The Commissioner Of ... v. M/S. Pricol Ltd. Per...

JUDGMENT

(DELIVERED BY R. SUDHAKAR, J.)

Aggrieved by the order of the Tribunal in dismissing the appeal filed it, the Department is before this Court by filing the present appeal. This Court, vide order dated 7.11.08, admitted this appeal on the following substantial questions of law:-

“i) Whether the decision of the Tribunal allowing refund on the ground that the principle of unjust enrichment is not applicable to the deposits made during investigation without considering the settled law emerging from the Apex Court's decision in the case of Mafatlal Industries Ltd. v. Union of India reported in 1997 (89) ELT 247 (SC) and Sahakarikhand Udyog Mandal Ltd. v. Commissioner of Central Excise, reported in 2005 (181) ELT 328 is correct in law?

ii) Whether the Tribunal's decision that amounts erroneously refunded could not be recovered by filing an appeal under Section 35-E of the Central Excise Act unless a demand notice was issued under Section 11A is correct in law when the Hon'ble Supreme Court in the case of Asian Paints (India) Ltd. v. Commissioner of Central Excise, Mumbai, reported in 2002 (142) ELT 522 had held to the effect that an order issued under Section 35-E would be equally sustainable in law for recovering dues of excise duty?”

2. The facts, in a nutshell, are as hereunder:-

The respondent is engaged in the manufacture of automobile parts and components. The assessee cleared waste and scrap and replacement of defective products without payment of duty. The period in question pertains to September, 1998. On the ground that the investigation revealed that the assessee cleared waste and scrap and replacement for defective products without payment of duty and also resorted to under-valuation of the goods, adjudication proceedings were initiated and pending adjudication, the assessee deposited Rs. 1.55 Crores for the purpose of co-operating with the investigation of the Department. However, the said payment of deposit was made by the assessee under protest. A show cause notice dated 2.12.98 was issued on the assessee invoking the extended period of limitation as provided under proviso to Section 11A(1) of the Central Excise Act, demanding duty, interest and also penalty. After adjudication, the demand was confirmed by the Commissioner of Central Excise, vide order dated 11.5.01, together with penalty equivalent to duty and the amount of Rs. 1.55 Crores, already deposited, was appropriated. Against the said order of the Commissioner, an appeal was filed to the Tribunal and the Tribunal, by final order dated 17.12.2004, set aside the impugned order of adjudication and allowed the appeal of the respondent/assessee in toto. Pursuant to the same, the respondent/assessee filed a claim for refund of deposit made under protest, including the deposit made at the time of filing the appeal to the Tribunal. The said refund application was sanctioned by the jurisdictional Assistant Commissioner by Order in Original 47/2005 dated 31.3.05 However, no appeal was filed against the order of the Assistant Commissioner of Central Excise, ordering refund. The Commissioner of Central Excise, however, took up the matter in exercise of powers conferred under Section 35E(2) of the Act and directed the authority to file an appeal to the Commissioner (Appeals) within the time limit prescribed thereunder. On the appeal filed by the Department, the Commissioner (Appeals) took up the same and allowed the appeal filed by the Department and directed the jurisdictional authority to verify the plea with regard to unjust enrichment. The assessee went on appeal before the Tribunal against the said order of the Commissioner (Appeals). The Tribunal, in the said appeal, came to hold that there was no case of unjust enrichment on the facts of the said case, as the assessee had produced the Chartered Accountant's certificate to the effect that refund claim has not been passed on to the customers. Para-4 of the order of the Tribunal, is extracted hereunder for better clarity:

“The appellants has produced a Chartered Accountant's certificate to the effect that the refund claimed had not been passed on the appellant's customers, which is on record. It is nobody's case that refund of pre-deposit of Rs. 4,00,000/= made under Section 35F of the Act entails unjust enrichment. We find that the lower appellate authority has found unjust enrichment in the impugned refund without adequate evidence.”

3. However, the main plea as made by the assessee before the Tribunal was that even though the appeal was filed well within the time limit as specified under Section 35(E)(3) of the Act, however, no notice, as contemplated under Section 11-A of the Act has been issued for making recovery of the erroneous refund. The said submission found favour with the Tribunal and the Tribunal, placing reliance on the Board's circular No. 423/56/98-CX dated 22.9.1998 and the decision of the Supreme Court in Commissioner of Central Excise v. Re-Rolling Mills (1997 (94) ELT 8 (SC)), which in turn relied upon the decision in Union of India v. Jain Shudh Vanaspathi Ltd. (1196 (86) ELT 460 (SC):: (1996) 10 SCC 520), allowed the appeal preferred by the assessee. For better appreciation, the relevant portion of the order of the Tribunal is extracted hereinbelow:-

“7. In the Circular No. 423/56/98-CX dated 22.9.1998, the CBEC had issued the following clarification:-

“Certain doubts have been raised regarding whether the erroneous refunds granted could be recovered by recourse to review under Section 35-E of the Central Excise Act or demands under Section 11A within the statutory time limit as laid down.

