Customs, Excise and Gold Tribunal - Mumbai
Fag Precision Bearings Ltd. vs Commissioner Of C. Ex. And Customs on 27 January, 1998
Equivalent citations: 1999(114)ELT684(TRI-MUMBAI)
ORDER K.S. Venkataramani, Member (T)
1. In these appeals both by the Department and by the assessee appellant, the same issue arises viz. whether the time limit under Section HA would apply in a case of erroneous refund being granted and such order sanctioning the refund by the Asstt. Commissioner is reviewed by applying for the purpose before the Commissioner (Appeals) in terms of Section 35E of the Central Excise Act, 1944. In one of the appeals by the assessee appellant M/s. Fag Precision Bearings Ltd. there is another issue whether refund granted to the assessee would be an erroneous refund inasmuch as the input recipient would have taken a higher input credit. The challenge is to the Commissioner's finding that the amount erroneously refunded would amount to refund because the higher input credit has been taken. So far as the first two appeals are concerned of M/s. Fag Precision Bearings Ltd. the facts briefly are that the assessee M/s. Fag Precision Bearings Ltd. manufacture roller bearings falling under Ch. 8482.00 of the Central Excise Tariff Act, 1985. In their price list submitted under Rule 173C since it was not possible to furnish the detailed particulars of the elements of which they claimed exclusion from the assessable value at the time of filing their price list as well as at the time of removal of the goods, the price list including this element was submitted with a right reserving exclusion of such charges. Thus the price list approved was inclusive of freight charges, forwarding charges, insurance and trade discount (turnover bonus). The assessee filed claim for refund of Rs. 10,40,933 basic duty and Rs. 52,046 S.E. duty on 29-12-1988 for the period 1-7-1988 to 30-9-1988 claiming refund of duty paid on higher value approved. The jurisdictional Asstt. Commissioner by its Order-in-Original dated 5-7-1989 sanctioned the refund of Rs. 1,46,939.20 being the admissible deductions from the assessable value viz. freight, forwarding, insurance and cash discount. The jurisdictional Commissioner applied for review of the Asstt. Commissioner's order on the ground that as per the Board's circular the Asstt. Commissioner in charge of factory of origin of the input can sanction the refund claim but cannot make payment until he received intimation from all concerned officer in charge of the consignee factory regarding debit of appropriate amount in the Modvat account or PLA maintained by the consignee. The Asstt. Commissioner in this case having not complied with this requirement, the order was held to be not legal and proper. The Commissioner (Appeals) held that the higher credit taken by the assessee would amount to erroneous refund but he also found force in the assessee's statement that the show cause notice ought to have been issued to them under Section HA for recovery of the refund amount and that mere filing of an application under Section 35E would not suffice. The Commissioner (Appeals) found support in the Tribunal's decision in the case of Digvijay Cement reported in 1991 (52) E.L.T. 631, wherein the Tribunal held that order passed under Section 35E(2) does not automatically result in recovering the erroneous refund and there should be a notice under Section 11A for recovery thereof. The assessee has appealed against the finding of the Commissioner (Appeals) that the higher Modvat credit taken amounted to erroneous refund and the Department has appealed against the Commissioner (Appeals) finding that an order under Section 35E of the Act will not suffice for recovery of erroneous refund and that notice under Section 11A is also required.
2. The facts relating to Appeal No. 562/92-Bom arises out of the Department seeking to review the jurisdictional Asstt. Commissioner order granting refund of Rs. 8342 to M/s. Gujarat Communication & Electronics on the ground that the respondents had paid the duty correctly on the parts and accessories of VCR at 25% under sub-heading 85.22 instead of Rs. 2000/- under sub-heading 8522.00. The Department sought review of the Asstt. Commissioner's order also on the ground of unjust enrichment. The Commissioner (Appeals) in this case considered the contention of the assessee respondents regarding the maintainability of the application under Section 35E in the absence of show cause notice to the respondents under Section 11A. The Commissioner (Appeals) noted that Section 35A(3) provides that no order requiring the appellants to pay any duty not levied or paid, short levied or short paid or erroneously refunded shall be passed unless the appellant is given notice within the time limit under Section 11A to show cause against the proposed order. Since there was no notice under Section HA, the Commissioner (Appeals) rejected the review application.
3. In Appeal No. 760/92-Bom, the assesee respondents filed refund claim of Rs. 57,921.97 for the period April, 1985 to June, 1985 and another claim of Rs. 76,654.64 for the period 1-7-1985 to 30-9-1985 on the ground that the assessee respondents at the first instance got their price list approved including freight, forwarding and insurance charges and trade discount but later on submitted a refund claim claiming refund on the higher value which included the permissible deductions. The Asstt. Commissioner passed an order on 6-6-1989 allowing the respondents to take credit of the refund amount debited in their RG 23A part II Modvat account. The jurisdictional Commissioner applied for review of the Asstt. Commissioner's order on the ground that the turn over discount was not a permissible discount and that the quantum of bonus was also not permissible discount. These have to be deducted. There again, before the Commissioner (Appeals), the assessee respondents raised the question that no notice under Section HA for recovery of the refund has been given to them. The Commissioner (Appeals) accepted their contention and held that mere action under Section 35E alone would not suffice for recovery.
