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Sangam Processors (Bhilwara) Ltd. v. Collector Of C. Excise, Jaipur

CESTAT

Feb 23, 1993

Judgment

Subsequent
References

CaseIQ

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Structured Summary of the Provided Legal Opinion

Factual and Procedural Background

The appellants filed refund claims for duty paid on man-made fabrics containing polyester viscose for the periods shown below (amounts and dates as alleged in their refund claims):

Rajasthan Spinning & Weaving Mills — refund claim dated 8-9-1986 — Rs. 8,51,173.00 — period 23-3-1986 to 23-4-1986.
Rajasthan Processors — refund claim dated 15-10-1986 — Rs. 1,30,200.00 — period 17-4-1986 to 23-4-1986.
Sangam Processors — refund claim dated 15-10-1986 — Rs. 1,39,452.00 — period 12-4-1986 to 23-4-1986.

The appellants' claims arose because man-made fabrics cleared by them during the period in question were contended to be correctly classifiable under Heading 55.12 CETA (pre-1-3-1986 rate), but were assessed by the Department under Heading 55.08 following a higher rate introduced by the Finance Bill, 1986. An amendment introduced on 24-4-1986 (and assented to on 13-5-1986) brought the rate back to the pre-1-3-1986 level. Later, Notification 35/88 (N.T.), dated 21-12-1988 issued under Sec. 11C of the Central Excises & Salt Act purported to waive the requirement of paying the higher duty for the period 1-3-1986 to 12-5-1986 because lower duty had generally been collected during that period.

Procedural history (as set out in the opinion):

The Assistant Collector of Central Excise, Ajmer, issued separate orders dated 31-1-1989 rejecting the appellants' refund claims on the ground that Notification 35/88 under Sec. 11C only waived the requirement of payment of higher duty and that duty already paid at the time of clearance could not be refunded in view of sub-section (2) of Sec. 11C.
The appellants appealed, and the Collector of Central Excise (Appeals), New Delhi remanded the matters to the Assistant Collector by order dated 27-6-1989 to ascertain whether the incidence of duty had been passed on to any other person as required by Sec. 11C(2).
In de novo proceedings, the Assistant Collector (in separate orders) sanctioned the refund claims after finding that appellants had produced credit notes and customer ledger accounts showing credits allowed to consignors, and concluded that duty incidence had not been passed on to any other person.
The Collector of Central Excise, Jaipur, sought review under Sec. 35E of the Assistant Collector’s orders before the Collector (Appeals). The Collector (Appeals), New Delhi, by a common order dated 31-7-1990, held that appellants had passed on the duty to customers at the time of clearance and that issuance of credit notes did not bring them within Sec. 11C(2). The Assistant Collector’s orders were set aside, leading to the present appeals before the Tribunal.

Legal Issues Presented

Whether the appellants are eligible for refund of the duty claimed by them under Section 11C of the Central Excises & Salt Act, 1944.
Whether, where the duty incidence had been passed on to customers at the time of clearance, subsequent issuance of credit notes by the assessee satisfies the requirement in Section 11C(2) that the incidence of duty "has not been passed on to any other person."

Arguments of the Parties

Appellants' Arguments (as advanced by Ld. Counsel, Sh. K.G. Sooji)

The appellants satisfied the condition for exemption under Sec. 11C(2) because the duty incidence was borne by them; they produced credit notes to customers and customer ledger accounts which, according to the Assistant Collector, satisfactorily proved that credits had been allowed to consignors and that the duty incidence had not been passed on to any other person.
At the time of filing the refund claim (in 1986), there was no requirement to show that the duty incidence had not been passed on to the customer; therefore, their case is covered by the CEGAT decision in Collector of Central Excise, Chandigarh v. Mahavir Spinning Mills (as cited by them).
The appellants' refund claims were consequent upon the amendment to the Finance Bill, 1986 (24-4-1986) which reclassified the goods under Heading 55.12 CETA rather than Heading 55.08, making them entitled to refund.

