Custom, Excise & Service Tax Tribunal
Phoenix Industries Pvt. Ltd vs Cce Raigad on 9 July, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPLICATION NO. E/MA (Ors)95061/14
IN APPEAL NO. E/1336/12 Mum
Arising out of Order-in-Appeal No. US/436/RGD/2012 dated 11.07.2012 passed by the Commissioner of Central Excise (Appeals), Mumbai II.
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Honble Shri P.S. Pruthi, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
Phoenix Industries Pvt. Ltd.
:
Appellants
Versus
CCE Raigad
Respondent
Appearance Shri Ramesh Saraogi, Advocate for appellants Shri Rakesh Goyal, Addl. Commissioner (A.R.) For Respondent CORAM:
Shri Ashok Jindal, Member (Judicial) Shri P.S. Pruthi, Member (Technical) Date of Hearing : 09.07.2014 Date of Decision : ..2014 ORDER NO.
Per P.S. Pruthi Application No. E/MA (Ors)95061/14 Miscellaneous Application No.E/MA(Ors)95061/14 in Appeal No. E/1336 of 2012 for early hearing and expeditious disposal in view of Honble High Court Order in W.P.558 of 2013 directing Tribunal to list the matter preferably before 31st December 2013 is disposed by the hearing on 9.7.2014 and passing of final order in Appeal No. E/1336/2012 as below.
Appeal No. E/1336/2012
2. M/s. Phoenix Industries Pvt. Ltd., the appellants, is in appeal before us against Order-in-Appeal No. US/436/RGD/2012 dated 11.07.2012 passed by the Commissioner (Appeals), Mumbai II in which the Commissioner upheld the order of the adjudicating authority denying the refund claim of Rs.35,49,815/- filed by the appellants.
3. Brief facts are that the appellants were manufacturing Aluminum Alloys and Zinc Alloys at their Khopoli factory. They sold their assets i.e. land and building etc. vide Sale Deed dated 28.12.2010 to M/s New Age Fire Protection Industries Pvt. Ltd. and also sold the stock of unutilized raw material and finished goods. The Central Excise registration was surrendered to the Central Excise department on 03.01.2011. At that time there was a credit balance of Rs.35,49,815/- in the CENVAT account maintained by the appellants, refund of which was claimed by them under Rule 5 of the Cenvat Credit Rules, 2004. The refund claim was made on the ground that Rule 5 states that CENVAT Credit of inputs or input services used in manufacture of final products which are exported may be utilized for payment of excise duty on final products cleared for home consumption and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount .. It was held by the adjudicating authority that Rule 5 does not provide any legal basis to grant cash refund of unutilized credit on account of closure of factory except in cases where the same is attributable to inputs which have gone into final products which are exported. Therefore, the refund was rejected.
4. Heard both sides.
5. In the statement of facts, in the appeal filed by appellants before us, the reason for accumulation of CENVAT Credit at the time of closure of factory is stated in para 6 as reproduced here-in-under:-
6. The main raw material for the Company was aluminum ingot, zinc ingot, and aluminum scrap. The Company was purchasing the aluminum ingot from National Aluminum Company Ltd. and Hindalco Industries Ltd. The Company was purchasing the zinc ingot from Hindustan Zinc Ltd. The prices of aluminum ingot and zinc ingot vary considerably and are based on the prices ruling at London Metal Exchange (LME). The domestic prices are also affected by the Foreign Currency Rates. As per the policy of National Aluminum Company Ltd, Hindalco Industries Ltd and Hindustan Zinc Ltd, they charge a higher price and make their sales invoice at a little higher price to cover up price fluctuations and currency fluctuations. Thereafter periodically they issue the credit note. However, in such mechanism they have already collected little extra excise duty amount. 5.1 The appellants have relied on the following judgments:-
(a) M/s Jain Vanguard Polybutlene Ltd. Central Excise Appeal No. 45/2010 decided on 28 June 2010 by Bombay High Court affirmed by Supreme Court in SLP 10805/2011 dated 12.7.2011.
(b) Union of India v. Slovak India Co. Pvt. Ltd. 2006 (201) ELT 559 (Kar.).
(c) Union of India v. Slovak India Co. Pvt. Ltd. 2008 (223) ELT A170 (SC).
(d) Rama Industries Ltd. v. Commissioner of Central Excise, Chandigarh passed by Honble High Court of Punjab & Haryana in Commissioner of Customs Appeal No. 15 of 2009 dated 10.02.2009.
