Karnataka High Court
The Commissioner Of Central Tax vs Netapp India Pvt. Ltd., on 1 March, 2019
Bench: Ravi Malimath, B M Shyam Prasad
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
ON THE 01ST DAY OF MARCH , 2019
BEFORE
THE HON'BLE MR. JUSTICE RAVI MALIMATH
AND
THE HON'BLE MR. JUSTICE B. M. SHYAM PRASAD
CENTRAL EXCISE APPEAL NOS. 41 AND 44 OF 2018
BETWEEN:
THE COMMISSIONER OF CENTRAL TAX
BENGALURU EAST COMMISSIONERATE,
BMTC BUILDING, OLD AIRPORT ROAD,
DOMLUR, BENGALURU-560 071.
... APPELLANT
(BY SRI K.V. ARAVIND, ADVOCATE)
AND
NETAPP INDIA PVT. LTD.,
NETAPP SURVEY NO. 26 P 31P 32P
MAHADEVAPURA MAIN ROAD
MAHADEVAPURA
HOODI VILLAGE
BENGALURU - 560 048
KARNATAKA.
... RESPONDENT
(BY SRI MIHIR MEHTA, ADVOCATE ALONG WITH
SMT.G. L. SHILPI JAIN, ADVOCATE)
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THESE CENTRAL EXCISE APPEALS ARE FILED
UNDER SECTION 35G OF THE CENTRAL EXCISE ACT,
ARISING OUT OF ORDER DATED 21.02.2018 PASSED IN
FINAL ORDER NOS. 20300-20301 OF 2018, PRAYING TO
(I) ANSWER THE SUBSTANTIAL QUESTIONS OF LAW
FRAMED ABOVE IN FAVOUR OF THE APPELLANT IN THE
INTEREST OF JUSTICE AND EQUITY; (II) SET ASIDE THE
IMPUGNED FINAL ORDER NOS.20300-20301 OF 2018
DATED 21.02.2018 PASSED BY THE CESTAT, SOUTH
ZONAL BENCH, BENGALURU IN THE INTEREST OF
JUSTICE AND EQUITY AND (III) PASS SUCH OTHER
ORDER, DIRECTION AS THIS HON'BLE COURT DEEMS
FIT IN THE CIRCUMSTANCES OF THE CASE IN THE
INTEREST OF JUSTICE AND EQUITY.
THESE CENTRAL EXCISE APPEALS HAVING BEEN
HEARD AND RESERVED ON 25.02.2019 AND COMING ON
FOR PRONOUNCEMENT OF JUDGMENT THIS DAY,
B.M.SHYAM PRASAD J., DELIVERED THE FOLLOWING:
JUDGMENT
The appellant - revenue has, in these appeals under Section 35G of the Central Excise Act, 1944, impugned the Final Order dated 21.02.2018 in No.20300-20301 of 2018 by the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Bengaluru (for short, 'Appellate Tribunal'). The Appellate Tribunal by this impugned order has allowed the respondent's appeal against the common order 3 dated 31.8.2017 by the Commissioner of Central Taxes (Appeals-1) in Appeal Nos. 821 and 822 of 2017. The appellant- revenue has proposed the following as substantial questions in these appeals:
"1. Whether on the facts and in the circumstances of the case CESTAT was correct in merely setting aside the impugned order (Commissioner - Appeals) and allowing the appeal without assigning any reasons and recording any finding on the controversy and recorded perverse finding?
2. Whether on the facts and in the circumstances of the case, CESTAT was correct in setting aside the order of the Commissioner - Appeal and allowing the appeal without recording specific finding whether the order of the CESTAT is interference with the order of remand by the Commissioner - Appeals or granting interest under section 11BB of Central Excise Act and recorded perverse finding?
3. Whether on the facts and in the circumstances of the case, CESTAT was correct in allowing the appeal by giving reference to the judgments dealing with the interest under section 11 BB of Central Excise Act, without recording any finding on the eligibility of interest under section 11BB of the Central Excise Act, the manner of computation of the interest, period of commencement of interest, the quantum of refund on which interest to be 4 quantified, in the absence of such an issue was considered either by the adjudicating authority or by the Commissioner-Appeals and recorded perverse finding?
4. Whether on the facts and in the circumstances of the case, the order of CESTAT is sustainable due to non- application of mind for the reason that Commissioner - Appeals has passed an order of remand on the partial refund rejected by the adjudicating authority, setting aside of the order of remand would lead to confirmation of the order of the adjudicating authority and in turn justifying the partial rejection of refund claim and in the absence of any finding regarding controversy under section 11BB of Central Excise Act, even the order of the CEDSTAT cannot be inferred to be order on the interest under section 11BB of the Central Excise Act and recorded perverse finding?
5. Whether on the facts and in the circumstances of the case, CESTAT failed to record a finding regarding the quantum of refund the assessee could be eligible in view of the specific dispute on the quantum and the consequential interest on such quantum of refund ?"