The SC in the case of CCE v. Re-rolling Mills (reported in 1997 (94) ELT 8 (SC) has inter alia held as following.

“The learned Counsel for the parties do not dispute that this appeal is covered by the decision of this Court in Union of India v. Jain Shudh Vanaspati Ltd. 1996 (86) ELT 460 (SC) = (1996) 10 SCC 320. In that case the court was dealing with Section 28 of the Customs Act which is in parimateria with Section 11A of the Central Excise Act. The said decision is thus applicable to the present case also. For the reasons given in the said judgement, the appeal is dismissed”.

In this context the point to be stressed is that the Order passed u/s 35-E(2) does not automatically result in the recovery of the refund. This has to be followed by SCN U/S 11A which should be issued within 6 months from the date of actual refund. Since time limit for filling appeal u/s 35E(2) is longer than the time limit prescribed u/s 11A, the SCN, the SCN should precede the proceedings u/s 35-E(2).

This view has been supported by the opinion of the Law Ministry. The Law Ministry vide F. No. 387/78/98-JC has opined thus, “In view of the judgement of the Apex Court in CCE v. Re-rolling Mills [1997 (94) ELT 8] dismissing the appeal preferred by the Department against the CEGAT order, the order passed by the Tribunal on 27.1.98 in the present case of Fag Precision Bearing Ltd. reflects the correct legal position. We, therefore, agree with the view of the referring Department that the demand for recovery of erroneous refund has to be made u/s 11A of the Central Excise Act, 1944 within the prescribed limitation period”.

In view of above it is clarified that timely demands should invariably be raised (within six months normal period) under Section 11A the Act.”

The Tribunal held that the Board's circular is binding on the department and, therefore, observed that the refund was rightly allowed by the Original Authority. Aggrieved against the said order of the Tribunal, the Department is before this Court by filing the present appeal.

4. Learned standing counsel appearing for the Department/appellant submits that the appeal was filed well within time. Further, it was submitted on behalf of the appellant that the Supreme Court in Asian Paints India Ltd. v. Collector Of Central Excise., Bombay (2002 (142) ELT 522 (SC)) has negatived the contention that recovery of excise duty cannot be made pursuant to an appeal filed after invoking the provisions of Section 35E if the time limit provided under Section 11A has expired, since such an invocation would, in effect, render Section 35E virtually ineffective and the same is impermissible. Therefore, learned standing counsel for the appellant urged that the impugned order of the Tribunal has to be interfered with.

5. Per contra, learned counsel appearing for the respondent/assessee reiterated his submissions as made before the Tribunal to the effect that though appeal was filed as specified under Section 35(E)(2) and is within the time specified, however, no show cause notice has been issued, within the stipulated time, as contemplated under Section 11A of the Act, which is mandatory in nature and, therefore, in the absence of following the mandatory necessity of issuing the show cause notice, the appeal filed by the Department has to fail.

6. Heard the learned standing counsel appearing for the appellant/Department and the learned counsel appearing for the respondent/assessee and also perused the materials available on record as also the decisions relied on by the learned counsel appearing on either side.

7. The first question of law, which is raised, relates to the plea of unjust enrichment and much emphasis is laid on the decision of the Supreme Court in Mafatlal Industries case (1997 (89) ELT 247 (SC)). Relevant portion of the order passed by the Supreme Court in Mafatlal Industries case (supra) has been extracted in the grounds (b) and (c). There is no dispute with regard to the proposition of law as laid down by the Supreme Court. In the present case, as is evident from the records, it is not a case of refund of duty. It is a pre-deposit made under protest at the time of investigation, as has been recorded in the original proceedings itself. In this regard, it has to be noticed it has been the consistent view taken by the Courts that any amount, that is deposited during the pendency of adjudication proceedings or investigation is in the nature of deposit made under protest and, therefore, the principles of unjust enrichment does not apply. The abovesaid view has been reiterated by the High Court of Bombay in Suvidhe Ltd. v. Union of India (1996 (82) ELT 177 (Bom.)), and by the Gujarat High Court in Commissioner of Customs v. Mahalaxmi Exports (2010 (258) ELT 217 (Guj.)), which has been followed in various cases in Summerking Electricals (P) Ltd. v. Cegat, New Delhi (1998 (102) ELT 522 (All.)), Parle International Ltd. v. Union of India (2001 (127) ELT 329 (Guj.)) and Commissioner of Central Excise, Chennai v. Calcutta Chemical Company Ltd. (2001 (133) ELT 278 (Mad.)) and the said view has also been maintained by the Supreme Court in Union of India v. Suvidhe Ltd. (1997 (94) ELT A159 (SC)). There are also very many judgments of various Courts, which have also reiterated the same principles that in case any amount is deposited during the pendency of adjudication proceedings or investigation, the said amount would be in the nature of deposit under protest and, therefore, the principles of unjust enrichment would not apply. In view of the catena of decisions, available on this issue, this Court answers the first substantial question of law against the Revenue and in favour of the assessee.