The main contention of the learned Counsel of the appellants is that Rule 5 allows refund in cases where for any reason adjustment of accumulated credit is not possible against duty on final products cleared for home consumption. The closure of their factory is well covered by the phrase for any reason. The Counsel stressed that the above judgements of the Tribunal and High Courts have allowed refund of unutilized CENVAT Credit in similar cases. In the case of Slovak India Co. Pvt. Ltd. (supra), the decision of the Karnataka High Court was even affirmed by the Honble Apex Court (supra) and the departments SLP was dismissed and, therefore, the sub-ordinate courts have to interpret the law as held by the Honble Apex Court. The appellants have also stated that the purchaser of their factory i.e. M/s New Age Fire Protection Industries Pvt. Ltd. issued a letter stating that all benefits, entitlements and liabilities arising prior to 28.12.2010 shall be solely to the account of appellants only.
5.2 The learned Counsel emphasized that notwithstanding later decision of the Larger Bench in the case of Steel Strips v. Commissioner of Central Excise Ludhiana 2011 (269) ELT 257 (Tri. LB) which held that refund in such cases is not permissible, the decision of the High Courts and the Apex Court will rule.
6. Revenue on the other hand, have relied upon the Larger Bench decision in the case of Steel Strips (supra) and the decision in the case of Birla Corporation vs. CCE 2011 (274) ELT 529 (Tri. Mum).
7. We have carefully considered the submissions made by both sides. We find that the issue is regarding the correct interpretation of Rule 5 of Cenvat Credit Rules, 2004. Rule 5 reads as -
Where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate products cleared for export, the CENVAT credit in respect of the inputs so used shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Government by notification:
Provided that no refund of credit shall be allowed if the manufacturer avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims a rebate of duty under the Central Excise Rules, 2002, in respect of such duty. The scheme of CENVAT Credit allows duty on finished goods to be paid to the extent possible from the CENVAT Credit availed on the inputs used in the manufacture of finished goods. The scheme basically prevents the cascading effect in indirect taxes. Further, when goods are exported under bond, no duty is payable on the finished goods and, therefore, the CENVAT Credit on inputs remains unutilized. As the policy of the Government is that tax on exported goods is zero rated and the export goods should not suffer any taxes. Therefore, a provision such as Rule 5 allows the refund of duty in respect of CENVAT Credit on inputs which have suffered Central Excise duty but the finished goods are exported.
7.1 The Ld. Counsel states that Rule 5 enumerates 3 categories under which refund of unutilized CENVAT Credit may be allowed i.e. (a) where the final product is exported, (b) where the final product is cleared for home consumption, (c) where for any reason such adjustments are not possible refund may also be allowed. Their case would be covered under (c) according to Learned Counsel.
We do not agree with this reading of Rule 5. Rule 5 categorically states that where any inputs are used in the final products which are cleared for export under bond or letter of undertaking, then the credit shall be allowed to be utilized by the manufacturer towards payment of duty of excise on any final products cleared for home consumption or for export on payment of duty and where for any reason such adjustment is not possible, the manufacturer shall be allowed refund of such amount subject to such safeguards, conditions and limitations as may be specified by the Central Govt. by notification. The words such adjustment have to be read in context of the whole sentence. The words where for any reason such adjustment is not possible can only imply that refund in cash may be granted only when the CENVAT Credit cannot be adjusted against duty on final products cleared for home consumption or for export on payment of duty. Any other interpretation would be against the scheme of CENVAT Credit which is to prevent cascading in taxation. If the appellants contention that refund may be granted on closure of factory is held to be valid, then there may be cases when the inputs are not even used in manufacture of the final product. Grant of refund in such cases would lead to an illogical result that is, the duty paid on inputs is being refunded without their use in the manufacture of final products. This will amount to refund of Central Excise duty paid which has no basis in law.
7.2 The appellants have argued that there is no express provision in terms of Rule 5 which bars refund on closure of factory. We find that Rule 5 expressly allows refund only when adjustment is not possible to utilize CENVAT Credit for clearing goods for home consumption or for export on payment of duty. There cannot be any other reasonable interpretation in the manner of reading this Rule. The Rule starts with the phrase where any inputs are used in the final products which are cleared for export.. Thus the first condition is that the final products must be exported. The general principle of construction in canons of law is that a legislative instrument has to be read as a whole. The phrases in a sentence have to be read in their cognate sense. That is, Rule 5 has to be read as a whole and not in parts. The whole conveys only one sense i.e. refund of unutilized credit is only permissible in case of export of goods and not for any other reason.