2. The present appeals arise in the following circumstances: The respondent offered Information Technology Software Services, as defined under the 5 Finances Act, 1994, to its foreign clients under the Service Agreement concluded with them. The respondent furnished FIRCs, along with Export Invoices, to establish that it realized export proceeds in convertible foreign currency. The respondent filed its returns in Form ST-3. Thereafter, the respondent filed two claims with the Assistant Commissioner, Division C, Bengaluru for refund of Unutilized CENVAT Credit for the period between October 2012 to December 2012 and October 2013 to December 2013 under Rule 5 of the CENVAT Credit Rules, 2004. The Assistant Commissioner, Division C, Bengaluru examined the respondent's claim for refund, and vide its separate orders dated 21.6.2017 allowed such claims for refund as provided for under Rule 5 of the CENVAT Credit Rules 2004 read with Notification No.27/2012-CE(NT) dated 18.6.2012 (for short, 'CENVAT Credit Rules & Notification dated 18.6.2012'). However, the Assistant Commissioner, Division C, 6 Bangalore did not grant interest for the delay in refund.
3. The respondent, being aggrieved by these orders, insofar as refusal of interest for the delay in the refund, filed two appeals before the Commissioner of Central Taxes (Appeals-1), who dismissed these two Appeals in No. 821 and 822 of 2017 holding that the respondent would not be entitled for payment of interest because the provision for payment of interest on delayed refund under Section 11BB of the Central Excise Act, 1944 would apply only where there has been excess payment or collection of duty. The Commissioner of Central Taxes (Appeals-1) emphasized that the principle for payment of interest for the delay in refund contained in Section 11BB of the Central Excise Act, 1944 cannot be extrapolated into Schema for refund of Unutilized CENVAT Credit, as such Schema is nothing more than a facilitative 7 mechanism provided to the exporter to convert the unutilized credit lying in its account into cash. The fundamental difference between the Schema for the unutilized CENVAT Credit and refund of the excess duty paid or collected, the Commissioner of Central Taxes emphasized, is that in the former the unutilized credit lies in the assessee's account unlike in the case of excess payment of duty that would be with the State Exchequer; as the State Exchequer would have the benefit of excess payment of duty, the provision for payment of interest is provided under Section 11BB of the Customs Act.
4. The respondent being aggrieved by this order, preferred an appeal with the Appellate Tribunal, and the Appellate Tribunal, by its impugned final order dated 21.2.2018, set aside the common order in Appeals in Nos. 821 and 822 of 2017 holding that the appellate order by the Commissioner of Central Taxes 8 (Appeals-1) cannot be sustained. The Appellate Tribunal relied upon the decision of the High Court of Gujarat at Ahmedabad in Commissioner of Central Excise vs. Reliance Industries Ltd., reported in 2010(259) ELT 356 (GUJARAT). The Appellate Tribunal also observed that the decision of the High of Gujarat was challenged before the Hon'ble Supreme Court but such challenge was unsuccessful.
5. The learned counsel for the appellant - revenue argued that payment of interest on delayed refund is payable under Section 11BB of the Central Excise Act, 1944 (for short, the 'Act'), if the claim for refund is under Section 11B of the Act. However, the present claim by the respondent is for the refund of the unutilized CENVAT credit under the CENVAT Credit Rules & Notification dated 18.6.2012. As such, the Department/Revenue cannot be called upon to pay interest for delay in refund of the unutilized CENVAT 9 credit under Section 11BB of Act. The learned counsel elaborated that the claim for refund under Section 11B of the Act is in respect of excess duty paid or collected. If the excess duty is paid or collected, then upon receipt of an application as provided under Section 11B of the Act, the interest on delay in refund is payable under Section 11BB of the Act provided that excess amount is not refunded within three months from the date of receipt of such application under Section 11B(1) of the Act. Under Section 11 BB of the Act, the interest on the excess duty paid or collected is payable from the date of receipt of application till the date of refund of such duty at such rate which is not below 5% and not exceeding 30% p.a. as is fixed by the Central Government by Notification in the Official Gazette. However, under Rule 5 of the CENVAT Credit Rules & Notification dated 18.6.2012, a manufacturer or a provider of output service is allowed refund of such unutilized CENVAT credit subject to such 10 safeguards, conditions and limitations as may be specified. The unutilized CENVAT Credit lies in the account of the assessee and it is therefore distinct and separate from the excess duty paid or collected which would stand to the credit of the exchequer. As such, no recourse should be had to the provisions of 11BB of the Act to award interest in the event there is any delay in refund of unutilized CENVAT credit.
6. The learned counsel for the appellant- revenue argued that the Appellate Tribunal has not recorded any finding on the respondent's eligibility to interest under section 11BB of the Act, if interest is payable, the manner of computation of interest, the period of commencement for computing interest and the quantum of refund on which interest is to be quantified. As such, the impugned order is perfunctory and contrary to law.