Respondent's Arguments (as advanced by Ld. SDR, Smt. Shanti Sundaram)

In these cases the duty incidence had admittedly been passed on to the customers at the time of clearance.
Notification 35/88 was issued on 21-12-1988 when sub-section (2) of Sec. 11C was already in force; Sec. 11C(2) requires the person claiming refund to satisfy the Assistant Collector with proof that the incidence of duty had not been passed on to any other person.
The credit notes were issued after the amendment to Sec. 11C in July 1988 and the expression "any other person" in Sec. 11C(2) has a wide ambit and includes the ultimate consumer and not merely wholesale dealers.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Collector of Central Excise, Chandigarh v. Mahavir Spg. Mills (Tribunal/CEGAT decision cited by appellants)	Invoked by appellants as authority supporting their refund claim (as a decision relied on before the Collector (Appeals)).	The Court held that this decision did not advance the appellants' case because it dealt with a demand of duty and not a refund claim under Sec. 11C and was rendered prior to the introduction of sub-section (2) to Sec. 11C; therefore it was of no avail to the appellants.

Court's Reasoning and Analysis

The Court's analysis proceeds from a close reading of Sec. 11C and, specifically, sub-section (2) of that section. The reasoning set out in the opinion can be summarized in the following steps (as stated in the text):

Nature and scope of Sec. 11C(2): The Court observes that sub-section (2) provides for refund of duty that has been paid on goods in respect of which a Notification under Sec. 11C has been issued, and the refund claim under Sec. 11C(2) must "flow from the 11C Notification". The statute further requires that applications be made to the Assistant Collector within six months from the issue of the Notification.
Temporal and statutory prerequisites: The Court emphasizes that the provisions of Sec. 11C and sub-section (2) cannot be applied to refund applications made under Section 11B for reasons other than those arising from an 11C Notification. In the present matters, the appellants filed refund claims in 1986, whereas Notification 35/88 under Sec. 11C was issued on 21-12-1988, and sub-section (2) had been inserted and came into effect on 1-7-1988.
Sequence of events and attempts to cure passed-on incidence: The appellants admitted that during the relevant period they had passed on the duty incidence to customers at the time of clearance and that the refund claims were originally filed under Sec. 11B in 1986. At a later stage (after sub-section (2) came into force and before the issuance of the Notification), appellants sought to show that the duty incidence had been made good by issuing credit notes to customers; the Assistant Collector accepted these documents and granted refunds in de novo proceedings.
Statutory interpretation and limits: The Court rejects the appellants' contention that issuing credit notes after the fact can bring the case within Sec. 11C(2). A plain reading of Sec. 11C(2) requires that the person claiming refund apply within six months of the issue of the relevant 11C Notification and provide satisfactory proof that the duty incidence "has not been passed on to any other person." The Court concludes that Sec. 11C(2) cannot be interpreted to accommodate situations where the incidence was passed on at the time of clearance and the assessee later issues credit notes to customers.
On precedent: The Tribunal/CEGAT decision in Collector of Central Excise v. Mahavir Spinning Mills, relied upon by the appellants, is held not to assist them because it related to a demand of duty (not a Sec. 11C refund claim) and was decided prior to the insertion of sub-section (2) into Sec. 11C.
Conclusion of analysis: For these reasons the Court finds no basis to interfere with the Collector (Appeals) order which set aside the Assistant Collector’s de novo grant of refunds, and therefore upholds the Collector (Appeals) decision rejecting the appellants' entitlement under Sec. 11C(2).

Holding and Implications

Holding: The appeals are REJECTED. The Tribunal found no reason to interfere with the Collector (Appeals) order dated 31-7-1990 which had set aside the Assistant Collector’s refund grants.

Implications (direct effect):

The appellants are not entitled to the refunds claimed under Sec. 11C(2) on the facts before the Court, because they had passed on the incidence of duty to customers at the time of clearance and later issuance of credit notes does not satisfy the statutory requirement of Sec. 11C(2) that the incidence "has not been passed on to any other person."
The Collector (Appeals) order setting aside the Assistant Collector’s de novo refund grants is affirmed by the Tribunal.

