Refund Claim cannot be rejected for not opting Provisional Assessment: CESTAT

Renault Nissan Automotive India Private Limited Vs Commissioner of GST and Central Excise (CESTAT Chennai)

Introduction: In a significant legal development, the Chennai branch of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled in favor of Renault Nissan Automotive India Private Limited, stating that their refund claim cannot be rejected merely for not opting for Provisional Assessment. This article delves into the intricacies of the case between Renault Nissan Automotive India and the Commissioner of GST and Central Excise.

Background of the Case: Renault Nissan Automotive India had filed a refund claim of Rs. 8,11,83,347 for the period from February 2015 to July 2015. The company argued that they had paid a higher amount of excise duty due to an over-valuation of their cars and parts. Initially, the Department of Central Excise rejected their claim on multiple grounds, leading Renault Nissan to appeal the decision.

Grounds for Initial Rejection: The Department had rejected the refund claim on three primary grounds:

1. Lack of Provisional Assessment: The Department stated that Renault Nissan had not opted for provisional assessment, thereby disqualifying them from a refund.

2. Insufficient Documentation: The Department claimed that Renault Nissan failed to provide necessary documents that could justify the payment of excess excise duty.

3. Unreliable CA Certificate: The Chartered Accountant Certificate provided by Renault Nissan was also not considered reliable by the Department.

CESTAT’s Key Arguments

The tribunal noted that:

1. Provisional Assessment not Mandatory: Previous case law indicated that not opting for a provisional assessment should not automatically disqualify a refund claim.

2. Documentation Adequate: The tribunal found that the company had sufficiently demonstrated the overpayment through existing records.

3. Chartered Accountant Certificate: The tribunal did not find any reason to dismiss the CA Certificate presented by the appellant.

Conclusion: The ruling by CESTAT Chennai has set an important legal precedent. It not only offers relief to Renault Nissan Automotive India but also provides valuable insights into the interpretation of laws concerning excise duty and refunds. This decision could have broader implications for other companies embroiled in similar legal disputes over excise duties.

FULL TEXT OF THE CESTAT CHENNAI ORDER

Brief facts are that the appellant holds Central Excise Registration and are engaged in manufacture of Excisable goods viz., Motor Cars and their parts falling under Chapter Heading 8703 of Central Excise Tariff Act, 1985. The appellant is availing CENVAT credit of duty paid on inputs, capital goods and Service Tax paid on input services. They clear their goods to M/s. Renault India Private Limited (RIPL) and M/s. Nissan Motors India Private Limited (NMIPL) both being related persons to the appellant.

2. The appellant filed a refund claim dated 24.02.2016 for Rs.8,11,83,347/- for the period from February, 2015 to July, 2015 citing that in majority of the cases (clearances) the assessable value was higher than the NMIPL/RIPL price and claimed that this had resulted in higher amount of excise duty payment by the appellant.

3. A verification report was sought for vide letter dated 08.03.2016, from the Jurisdictional Superintendent of Central Excise, Oragadam I Range. After verification of the invoices and connected records, the Department was of the view that the appellant is not eligible for the refund-claim. Show Cause Notices Nos. 01/2016 and 02/2016 both dated 14.07.2016 were issued to the appellant proposing to reject the refund-claims. After due process of law, the original authority vide two Orders-in-Original rejected the refund-claims. Against such order, the appellant filed appeals before the Commissioner (Appeals) who vide order impugned herein upheld the rejection of refund claims. Hence, this appeal.

4.1. The Ld. Consultant Shri Rajaram R. appeared and argued for the appellant. It is submitted that the appellant sold cars manufactured by them to their related parties (traders). Since in majority of the clearances, the value on which duty was paid was higher than the price at which cars were further sold by the related parties to their dealers which resulted in payment of higher amount of excise duty by the appellant, of which refund was sought as under:

4.2. The Department has rejected the refund claims on three grounds. Firstly, that the appellant has not opted for provisional assessment and therefore, the claims cannot be considered. Secondly, the document required to justify the payment of excess excise duty have not been produced by the appellant. According to Department, in the absence of comparative documents such as invoices with details of individual cars raised by manufacturer to trader and then trader to dealer, the quantification of excise duty payable is not possible. It was the view of the Department that the details of price of cars sold to end customer has to be produced by the appellant to verify whether excess excise duty is paid by the appellant. Thirdly, the Chartered Accountant Certificate produced by the appellant cannot be accepted.

4.3. The Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 was adverted to by the Ld. Consultant to explain the valuation adopted by them. Rule 10 read with Rule 9 of Central Excise Valuation Rules, 2000 is applicable when excisable goods are manufactured and sold through a related party. The said rule states that the normal transaction value at which the goods are sold by the related person at the time of removal to an unrelated buyer is the value for the purpose of payment of excise duty.