7.3 The other important part of Rule 5 is that it allows refund of unutilized CENVAT Credit subject to such safeguards, conditions and limitations as may be specified by the Central Government by Notification. It is seen that the Central Govt. has issued Notification 5/2006 dated 14.03.2006 which prescribes the conditions and limitations for availing the refund. The basis of determining the refund amount is the export clearances of the final products as mentioned in the appendix to the Notification. The Notification provides for submission of documents such as shipping bills etc. If the appellants contentions were accepted it would mean that the reference to conditions and limitations in Rule 5 is to no effect and such conditions specified in Rule 5 read with Notification 5/2006 are superfluous. Rule 5 clearly states that refund shall be allowed subject to such conditions as may be specified. In the present case the conditions are not fulfilled. Therefore, refund in such cases of closure of factory is not provided under the statute.
7.4 The learned Counsel has strongly argued that the decision of the Courts must be followed. With due respect we may state that when the very right to refund does not accrue under the law, its sanction is not warranted and the matter has been dealt at length in the Larger Bench decision in the case of Steel Strips (supra) which considered all judicial decisions on the subject. The Larger Bench considered that in the case of Slovak India (supra), the Apex Court while dismissing SLP of Union of India stated that in view of the concessions made by learned ASG, the SLP is dismissed. In this case, the ASG had conceded that appeals were not filed against adverse decisions of Tribunal. While referring to judicial decisions on this matter, on the issue of doctrine of merger it was held by the Larger Bench that -
5.5?Doctrine of merger was pressed into service by the ld. Sr. Counsel Sri Anand appearing on behalf of the Assessee submitting that due to dismissal of Revenues Civil Appeals, present reference was unwarranted. For appreciation of Doctrine of merger, it would be beneficial to reproduce Paras 40 - 44 of the judgment of the Honble Supreme Court laying down the law in the case of Kunhayammed v. State of Kerala - 2001 (129) E.L.T. 11 (S.C.) as under :
40.?A petition seeking grant of special leave to appeal may be rejected for several reasons. For example, it may be rejected (i) as barred by time, or (ii) being a defective presentation, (iii) the petitioner having no locus standi to file the petition, (iv) the conduct of the petitioner disentitling him to any indulgence by the Court, (iv) the conduct of the petitioner having to disentitling him to any indulgence by the Court, (iv) the question raised by the petitioner for consideration by this Court being not fit for consideration or deserving being dealt with by the Apex Court of the country and so on. The expression often employed by this Court while disposing of such petitions are - heard and dismissed, dismissed, dismissed as barred by time and so on. May be that at the admission stage itself the opposite party appears on caveat or on notice and offers contest to the maintainability of the petition. The Court may apply its mind to the merit worthiness of the petitioners prayer seeking leave to file an appeal and having formed an opinion may say dismissed on merits. Such an order may be passed even ex-parte, that is, in the absence of the opposite party. In any case, the dismissal would remain a dismissal by a non-speaking order where no reasons have been assigned and no law has been declared by the Supreme Court. The dismissal is not of the appeal but of the special leave petition. Even if the merits have been gone into, they are the merits of the special leave petition only. In our opinion neither doctrine of merger nor Article 141 of the Constitution is attracted to such an order. Grounds entitling exercise of review Jurisdiction conferred by Order 47 Rule 1 of the C.P.C. or any other statutory provision or allowing review of an order passed in exercise of writ or supervisory Jurisdiction of the High Court (where also the principles underlying or emerging from Order 47 Rule 1 of the C.P.C. act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of special leave petition does not take away the Jurisdiction of the court, tribunal or forum whose order forms the subject matter of petition for special leave to review its own order if grounds for exercise of review Jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate Jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall take away the jurisdiction of any other court, tribunal or authority to express any opinion in conflict with or in departure from the view taken by this Court because permitting to do so would be subversive of judicial discipline and an affront to the order of this Court. However this would be so not by reference to the doctrine of merger.
41.?Once a special leave petition has been granted, the doors for the exercise of appellate Jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the a same order and at times the orders are quite brief Nevertheless, the order shows the exercise of appellate Jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court.
42?To merge means to sink or disappear in something else; to become absorbed or extinguished; to be combined or be swallowed up. Merger in law is defined as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; an absorption or swallowing up so as to involve a loss of identity and individuality. (See Corpus Juris Secundum, Vol. LVII, pp. 1067-1068).