Broader implications: The opinion does not state or establish any new broad precedent beyond its application to these facts; it limits itself to interpreting Sec. 11C(2) in the circumstances described and rejecting the appellants' attempt to rely on post-facto credit notes to satisfy that sub-section.

Note: This summary is based exclusively on the information contained in the provided opinion and does not add or infer facts beyond that text.

Show all summary ...

[Order per : K.S. Venkataramani, Member (T)]. - Since the issue to be determined in all these appeals is common, these were all taken up together for disposal. The origin of the dispute is the filing of the following refund claims by the appellants :

Appellant	Dateof refund claim	Amount claimed (Rs.)	Period
Rajasthan Spg. & Wvg. Mills	8-9-1986	8,51,173.00	23-3-1986 to 23-4-1986
Rajasthan Processors	15-10-1986	1,30,200.00	17-4-1986 to 23-4-1986
Sangam Processors	15-10-1986	1,39,452.00	12-4-1986 to 23-4-1986

2. The claims were made on the ground that man-made fabrics containing polyester viscose cleared by them during the period in question, were correctly assessable to duty under Heading 55.12 CETA, 85 but that through Finance Bill, 1986 higher rate of duty was levied by classifying them under Heading 55.08 CETA. However, through amendment to the Bill introduced on 24-4-1986, which received President’s assent on 13-5-1986, the rate of duty on man-made fabrics was brought down to pre-1-3-1986 level. Subsequently, reliance was also placed on Notification 35/88 (N.T.), dt. 21-12-1988 under Sec. 11C of Central Excises & Salt Act waiving the requirement of paying higher duty during the period from 1-3-1986 to 12-5-1986 because of the fact that as a general practice, lower duty had been collected during that period. The Assistant Collector of Central Excise, Ajmer, by his separate orders dt. 31-1-1989, rejected the claims on the ground that Notification 35/88 issued under Sec. 11C of the Act only waived requirement of payment of higher duty during the relevant period and that duty already paid at the time of clearance could not be refunded in view of sub-sec. (2) of Sec. 11C. Aggrieved by these orders, the appellants preferred appeals and the Collector of Central Excise (Appeals), New Delhi, by her order dated 27-6-1989, remanded the cases to the Assistant Collector to consider the claims after ascertaining whether the incidence of duty had been passed on to any other person as required in sub-sec. (2) to Sec. 11C. In the de novo proceedings, the Assistant Collector, in his separate orders, sanctioned the refund claims on the ground that the assessee had produced before him credit notes issued to various customers and the ledger account of the customers and that on an examination of those with statutory records, showed that credits had been allowed by the assessee to the consigners and the Assistant Collector, accordingly, held that duty incidence in these circumstances had not been passed on to any other person. These orders of the Assistant Collector were sought to be reviewed by the Collector of Central Excise, Jaipur, who filed application under Sec. 35E for review of the Assistant Collector’s order before Collector (Appeals). The Collector of Central Excise (Appeals), New Delhi, by his impugned common order dated 31-7-1990, held that the appellants cannot be said to have complied with provisions of sub-sec. (2) of Sec. 11C because they had in fact collected the duty from customers at the time of clearance and also held that the issue of credit notes will not also bring them within the ambit of that sub-section. The Collector (Appeals) also observed that the Tribunal order in the case of Collector of C. Excise, Chandigarh v. Mahavir Spg. Mills - cited before him by the appellants was of no avail to them as it was decision rendered prior to the introduction of sub-sec. (2) in Sec. 11C. The Asstt. Collector’s orders were set aside leading to the present appeals.