4.4. In the case of the appellant, the value at which the related party (NMIPL/RIPL) sells the vehicles to the dealer has to be considered for the purpose of payment of excise duty. The said rule nowhere requires the appellant to adopt the value at which the dealer sells to the ultimate customer. The Department has erroneously called for comparative documents in regard to sales made by the dealers to the ultimate customers. The appellant has produced documents to evidence the higher amount of duty paid by them in regard to the clearances made by them to the related party i.e., NMIPL/RIPL as well as the invoices raised by the related parties to the dealers. The details of the sale prices by the appellant to the related parties and the subsequent sale by such related parties to various unrelated dealers were furnished to the Department vide letter dated 13.05.2016. These documents have been rejected / overlooked by the original authority vide letter dated 15.05.2016. The letter has been referred in the Show Cause Notice and alleged that the appellant has to furnish details of sales made by the unrelated dealers to the end customers.

4.5. The Ld. Consultant asserted that Rule 10 speaks only about the sale price from related party to unrelated buyer and not to the end customers. The impugned order rejecting the refund-claim alleging that the appellant has not produced the details of sale price to end customers is without any legal basis.

4.6. The other reason for rejecting the refund-claim is that the appellant has not opted for provisional assessment. It is submitted that the appellant vide letter dated 06.05.2011 had requested the Department for provisional assessment in regard to the clearances of the goods. Reportedly there was no response from the side of the Department. It is argued that the refund-claim cannot be rejected merely because the assessment was not provisional. The decision in the cases of Commissioner of Central Excise, Nagpur Vs. Oriental Explosives (P) Ltd. [2007 (8) TMI 206 – HIGH COURT, BOMBAY], Balmer Lawrie & Co. Ltd. Vs. Commissioner of Central Excise, Kolkata-VI [2014 (8) TMI 977 – CESTAT KOLKATA], M/s. Sagar Cement Ltd. Vs. Commissioner of Customs and Central Excise, Hyderabad [2016 (8) TMI 493 – CESTAT HYDERABAD] and other decisions were relied to support this argument.

4.7. The appellant had produced CA Certificate to establish that the incidence of duty has not been passed on to another. The amount was reflected in the balance sheet as ‘receivables’. The appellant had relied upon a draft board circular to submit before the authorities below, that the CA Certificate is in compliance with the draft board circular. However, the adjudicating authority has rejected the refund-claim without giving any finding as to why the CA Certificate is not acceptable. It is merely stated that the draft circular has no legal sanctity and is non-est. The adjudicating authority has not recorded any finding with regard to the issue of unjust enrichment. The Ld. Consultant prayed for appropriate orders.

5. The Ld. Authorised Representative Shri Harendra Singh Pal supported the findings in the impugned order. It is urged by the Ld. Authorised Representative that the appellant has not opted for provisional assessment and therefore the refund-claim cannot be allowed. So also they have not furnished necessary documents to establish that excess excise duty was paid by them. For these reasons, the refund-claim has been rightly rejected.

6. Heard both sides.

7.1. The first ground on which the refund-claim has been rejected is that the appellant has not opted for provisional assessment. It is seen that the appellant had made an application to the Department dated 06.05.2011 seeking provisional assessment. The said letter reads as under:-

“In this regard, we would like to remove the passenger cars on payment of duty on provisional price under Rule 7 of Central Excise Rules’2007. The reasons for clearing the passenger cars on provisional price are as follows.

• • The removal of finished goods for sale is between two related companies and the valuation for the purpose of payment of duty is as per Rule 10 of Central Excise Valuation Rules, 2000.
  • The sale price of the related company purchasing passenger cars from our Company is not known at the time of removal.
  • Since, the product is manufactured for the first time in India, the end price of sale by related company to Dealer or Customers may vary depending on marketing conditions.
  • The production volume has not been touched the expected levels and the competitive marketable price can be finalized only after initiating commercial sales and stabilization of sales in India.

In view of the above, we request you to kindly allow us to clear the passenger cars on provisional price.

We undertake to comply with the procedure prescribed under Rule 7 of Central Excise Rules, 2002 for Provisional Assessment of Duty.

We request you to kindly permit and oblige.”

7.2. It is submitted by the appellant that there has been no response from the Department for the above request. The issue is no more res integra. In the case of Savita Oil Technologies Limited Vs. Commissioner of Central Excise & Service Tax, Vapi vide Final Order No. 11570/2023, the Tribunal held that the refund claim cannot be rejected merely because an assessee had not opted for provisional assessment when there is excess payment of duty.