8. The 2nd issue raised by the Department is whether the Tribunal was justified in holding that without a show cause notice issued under Section 11-A, there could be no recovery consequent to proceedings initiated under Section 35-E of the Act.

9. Reliance was placed on the decision of the Apex Court in Asian Paints (India) Ltd. v. Commissioner of Central Excise (2002 (142) ELT 522 (SC), by the learned standing counsel for the Department to drive home the point that the appeal filed by the Department is not time barred. In the said case, the appeal before the Tribunal was whether an order proposing to review the order resulting in short levy under Section 35E should be in conformity with Section 11A of the Act. In the said case, the Tribunal held that Section 11A cannot be read in Section 35E(3) and it was held that the provisions of limitation prescribed under Section 35E and Section 11A are independent. The said view was also affirmed by the Supreme Court in Asian Paints (India) Ltd. v. Commissioner of Central Excise, Bombay (2002 (142) ELT 522 (SC)).

10. In the impugned order passed by the Tribunal, however, the abovesaid judgment in Asian Paints (supra) was distinguished by the Tribunal on the ground that the said decision did not deal with the issue as to whether a notice under Section 11A of the Central Excise Act is mandatory for the purpose of proceeding for recovery and, thereby, on the facts of the present case, it was held to be not applicable. On a perusal of the above decision, as also the impugned order of the Tribunal, this Court is of the considered view that the distinction as drawn by the Tribunal distinguishing the said judgment with the facts of the present case is fully justified and does not warrant any interference, since the issue that arise in the case on hand is whether issuance of show cause notice is mandatory under Section 11A of the Act.

11. The Tribunal has answered the above issue, in relation to issuance of show cause notice, based on the circular issued by the Board, which has already been extracted above. The said circular relies upon the decision of the Supreme Court in Re-Rolling Mills case (supra) and the provisions of Section 11-A of the Act to state that timely demand should be raised, i.e, within six months as prescribed under Section 11-A of the Act. For brevity, Section 11-A of the Act is extracted hereinbelow:-

“11A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.

(1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within [one year] from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice.

Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, [as if, [***]] for the words [one year], the words “five years” were substituted.”

12. Section 11-A of the Central Excise Act, as it stood prior to amendment with effect from 12.5.2000, relates to recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded, within the period prescribed from the relevant date. The present case pertains to 1998 at which point of time the period of limitation fixed for issuance of show cause notice was six months. The said period of six months was amended to one year by Section 97 of the Finance Act 2000 (10 of 2000) with effect from 12.5.2000 Therefore, for all purposes, any period prior to 12.5.2000, for the purpose of recovery of duties not levied or not paid or short-levied or short-paid or erroneous refund, the time for issuance of show cause notice is only six months from the relevant date.

13. On a careful reading of Section 11-A, extracted above, it is clear that the said section mandates the issuance of a show cause notice, prior to passing an order, asking the person to show cause as to why duty, which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, shall not be paid. From a perusal of the documents available on record, as also the order of the Tribunal, it is clear that no such notice, as mandated under Section 11A, was issued for recovery of the duty on the ground of erroneous refund. This view is further fortified by the decision of the Supreme Court in the case of Collector v. Re-rolling Mills (1997 (94) ELT 8 (SC)).

14. Further, the Board's Circular No. 423/56/98-CX dated 22.9.1998 also stresses the need for the concerned Departments to issue timely demands through show cause notices within six months period as contemplated under Section 11A of the Act. This in itself shows that the show cause notice, as provided under Section 11A of the Act is mandatory in nature and the same has to be adhered to before proceeding further in the matter. Further, as has been observed by the Tribunal, circulars issued by the Board are binding on the Departmental authorities. Therefore, In the absence of any such show cause notice, which is mandatory, the Department cannot seek recovery of the amount. Accordingly, the 2 substantial question of law is answered in favour of the assessee and against the Revenue.

15. In the result, the appeal fails and the same is dismissed. However, in the circumstances of the case, there shall be no order as to costs.