3. The Ld. Counsel, Sh. K.G. Sooji, appearing for all the appellants, herein, submitted that they had fulfilled the condition for exemption under Sec. 11C(2) of Central Excises and Salt Act, 1944 because the duty incidence has been borne by the appellants themselves by issuing credit notes to the customers covering duty amount which has been verified and found satisfactorily proved by the Assistant Collector in his order. The ld. Counsel also submitted that at the time of filing of refund claim, there was no requirement to show that duty incidence had not been passed on to the customer and hence urged that their case was covered by CEGAT decision in the case of CCE, Chandigarh v. Mahavir Spg. Mills - . The appellants had filed refund claim as a consequence of amendment to Finance Bill, 1986 introduced on 24-4-1986 amending Heading 55.12 CETA as a result of which man-made fabrics containing viscose staple fibre and polyester fibre as cleared by them fell for classification under that heading, and not under Heading 55.08 as assessed by the Department. The Ld. SDR, Smt. Shanti Sundaram, contended that in all these cases, duty incidence had admittedly been passed on to the customers and in these cases the 11C Notification had been issued only on 21-12-1988 when sub-sec. (2) of Sec. 11C was already on the statute which stipulated that the person claiming refund should satisfy the Assistant Collector with proof to show that the incidence of duty had not been passed on. The credit notes had been issued by the appellants after the amendment to Sec. 11C in July, 1988. Further, the terms `any other person’ occurring in Sec. 11C(2) has a wider ambit and would include the ultimate consumer and not merely wholesale dealers.

4. The submissions made by both the parties, herein, have been carefully, considered. In all these appeals, the question to be determined is whether the appellants can be said to be eligible for refund of the duty claimed by them in terms of Sec. 11C of Central Excises & Salt Act, 1944, which reads as under :

* * * * * *

Sub-section 2 of Sec. 11C provides for refund of duty that has been paid on the goods in respect of which Notification under Sec. 11C has been issued. Therefore, the refund claim under sub-sec. (2) should flow from the 11C Notification, and as a consequence thereof, which is, further, indicated by the requirement therein that the application should be made to the Assistant Collector within six months from the issue of the Notification. The provisions of Sec. 11C and sub-sec. (2), thereof cannot come into play in the case of any other refund application made under Sec. 11B for reasons other than the issue of 11C Notification. In the present appeals, appellants had filed refund claims in the year 1986 whereas the 11C Notification 35/88 was issued much later on 21-12-1988 when sub-sec. (2) was already on the statute. Moreover, sub-sec. (2) was inserted and came into effect on 1-7-1988 and was in force when the refund claim was disposed of by the Assistant Collector for the first time in his orders in these cases issued in January, 1989 rejecting their claims for non-fulfilment of condition in sub-sec. (2) that the duty should not have been passed on to any other person. The appellants do not deny the fact that during the relevant period they had passed on the duty incidence to the customers and their claim is that the incidence of duty so passed on had since been made good by the appellants granting credit notes to the customers as verified by the Assistant Collector in his second order during de novo proceedings and that thereby they have fulfilled the condition in Sec. 11C(2). It is not possible to accept the contention because a plain reading of Sec. 11C(2) would show what is required thereunder is that the person claiming refund should apply within six months of the issue of 11C Notification with satisfactory proof to show that duty incidence has not been passed on to `any other person’. Such is not the case here because in these cases the appellants have admittedly passed on the incidence at the time of clearance of the goods on payment of duty and had filed the refund claims under Sec. 11B in 1986 and at much later stage, apparently, after the insertion and coming into force of sub-sec. (2) to Sec. 11C from 1-7-1988, and even before the issue of notification under Sec. 11C on 21-12-1988 in respect of their goods, the appellants have sought to show that the duty incidence passed on had been remedied by issue of credit notes to customers. It is not possible to interpret sub-sec. (2) of Sec. 11C to accommodate such situations and to say that even when duty has been passed on to the customers at the time of clearance the assessee can still claim refund under Sec. 11C(2) of Central Excises and Salt Act by issuing credit notes. The Tribunal decision in the case of Collector of Central Excise v. Mahavir Spg. Mills (supra) does not also advance the case of the appellants as it was a decision relating to a demand of duty and not a refund claim rendered in the context of Sec. 11C prior to introduction of sub-sec. (2) thereto. In the result, there is no reason to interfere with the order passed by the Collector (Appeals) and the appeals are rejected.