7.3. In the case of Balmer Lawrie & Co. Ltd. Vs. Commissioner of Central Excise, Kolkata – VI (supra), the Tribunal held as under:-

“5.3 We find that the situation in the present case is more or less similar to the one referred to, in the case of Oriental Explosives (P) Ltd.’s case (supra). Their Lordships had observed that even though the assessment was not provisional, that by itself would not disentitle the assessee from claiming the refund. Following the said principle, we are of the considered opinion that merely because the assessment is not provisional, it would not deprive the Appellant in claiming the refund claim of the excess paid earlier. Also, in our view the relevance of assessment either provisional or otherwise comes into play only for the purpose of computation of the time-limit from the relevant date, in filing the refund claim under Section 11B of CEA, 1944. It has nothing to do with the eligibility of refund. In the present case, the refund claim was filed within one year from the date of clearance of goods, which is the date of payment of duty, hence, the criterion of provisional assessment is irrelevant.”

7.4. After considering the facts and following the above decisions, we hold that the rejection of refund-claim alleging that the appellant has not opted for provisional assessment is not justified.

8.1. The second ground for rejection of refund-claim is that the appellant has not produced the comparative documents to justify the payment of excess excise duty. From the discussions, it is seen that the Department has called for the details of price/sale invoices of the sales made by the unrelated dealer to the ultimate customers. In fact, the price at which the dealers have sold the cars to the end users is of no consequence for considering whether higher amount of duty has been paid. The excess payment of duty has happened while making the clearances by the appellant to the related parties / dealers (NMIPL/RIPL). So to check whether there is excess payment of duty sale price of the related parties to the unrelated dealer has to be looked into and not the sale price of the unrelated dealer to the end customer. It is seen from the records that the Department has called for invoice issued by dealers to end customers to verify whether there is excess payment of duty. The appellant has replied vide letter dated 18.05.2016 as under:-

“Sub: Refund of Excise Duty Excess Paid on Removals for Rs.8,11,83,347/- Reply – Reg.

Ref: Our ECC No. AADCR7965DXM001.

Our Refund Application dated 24.02.2016

Further Documents submitted on 06.05.2016 and 13.05.2016

OC No. 438/2016 dated 13.05.2016

We reference to the above and letters mentioned above, we submitted the following for your consideration.

1. Copy of invoices issued by Dealers to End users: We do not possess any invoices of the Dealers who sold the vehicles to the end customers. Since the excess payment of Excise Duty is arrived based on selling price of our marketing companies i.e. M/s. NMIPL and M/s. RIPL to Dealers, we request you to dispense the requirement of Dealer Invoices to end customer which are not relevant to the Refund Claim.

2. Sales details up to End users: The Assessable value adopted by RNAIPL is higher than the NMIPL and RIPL net sale price to dealers. This has resulted in payment of higher amount of excise duty by RNAIPL and refund application filed based on this workings submitted to your good office. Sales details up to end customers are not available with us and not relevant to the present claim.

We have been informed orally by the Superintendent of Central Excise, Oragadam-I Range to submit sample copy of Tax invoice to process our refund application. The same has been submitted on 06.05.2016 and 13.05.2016. Request you to accept the above and process our refund applications. Kindly acknowledge receipt.”

8.2. We infer that the Department got confused with regard to the use of the word ‘end customer’ in Section 11B of the Central Excise Act, 1944. In the case of valuation and payment of excise duty under Rule 10, the sale made to the end customer does not come into picture. So in order to check whether there is excess duty paid the sale made by appellant to related parties and subsequently sale to dealers are only to be verified. Only in regard to the issue of unjust enrichment, it has to be looked into whether the incidence of duty has been passed on to the end customer. For this, the appellant has furnished the CA Certificate. We are therefore of the view that the allegation in the Show Cause Notice that the appellant has not furnished documents with regard to the sale price to end customers so as to verify whether the excess excise duty is paid is totally erroneous.

9. The third ground is of the issue of unjust enrichment. The appellant has furnished certificate issued by Chartered Accountant to submit that the incidence of duty has been borne by them and that it is shown as ‘Receivables’ in the balance sheet. In Paragraph 22, 23, 24 of Order-in-Original dated 15.03.2018, the adjudicating authority has discussed the issue with regard to CA Certificate. It is merely stated that the appellant had relied upon draft circular issued by the board to establish that the incidence of duty has not been passed on. The original authority as well as the first appellate authority has confined their discussions to the draft circular alone without recording any finding as to the issue of unjust enrichment. The Commissioner (Appeals) has referred to the decision in the case of M/s. Addison & Co. Ltd. Vs. Commissioner of Central Excise, Chennai [2017 (353) ELT A64 (SC)]. However, there is no finding recorded as to whether the incidence of duty has been passed on by the appellant to the end customer.

10. From the foregoing, we are of the view that the authorities below have not analysed the issue in the correct legal prospective for which the matter requires to be remanded to the adjudicating authority. In the result, the impugned order is set-aside. The matter is remanded to the adjudicating authority who shall consider the observations of this order and process the refund-claim denovo.

11. The appeals are allowed by remand.

(Order pronounced in open court on 25.08.2023)