parimateria with Section 11A of the Central Excise Act. The said decision is thus applicable to the present case also. For the reasons given in the said judgement, the appeal is dismissed”.
In this context the point to be stressed is that the Order passed u/s 35-E (2) does not automatically result in the recovery of the refund. This has to be followed by SCN U/S 11A which should be issued within 6 months from the date of actual refund. Since time limit for filling appeal u/s 35E (2) is longer than the time limit prescribed u/s 11A, the SCN, the SCN should precede the proceedings u/s 35-E (2).
This view has been supported by the opinion of the Law Ministry. The Law Ministry vide F.No. 387/78/98-JC has opined thus, “In view of the judgement of the Apex Court in CCE Vs. Re-rolling Mills [1997 (94) ELT 8] dismissing the appeal preferred by the Department against the CEGAT order, the order passed by the Tribunal on 27.1.98 in the present case of M/s Fag Precision Bearing Ltd. reflects the correct legal position. We, therefore, agree with the view of the referring Department that the demand for recovery of erroneous refund has to be made u/s 11A of the Central Excise Act, 1944 within the prescribed limitation period”.
In view of above it is clarified that timely demands should invariably be raised (within six months normal period) under Section 11A the Act.””
Contentions of the Revenue
The Revenue contended that the appeal was filed well within time. Further, it was submitted on behalf of the appellant that the Supreme Court in Asian Paints (India) Ltd. Vs. Collector of Central Excise, Bombay (2002 (142) ELT 522 (SC)) has negatived the contention that recovery of excise duty cannot be made pursuant to an appeal filed after invoking the provisions of Section 35E if the time limit provided under Section 11A has expired, since such an invocation would, in effect, render Section 35E virtually ineffective and the same is impermissible.
Held by Hon’ble High Court of Madras
The Hon’ble High Court of Madras stated that the first question of law, which is raised, relates to the plea of unjust enrichment and much emphasis is laid on the decision of the Supreme Court in Mafatlal Industries case (1997 (89) ELT 247 (SC)).
In the present case, as is evident from the records, it is not a case of refund of duty. It is a pre-deposit made under protest at the time of investigation, as has been recorded in the original proceedings itself. In this regard, it has to be noticed it has been the consistent view taken by the Courts that any amount, that is deposited during the pendency of adjudication proceedings or investigation is in the nature of deposit made under protest and, therefore, the principles of unjust enrichment does not apply. The abovesaid view has been reiterated by the High Court of Bombay in Suvidhe Ltd. Vs. Union of India (1996 (82) ELT 177 (Bom.)), and by the Gujarat High Court in Commissioner of Customs Vs. Mahalaxmi Exports (2010 (258) ELT 217 (Guj.)). There are also many judgments of various Courts, which have also reiterated the same principles that in case any amount is deposited during the pendency of adjudication proceedings or investigation, the said amount would be in the nature of deposit under protest and, therefore, the principles of unjust enrichment would not apply. In view of the catena of decisions, available on this issue, the Hon’ble Court answers the first substantial question of law against the Revenue and in favour of the assessee.
The Hon’ble Court further stated that 2nd issue raised by the Department is whether the Tribunal was justified in holding that without a show cause notice issued under Section 11-A, there could be no recovery consequent to proceedings initiated under Section 35-E of the Act.
The reliance placed by Department on the case of Asian Paints (India) Ltd. – Vs Commissioner of Central Excise, Bombay (2002 (142) ELT 522 (SC)). was distinguished by the Hon’ble Court on the ground that the said decision did not deal with the issue as to whether a notice under Section 11A of the Central Excise Act is mandatory for the purpose of proceeding for recovery.
The Hon’ble Court further stated that the circular as produced above relies upon the decision of the Supreme Court in Re-Rolling Mills case (supra) and the provisions of Section 11-A of the Act to state that timely demand should be raised, i.e., within six months as prescribed under Section 11-A of the Act. Section 11-A of the Central Excise Act, as it stood prior to amendment with effect from 12.5.2000, relates to recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded, within the period prescribed from the relevant date. The present case pertains to 1998 at which point of time the period of limitation fixed for issuance of show cause notice was six months. The said period of six months was amended to one year by Section 97 of the Finance Act 2000 (10 of 2000) with effect from 12.5.2000. Therefore, for all purposes, any period prior to 12.5.2000, for the purpose of recovery of duties not levied or not paid or short-levied or short-paid or erroneous refund, the time for issuance of show cause notice is only six months from the relevant date.
The Hon’ble Court further stated that it is clear that the said section mandates the issuance of a show cause notice, prior to passing an order, asking the person to show cause as to why duty, which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, shall not be paid. From a perusal of the documents available on record, as also the order of the Tribunal, it is clear that no such notice, as mandated under Section 11A, was issued for recovery of the duty on the ground of erroneous refund.
Further, the Board’s Circular No.423/56/98-CX dated 22.9.1998 also stresses the need for the concerned Departments to issue timely demands through show cause notices within six months period as contemplated under Section 11A of the Act. This in itself shows that the show cause notice, as provided under Section 11A of the Act is mandatory in nature and the same has to be adhered to before proceeding further in the matter. Therefore, In the absence of any such show cause notice, which is mandatory, the Department cannot seek recovery of the amount. Accordingly, the 2nd substantial question of law is answered in favour of the assessee and against the Revenue.
In view of the above, the appeal has been dismissed.
