IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
CENTRAL EXCISE APPEAL NO.253 OF 2016
The Commissioner of Central Excise
Mumbai III Commissionerate,
4th Floor, Vardan Trade Centre, Wagle
Industrial Estate, Thane (W)400 604
Village Road, Bhandup (West)
Mr. Swapnil Bangur for the Appellant.
Mr.V.Shridharan, Senior Counsel a/w Mr.Jas Sanghavi i/b PDS Legal for the Respondent.
S.C. DHARMADHIKARI &
SMT.BHARATI H. DANGRE, JJ.
RESERVED ON : 17th January 2018
PRONOUNCED ON : 03rd May 2018
JUDGMENT : (Per Smt.Bharati H. Dangre,J)
1. The revenue has filed the present appeal challenging the judgment passed by the CESTAT, West Zonal Bench, Mumbai in Appeal No.E/310/2007MUM thereby rejecting the appeal filed by the Revenue and holding that the bar of Unjust Enrichment is not applicable to the proceedings of provisional assessment. Resultantly the appeal filed by the Revenue has raised the following substantial question of law :
(I) Whether tribunal is correct in holding that bar of unjust enrichment is not legally applicable to the provisional assessment cases before amendment to Rule 9B.
(II) Whether tribunal is correct in holding that the Show Cause Notice is bad in law as same is not issued under the power vested with the Commissioner under Section 35E(2) of the Act.
The appeal is admitted on the said substantial question of law and was heard finally by consent of the parties.
2. In order to appreciate the question of law involved in the appeal it would be necessary to deal with the chronological events involved in the said appeal. The respondent M/s. CEAT Ltd manufacturer of tyres had cleared the goods under provisional assessment for the Financial Year 19981999 and the same was finalized vide orderinoriginal No.01/0102 dated 04.06.2001 and the duty excess paid was determined at Rs.91,59,977/.
Revenue was aggrieved by the said order and filed an appeal before the Commissioner (Appeals) on the ground that the assessee had incorrectly claimed deductions on the assessable value. The Commissioner (Appeals) of the Revenue allowed the Appeal of the Revenue by order dated 04.08.2003. Being aggrieved by the said order the assessee preferred an appeal before the CESTAT and the Tribunal by order dated 28.04.2004 allowed the appeal filed by the assessee and set aside the order passed by the Commissioner dated 04.08.2003. Needless to mention that the said order of the Tribunal has become final as the same was not challenged. Pursuant to the finalization of the Assessment order dated 04062001 an excess amount was paid by the assessee amounting to Rs.91,59,977/.
The assessee therefore claimed the refund of the same and vide orderinoriginal dated 31032003 the refund was sanctioned and paid to the assessee on 04.04.2003. As regards the issue of unjust enrichment, the learned Assistant Commissioner in the order granting refund specifically observed that “in view of the facts of the case, the orderinoriginal dated 04.06.2000 passed by the Deputy Commissioner regarding the finalization of the Provisional Assessment for the year 9899, quantification done on the basis of the CA certificate, verification of the Range Officer and report judicial pronouncements the assessee was held entitled for the quantified refund claim filed by them due to finalization of the provisional assessments for the year 9899.
The Assistant Commissioner also observed that verification of records maintained by M/s. CEAT Ltd in their Bombay office revealed that Regional Office has complete data in respect of year wise total sales and the various discounts passed to the dealers and the accounts of each dealer is maintained separately and also of yearwise total discount passed by the Regional Officer maintained and tallied with the figures at the main office at the CEAT Ltd.
3. The Assistant Commissioner also observed that in the year 9899 the assessment was made provisional as the assessee claimed various discounts from sale price as actual discount was not known to them at the time of the clearance from the factory and moreover assessee was transferring goods to various depots situated in the country and there were dealers/customers. Since, the exact quantum of various deductions claimed by the assessee was not known at the time of the clearance, the assessment for the year 98-99 was made provisional and it was then finalized. Then the Deputy Commissioner, Central Excise vide order dated 04.06.2001 allowed discount on account of the cost of secondary transportation, trade discount, duties and taxes and interest on receivables. On a detailed consideration of the issue, the Assistant Commissioner sanctioned the refund claim of Rs.91,59,977/to M/s.CEAT Ltd for the year 9899 vide order dated 04.06.2001 passed by the then Deputy Commissioner Central Excise, Bhandup Division.