43.?We may look at the issue from another angle. The Supreme Court cannot and does not reverse or modify the decree or order appealed against while deciding a petition for special leave to appeal. What is impugned before the Supreme Court can be reversed or modified only after granting leave to appeal and then assuming appellate Jurisdiction over it. If the order impugned before the Supreme Court be reversed or modified at the SLP stage obviously that order cannot also be affirmed at the SLP stage.
44.?To sum up our conclusion are :
(i) Where an appeal or revision is provided against an order passed by a court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law.
(ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage Is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal.
(iii) Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution the Supreme Court may reverse, modify or affirm the judgment-decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can therefore be applied to the former and not to the latter.
(iv) An order refusing special leave to appeal may be a non-speaking order or a speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.
(v) If the order refusing leave to appeal is a speaking order, i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting special leave petition or that the order of the Supreme Court is the only order binding as res Judicata in subsequent proceedings between the parties.
(vi) Once leave to appeal has been granted and appellate Jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.
(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Rule (1) of Order 47 of the C. P. C. 5.6?No doubt there are cases where Honble Supreme Court while dismissing Revenues Civil Appeal did not go into merits of the issues but had dismissed the appeal only on the ground that there was no appeal by Revenue previously on similar cases. But it has been held by Apex Court in the case of CCE, Raipur v. Hira Cement, reported in 2006 (194) E.L.T. 257 (S.C.) = 2007 (8) S.T.R. 96 (S.C.) that non-filing of an appeal against an order in any event would not be a ground for refusing to consider the matter on its own merit. Merely because in some cases revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts as has been held in the case of C.K. Gangadharan v. CIT, Cochin, reported in 2008 (228) E.L.T. 497 (S.C.) = 2009 (16) S.T.R. 659 (S.C.). In Gauri Piasticulture (P) Ltd. (supra) except the claim being permitted under equitable considerations the controversy remained unanswered on the point of law while grant of refund of the nature claimed was not mandate of the Act or the 1994 Rules. The issue, therefore is rightly called for consideration in the present reference on the point of law. 7.5 The Learned Counsel drew our attention to the decision of Bombay High Court (in WP 558 of 2013) dated 13.9.2013, in their own case presently being dealt by us. The appellants had approached the High Court against CESTAT Order dated 06.11.2012 which rejected their appeal for early hearing. The Honble High Court while directing CESTAT to preferably hold hearing before 31 December 2013 made an observation that the issue of appellant prima facie appears to be covered by their decision in Jain Vanguard Polybutlene Ltd. (CE Appeal 45/2010 decided on 28.6.2010).
7.6 We have also read the pronouncement of Honble Supreme Court in the case of M/s Jain Vanguard Polybutlene Ltd. in SLP 10805/2011 dated 12.07.2011. It reads We find no reason to interfere in the impugned order in exercise of our jurisdiction under Act 136 of the Constitution. The Special Petition is accordingly, dismissed leaving the question of law open. Thus the judicial orders on the issue have not attained finality.
7.7 In Hariprasad Shivshankar Shukla vs. A D Divikar 2002-TIOL-447-SC-MISC-CB case the Honble Supreme Court considered the use of the phrase for any reason whatsoever, occurring in Section 25 of the Industrial Disputes Act, 1947. The issue being considered was whether retrenchment compensation would have to be given on the termination of workman arising from the closure of the business. The Honble Apex Court considered the definitions of retrenchment and the provisions of Section 25F ibid and came to the conclusion that compensation may not be granted in situation of bonafide closure of the business. It held that In the absence of any compelling words to indicate that the intention was even to include a bona fide closure of the whole business, it would, we think, be divorcing thee expression altogether from its context to give it such a wide meaning as is contended for by learned counsel for the respondents. What is being defined is retrenchment, and that is the context of the definition. It is true that an artificial definition may include a meaning different from or in excess of the ordinary acceptation of the word which is the subject of definition; but there must then be compelling words to show that such a meaning different from or in excess of the ordinary meaning is intended. Where, within the framework of the ordinary acceptation of the word, every single requirement of the definition clause is fulfilled, it would be wrong to take the definition as destroying the essential meaning of the word defined. We may, therefore, with due respect to High Courts observation in the matter, in the case of the appellants and after detailed analysis have come to the conclusion that the refund claim does not have sanction of law.
8. In view of the above the appeal is dismissed.
(Pronounced in open Court on) (Ashok Jindal) Member (Judicial) (P.S. Pruthi) Member (Technical) nsk ??
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