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7. The learned Counsel for the respondent, on the other hand, submitted that this question whether interest on delayed refund of unutilized CENVAT credit as contemplated under Rule 5 of the CENVAT Credit Rules & Notification dated 18.6.2012 would be permissible under Section 11BB of the Central Excise Act has been considered by the High Court of Madras as well as the High Court of Gujarat. In fact, the appellant - revenue impugned the decision of the High Court of Gujarat before the Hon'ble Supreme Court, but the appellant - revenue did not succeed in the said appeal. Therefore, the appellant - revenue cannot re- agitate the issue again.
8. The learned counsel further contended that the manner of computation of interest is also settled in view of the decision of the Hon'ble Supreme Court in Ranbaxy Laboratories vs. Union of India reported in 2011(273)ELT 3(SC) wherein, the Hon'ble Supreme 12 Court has declared that the liability of the Revenue to pay interest under Section 11BB of the Act commences from the date of expiry of three months from the date of receipt of application for refund under Section 11B(i) of the Act and not on the expiry of the three months period from the date on which the order of refund is made. There cannot be any quarrel over the quantum of refund in view of the orders of the Assistant Commissioner, Division C, Bengaluru. Therefore, the impugned order does not suffer from any irregularity or perversity.
9. The rival submissions are examined in the light of the decisions by the High Court of Gujarat as well as High Court of Madras. The High Court of Gujarat in the case of Commissioner, Central Excise vs Reliance Industries Limited supra, while considering a similar canvas against the payment of interest on delayed refunds under Section 11BB of the Central 13 Excise Act, in terms of the obligation to refund under Rule 5 of the CENVET Credit Rules & Notification dated 18.6.2012, did not accept the canvas on behalf of the revenue that the scheme for refund of unutilized CENVAT Credit is a special beneficial scheme with self contained procedure providing for the manner and method of its implementation, and hence any refund claimed under the Rules would be governed only by the provisions of the Scheme and the general provisions of Section 11BB of the Central Excise Act cannot be resorted to. The High Court of Gujarat concluded that the CENVAT credit is nothing but duty paid by the supplier of inputs which are dutiable goods manufactured by the supplier or dutiable services rendered by the service provider; when such goods/services are utilized for further manufacture or providing service, which are dutiable, the manufactured goods or service provided carry the duty paid by the Supplier of inputs as a component of its 14 price/value. Hence, the duty payable on the ultimately manufactured goods/services rendered stands reduced to the extent of duty already paid on the inputs. Thus, the duty paid on inputs by the supplier has already been actually received by the exchequer. Therefore, there is a basic fallacy in the argument by the revenue that refund of unutilized CENVAT credit is different from excess duty paid or collected as contemplated under Section 11B of the Act. As such, the High Court of Gujarath held that when there is delay in sanctioning the refund under Rule 5 of the CENVAT Credit Rules & Notification dated 18.6.2012, the provisions of Section 11BB of the Central Excise Act would be clearly attracted.
10. The High Court of Madras, which was considering allowing interest on the delayed refund of unutilized credit under the MODVAT Credit Scheme, has also concluded that the MODVAT Credit taken was 15 nothing but payment of duty which would be available to the assessee on the assessee paying duty on inputs at the time of clearance of final bills and therefore, there is statutory obligation on the part of the appellant - revenue under Section 11BB of the Act to pay interest for the delayed refund of the duty.
11. The learned counsel for the appellant - revenue is unable to persuade this court to hold that the obligation to refund unutilized CEVANT Credit under Rule 5 of the CENVAT Credit Rules & Notification dated 18.6.2012 is distinct and separate from the obligation under Section 11B of the Act in the light of the reasoning in the aforesaid decisions. This Court concurs with the reasons assigned in the aforesaid decisions to hold that the revenue would be obliged to pay under interest for the delayed refund as contemplated under Section 11BB of the Act even for the delayed refund of the Unutilized CENVAT credit 16 under Rule 5 of the CENVAT Credit Rules & Notification dated 18.6.2012. There is also considerable force in the submissions on behalf of the respondent that in view of the decision of the Hon'ble Supreme Court Ranbaxy Laboratories vs. Union of India reported in 2011(273)ELT 3(SC) that there cannot be any dispute about the liability of the Revenue to pay interest under Section 11BB of the Act commencing from the date of expiry of three months from the date of receipt of application for refund under Section 11B(i) of the Act. The Appellate Tribunal has referred to this decision in its impugned order. Similarly, in view of the orders of the Assistant Commissioner, Division - C, Bangalore, which has remained unchallenged as regards the quantum of refund of unutilized CENVAT credit, there cannot be any lis even as regards the quantum.
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12. In the light of the aforesaid discussion, this Court is of the considered opinion that no substantial questions arise for consideration, and the appeals are dismissed accordingly. No costs.
13. In view of dismissal of the appeals, IA No.2 of 2018 does not survive for consideration and the same is dismissed.
SD/- SD/-
JUDGE JUDGE
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