4. The Revenue issued a show cause notice dated 04.07.2003 through the Deputy Commissioner Central Excise, asking the respondent to show cause as to why the amount of Rs.91,59,977/erroneously refunded to them should not be recovered from them under the provisions of Section 11A(1) of the Central Excise Act, 1944 and interest at appropriate rate should not be levied and recovered from them under the provision of Section 11AB.
The said show cause notice was issued on the basis that on scrutiny of records it was found that M/s.CEAT Ltd was not entitled for refund and the same should have been credited to the consumer Welfare Fund as laid down under the provisions of Section 11B(2) as the applicant i.e. M/s.CEAT Ltd has not produced any evidence to prove that they have not passed on the burden of the duty to their customers during the relevant period. The show cause notice further mentions that it appears that the deduction on account of interest on receivables is allowable only in case where the sale is on credit and the payment is realized beyond the normal credit period.
The show cause notice came to be adjudicated by the orderinoriginal dated 31.03.2006 passed by the Commissioner of Central Excise Mumbai-III.
The Commissioner recorded the finding that the issue as regards the deduction on account of interest on receivables came to be settled by the order of the Tribunal on 28.04.2004 and as far as the issue of unjust enrichment is concerned the provisions under Rule 9B(5) of Central Excise Rules, 1944 was made applicable with effect from 26.06.1999 and the said amendment is to be made applicable prospectively. It was therefore, held that for the period in question i.e. 199899, the said amendment would not be applicable. The Commissioner made a reference to the series of judgments beginning with in the case of TVS Suzuki Ltd and the Apex Court judgment in the case of Allied Photography Ltd. In relation to the issue of applicability of the provisions of payment of duty, in the light of the settled position of law, the show cause notice came to be discharged and the proceeding were dropped. Being aggrieved by the decision by the Commissioner, Appeal came to be preferred an appeal before CESTAT, on the ground that assessee has to clear the bar of unjust enrichment even in case of refund arising out of the provisional assessment.
5. Before the CEASTAT the revenue justified the issuance of the show cause notice and it placed heavy reliance on the judgment of the High Court in the case of Godrej Industries Ltd., V/s. CEE 2015 (315) ELT 192(Bom) wherein it was held that the relevant date for the purposes of limitation under Section 11A is the date of finalization of provisional assessment and since in the present case provisional assessment was on 04.06.2001 and the amendment came into effect under Rule 9A prior to the date, on the provisional assessment unjust enrichment is applicable. The Revenue submitted before the Tribunal that the adjudicating authority granting refund vide order dated 31.03.2003 had not considered issue of unjust enrichment in proper prospective.
6. The assessee supported the impugned order and submitted that the notice was issued only under Section 11A and was not issued with reference to Section 35E of the Act and under Section 35E(2), it is the jurisdiction of the Commissioner of the Central Excise to review any order passed by the subordinate authority if it is found to be prejudicial to the Revenue. According to the assessee there was no direction from the Commissioner of the Central Excise to issue such a notice. In these circumstances it was attempted to canvass that the principles of unjust enrichment are not applicable under Section 9B(5) as the statute has come into effect from 25.06.1999 and the period of assessment ended on 31.03.1999 much prior to the date.
7. The learned Tribunal considered the rival contentions and agreed with the findings recorded by the adjudicating authority in favour of assessee on both law and facts and it held, that the show cause notice being vague and containing the gist of contention, was found to be bad in law and appeal filed by the Revenue came to be dismissed and the impugned order was upheld.
8. Being aggrieved by the same present appeal is filed by the Revenue. The appeal raises the question of law as to whether bar of unjust enrichment is applicable to the provisional assessment caused before amendment in Rule 9B. At this stage it would be necessary to refer to provisions contained in the Central Excise Act, 1944 briefly. Section 11A of the Central Excise Act which is substituted in the year 2011 provides for recovery of duties not levied or not paid or short levied or short paid or erroneously refunded.
By virtue of the said provision if duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, for any reason, other than the reason of fraud or collusion or any willful misstatement 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, then, the Central Excise Officer is empowered to serve notices on the person chargeable with the duty which is not been so paid or levied or which have been short paid or short levied or to whom refund has been erroneously made, within a period of one year from the relevant date and ask him to show cause as to why he did not pay amount specified in the notice.
