Investigation is a common feature in Central Excise Law enforcement. Unfortunately during investigation, usually, the infamous “Inspector Raj”, what the Hon’ble Finance Minister referred in Budget Speech, is in full swing. Afraid of these tactics during investigation, usually under coercion, the assessee pays the disputed amount to the department. Of course on certain occasion the payment may be made even voluntarily also. Such payment may be in order to placate the investigator or to avoid any interest liability or to show bonafides to avoid penalty in adjudication proceeding. In many cases the assessee is exonerated in adjudication proceeding and files refund claim of the amount paid or deposited during investigation. The question is whether time limit of one year is applicable in these cases? This paper is a humble attempt to answer this question on the basis of present position of law.
The provisions of section 11B is mandatory and Excise authorities cannot grant a refund which is filed beyond due date. The Hon’ble Supreme Court affirmed this position in Miles India Ltd. V/s ACC [1987 (30) ELT 641 (SC)], CCE V/s Doaba Co-operative Sugar Mills [1988 (37) ELT 478 (SC)] and in numerous other cases. However, the time limit is applicable only for refund of duty paid and not “refund of disputed amount deposited”.
After investigation a Show Cause Notice is issued to the assessee. If the assessee is contesting the show cause notice or filing appeal against the adjudication order, such amount deposited is deemed to be duty deposited under protest and limitation of one year shall not apply. In Hutchson Max Telecom V/s CCE [2004 (165) ELT 175], the tribunal held that filing appeal is itself shows that the payment of duty was under protest and hence refund claim is not time barred. Similar view was held in Bayshor Glass Trading V/s CCE [2002 (148) ELT 1243] and in S&H Gears V/s CC [2004 (167) ELT 538]. In view of these judgments, when assessee contest the liability in adjudication proceeding, such payment or deposit of duty during investigation is deemed to be made under protest and time limit of one year is not applicable in these cases.
It may be noted that the time limit is applicable only when the amount is a payment of duty. The Central Excise law prescribes a time and procedure to pay the duty. When some amount is paid not as per that procedure or at time different from the time of payment of duty, such payment cannot be treated as duty paid under Central Excise. The issue was decided by the Gujrat High Court in Parle International Ltd. V/s VOI [2001 (127) ELT 329 (Guj.)], wherein the Hon’ble Court held that,
“The duty on excisable goods has to be paid before the clearance of the goods. The amount paid at that stage is the amount of duty. Rule 233 B is applicable at the time of clearance of goods and not at any time there after. This provision cannot be applied in a case where dispute was subsequently raised that the duty paid by the assessee was less that due. Therefore this would amount to deposit and not duty”.
The ratio of the above said judgment is equally applicable in the changed circumstances when duty has to be paid before a particular date. It is also clear from this judgment that letter of protest is required only when it is payment of duty as per Central Excise law. Thus a letter of protest is required when the assessee wants to pay duty under protest of the stage of payment of duty, i.e. at the stage of invoice preparation, payment before due date and before filing of ER return. Payment of an amount after the clearance of goods on invoice and payment of duty after due date and submission of ER return and its assessment shall clearly cannot be treated as payment of duty.
It may further be kept in kind that, during investigation, more often than not duty is deposited under coercion. In these circumstances, expecting from the assessee to file a letter of protest etc. is not reasonable. Then the department issue a Show Cause Notice. The SCN is contested by the assessee and the allegations are rejected in adjudication proceedings. In these circumstances, rejecting the refund claim, on the basis of not filing of letter of protest, is cruel and certainly not going to further the ends of justice.
In Jayant Glass Ind. (P) Ltd. V/s CCE, Kolkata [2003 (155) ELT 188], the Tribunal allowed the refund of the amount deposited during investigation along with interest. In Suri Industries V/s CCE, Banglore, [2001 (132) ELT 480], the tribunal held that amount paid during investigation is a deposit and not payment of duty and hence time limit of one year is not applicable in this case. It may be noted that in this case the amount paid by the assessee was termed as deposit in the show cause notice.
In CCE V/s Ravi Shankar Ind. Ltd, [2002 (150) ELT 1317], the amount paid by the assessee during investigation was treated as deposit and refund ordered. In this particular case TR-6 challan refers to the amount paid as duty paid, then also the that tribunal went behind the declaration on TR-6 challan to ascertain whether the amount paid is payment of duty or deposit of duty and rightly come to the conclusion that payment of such amount is a deposit of duty. In Steel Products Limited V/s CCE, [2003 (158) ELT 476], the amount of Cenvat Credit reversed during course of investigation was treated as deposit and held that limitation of 6 months (as that time) not applicable to the deposits made.
From the above case laws it is clear that the time limit of one year is applicable only when the paid amount is a payment of duty. The duty payable is shown at the time of clearance of goods from the factory and shown on the invoice. The due amount is paid before the due date as prescribed in the law. After all these things the duty payment particulars is shown in the periodical ER return. The procedure related to the duty paid under protest is applicable only at the time of payment of duty, i.e. at the time of preparation of invoice, payment of duty and filing of return.
When any amount is paid during investigation, it is not payment of duty. It is payment of an amount, which the department claims as due and not paid by the assessee. Since it is not a payment of duty, the procedure of duty payment under protest is not applicable in that case. Further it is not a payment of duty but deposit of a disputed amount, the time limit of one year is not applicable in this particular case.
Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on firstname.lastname@example.org , Web: www.rajeshkumar.co.in