4. Shri S.V. Singh, the ld. DR argued the appeals filed by the Department and Shri V.H. Shah the ld. Counsel for the appellant assessee M/s. Fag Precision Bearings Ltd. Shri M. Mathew, Sr. Executive presented the case for M/s. Gujarat Communication & Electronics.
5. It was argued by the the ld. DR, that the view taken by the Commissioner (Appeals) that mere action under Section 35E will not suffice recovery of erroneous refund and that a separate notice under Section 11A is also called for, is an erroneous conclusion for which the ld. DR relied upon and cited the Madras High Court decision in the case of Sivananda Pipe Fittings Limited v. Supdt. of Central Excise - (1994) 45 ECC 77 (Mad). The ld. DR. pointed out that in this decision, the High Court has not approved the Tribunal decision in the case of Re-rolling Mills v. Collector of Central Excise -1989 (43) E.L.T. 115 (Tribunal) and in the case of Collector of Central Excise v. Universal Radiators Ltd. -1988 (37) E.L.T. 222 (Tribunal) in which the Tribunal had held that demand by tile Department for repayment of duty erroneously refunded can only be under Section 11A and within the time stipulated therefor and the period of limitation provided therein cannot be circumvented by having recourse to Section 35E of the Act. The High Court also differed from the view taken by the Calcutta High Court in S. Vehkatesan and Another v. Nihalchand Agarwala - AIR 1962 Cal. 258 [see Customs Act, 1978 (sic)]. The Madras High Court held that there is absolutely no warrant or justification to restrict the scope and amplitude of the powers of the Collector (Appeals) under Section 35E by reading into it the provisions of Section 11A of the Act. The High Court held that the plea that Section 11A is a special provision and therefore cannot be allowed to be overtaken by Section 35E, or that Section 11A is a substantive provision unlike a procedural provision of the nature under Section 35E, has no rhyme or reason. It further held that an appellate or revisional provision isasmuch a provision of law conferring substantive right as a provision regulating refund or recovery of an amount erroneously refunded. The ld. DR further relied upon another decision of the Tribunal in Andhra Sugars Ltd. v. Collector of Central Excise - 1991 (55) E.L.T. 262 (Tribunal), wherein the Tribunal held that, in terms, the second proviso to Section 35A(3) does not apply to a case where the Asstt. Commissioner is the appellant before the Commissioner (Appeals) because it talks of the notice to the appellant. The Tribunal also held that having regard to the time limit available for the examination of records relating to an adjudication by Asstt. Commissioner to be undertaken for the propriety or legality of the Asstt. Commissioner's order by the Commissioner, and also the time limit for filing of an appeal by the Asstt. Commissioner incorporated in Section 35E(4), it would be seen that the Commissioner (Appeals) will not, save in exceptional cases, be in a position to issue a notice to the assessee respondent within the normal time limit from the relevant date specified in Section 11A. This view of the Tribunal also finds support in the Madras High Court decision in Sivananda Pipe Fittings Limited. The ld. DR pointed out that the Commissioner (Appeals) in one of the present impugned orders has relied upon the Sree Digvijay Cement Co. Ltd. decision of the Tribunal supra which has only followed the precedent decision in the case of Universal Radiators Ltd. and this has not been approved by the Madras High Court in its judgment cited supra. Therefore, it was pleaded that the order of the Commissioner (Appeals) should be set aside as bad in law.
6. For the assessee respondent Shri M. Mathew, Sr. Executive of M/s. Gujarat Communication relied upon the Tribunal's decision in the case of Commissioner v. Inga Laboratories Pvt. Ltd. -1997 (93) E.L.T. 209 (Tribunal) in which the Tribunal had followed the precedent decision to hold that to recover refund wrongly sanctioned, demand has to be made under Section 28 of the Customs Act and the revenue cannot take advantage of the limitation available under Section 129D of the Act on failure to comply with the provisions of Section 28.
7. Shri V.H. Shah, the ld. Counsel for die assessee appeal M/s. Fag Precision Bearings Ltd. relied upon the Tribunal decision in the case of Sree Digirijay Cement Co. Ltd. and contended that the Commissioner (Appeals) has rightly followed the ratio of the said decision to hold that notice under Section 11A is an essential condition for recovery of erroneous refund and the Department cannot set right this requirement by taking action under Section 35E.
8. We have carefully considered the submissions. We find that the issue has been gone into by the Single Judge judgment of the Madras High Court in the case of Sivananda Pipe Fittings Ltd. which has been cited and relied upon by the ld. DR. In this judgment, as noted above, the Tribunal decision in the case of Re-rolling Mills and Universal Radiators Ltd. supra have not been approved. It is found that in the Re-rolling Mills the Tribunal took the view that the order passed by the Appellate authority under Section 35E cannot have the effect of nullifying Section 11A and its time limit para 6 and 7 of the Tribunal decision read as follows :
"The five-year time limit is not available for the purpose of turning an appeal or an application into a demand contemplated by Section 11A, nor can it insulate the application/appeal from time bar. When any excise duty has been erroneously refunded, Section 11A requires that the Central Excise Officer should within six months from the relevant date, serve a notice on the person to whom the refund was erroneously made requiring him to show cause why he should not pay the amount specified in the notice. In case of erroneous refund, the relevant date has been defined as the date of refund. The section has a time limit of five years if the erroneous refund was caused by fraud, collusion or any wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act and rules made thereunder with intent to evade payment of duty. The Collector (Appeals) misunderstood the function of the time limit of Section 11A and thought it could be used in proceedings under Section 35E for counting the time limit within which the application should be filed. Filing of the appeal or the application within five years does not safeguard the demand from the time bar if a time bar has arisen, and an order passed by the Appellate Collector made under Section 35E cannot have the effect of nullifying Section HA and its time limit. The time limit of Section 11A governs the issue of the demand under that section and that section alone. It follows that if no demand has been issued in accordance with Section HA, nothing else can take its place. There is no evidence on record that demands were issued for the erroneously refunded money within the time limit prescribed by Section 11 A. Therefore the order of the Appellate Collector dated 22-9-1983 on the application of the Assistant Collector is invalid and cannot serve as a means for recovering the money."
9. Similarly in the case of Universal Radiators Ltd. the Tribunal held that the only way by which an erroneously refunded duty can be recovered is a notice under Section 11A and proceedings under Section 35E are not a step in that direction and the Tribunal observed that if it were, then the Department can by using this section, recover erroneously refunded duty for which no notice was issued within the time specified under Section 11A, which the Tribunal describes as the fountain-head of all the powers for recovery of any money erroneously refunded. It is also noted that the Dn. Bench of the Madras High Court has dismissed the writ appeal against the Single Judge judgement in the case of Sivananda Pipe Fittings Ltd. as reported in 1998 (97) E.L.T. 52 (Mad.) by holding as follows :-
"The argument is that the appellate authority cannot by himself direct the recrediting of the amount refunded to the appellant, but he could have left it open to the original authority to invoke Section HA by issuing necessary notice. We are of the opinion that this would have been an unnecessary exercise. Where several remedies are open to the authorities and one remedy is resorted to, it cannot be said the same is illegal so long as the provision of law permits the same. Having held that the order of refund was illegal, which is not questioned before us, it is totally improper to say that the amount received by the appellant should not be recredited to the department. It cannot be forgotten that a provision of law has to be interpreted in a manner which will subserve the maintenance of justice. We cannot be persuaded to interpret the provision of law in such a manner and in the sense that the amount erroneously refunded to the appellant should remain with him. It is the natural consequence of the order of the appellate authority that the amount erroneously refunded should be re-credited to the Department. We do not find any substance in the argument of the appellant that without the original authority invoking Section 11 A, the direction to recredit the amount cannot be upheld. Consequently, the view taken by the learned Single Judge is approved and the writ appeal is dismissed."
We further observe that appeals against two decisions of the Tribunal holding that an order of erroneous refund can be set aside only by following the procedure to review the order granting such refund under Section 35E(2) of fhe Central Excises Act have been dismissed by the Supreme Court as indicated in 1994 (65) E.L.T. A151 - Collector v. Polimere & Alloys Chemicals and C.C.E. v. Western India Works - 1990 (48) E.L.T. A63.
10. We find, however, that the Tribunal decision in the case of Re-rolling Mills (supra) has been appealed against by the Collector before the Supreme Court and the Supreme Court has dismissed the appeal as reported in 1997 (94) E.L.T. 8 (S.C.) - Collector v. Re-rolling Mills by following its precedent decision reproduced below :
"The learned Counsel for the parties do not dispute that this appeal is covered by the decision of this Court in Union of India and Ors. v. Jain Shudh Vanaspati Ltd. and Anr. (1996) 10 SCC 520. In that case the Court was dealing with Section 28 of the Customs Act which is in pari materia with Section HA of the Central Excise Act. The said decision is thus applicable to the present case also. For the reasons given in the said judgment, the appeal is dismissed."
The judgment of the Supreme Court referred to above has upheld the view of the Tribunal in Re-rolling Mills case and therefore the law is now settled that the demand for recovery of erroneous refund has to be made within the time limit of Section 11A and this cannot be by-passed by action under Section 35E of the Central Excise Act. Therefore, the matter now stands settled by the Supreme Court decision in Re-rolling Mills case, and, applying the ratio of the decision, there is no infirmity in the impugned orders passed by the Commissioner (Appeals) that the erroneous refund granted in these cases can be recovered only by issue of notice within the time limit prescribed under Section 11A of the CEA, 1944 notwithstanding the action taken under Section 35E of the Act. The Department's appeals are therefore rejected.
11. On the question, whether the Commissioner (Appeals) is right in treating the higher credit of input duty taken as erroneous refund, we find that there is no serious infirmity in the Commissioner (Appeals) conclusion as regards the nature of the higher credit because what is taken as credit is only duty paid on the input materials. The appeal of the assessee appellant M/s. Fag Precision Bearing on this ground is also rejected.
12. Appeals are disposed of accordingly.