9. Subsection (b) of Section (i) of Section 11 permit the person chargeable with duty to pay amount of duty along with the interest payable thereon under Section 11AA before service of notice, on the basis of his own ascertainment of such duty or on the basis of duty ascertained by the Central Excise Officer. The bar of period of one year is however not made applicable because of fraud, collusion, any willful misstatement or suppression of facts or contravention of any of the provisions of this act and the show cause notice in such cases could be issued within a period of five years from the relevant date. The relevant date defined in the explanation appended to the said section stipulates the contingencies in which the relevant date would be determined. Section 11AA contains a provision for interest on delayed payment of duty and Section11AC provides penalty for nonlevy or shortlevy of duty in certain cases.
Section 11B of the Central Excise Act contains the provisions for the claim of refund of duty and any person claiming refund of duty of excise and interest, if any, paid on such duty may make an application for refund to the Assistant Commissioner or the Deputy Commissioner before expiry of period of one year from the relevant duty in the form prescribed and such an application is to be accompanied by such documentary or other evidence to justify such a refund. A proviso has been inserted to the said section with effect from 20.09.1991 by which the period of limitation of one year is not made applicable where any duty and interest, if any, paid on such duty has been paid under protest. The said section then proceeds to set out in detail the procedure for granting such a refund of duty.
Section 11BB which is inserted in this statute with effect from 26.05.1995 entitles an applicant to an interest at such rate not below 5% and not exceeding 30% per annum, where any duty ordered to be refunded under Section 11B is not refunded within three months from the date of application.
10. It is relevant to note that under the provisions of the Customs Act, there is provision for provisional assessment under Section 18 and the proper officer may direct the duty leviable on such goods be assessed provisionally where the importer or exporter is unable to make self assessment and makes a request in writing to proper officer for assessment or where the proper officer deems it necessary to subject any imported goods or exported goods for any chemical or other test or where the importer or exporter has produced all the necessary documents but the proper officer proposes to hold further inquiry. In such a contingency, a provisional assessment is permitted to be made if the importer and exporter furnishes such security as proper officer deems fit for payment of deficiency if any, between the duty to be finally assessed or reassessed as the case may be.
The Central Excise Rules 1944 came to be amended and the provisional assessment of duty came to be inserted by Rule 9B.
As per the said rule, notwithstanding anything contained in these rules ( a) Where the assessee is unable to determine the value of excisable goods in terms of section 4 of the Act on account of nonavailability of any document or any information : or (b) Where the assessee is enabled to determine the correct classification of the goods while filing the declaration under rule 173B;
the assessee may request the proper officer in writing giving the reasons for provisional assessment to duty, and the proper officer may direct such inquiry as he deems fit, that the duty leviable on such goods shall be assessed provisionally at such rate or such value as may be indicated by him, if such assessee executes a bond in the proper form with such surety or sufficient security in such amount, or under such conditions as proper officer deems fit, binding himself for payment of difference between the amount of duty as provisionally assessed and as finally assessed.
Sub rule (5) of Rule 9B provides that when the duty leviable on the goods is assessed finally in accordance with the provisions of these rules, the duty provisionally assessed shall be adjusted against the duty finally assessed, and if the duty provisionally assessed falls short of, or is in excess of duty finally assessed, the assessee shall pay the deficiency or be entitled to a refund, as the case may be. A proviso came to be appended to Sub Rule 5 with effect from 25.06.1999 which provides if an assessee is entitled to a refund, such refund shall not be made to him except in accordance with the procedure established under subsection (2) of section 11B of the Act. The issue involved in the present appeal is as to whether the provision contained in Rule 9B would be made applicable to a provisional assessment and whether the assessee will have to clear the test of unjust enrichment even in case of refund where he is subjected to provisional assessment.
11. The learned counsel Shri.Shridharan appearing for the respondent-assessee would invite attention of this Court to the law laid down on the said issue and he would refer to a compilation of judgments, in a chronology, beginning from the judgment of the Hon'ble Apex Court in the case of Commissioner of Central Excise, Chennai V/s. T.V.S. Suzuki Ltd. 2003 (156) ELT 161 (SC).
He would also place reliance on the judgment of the Apex Court in the case of CCE V/s.Allied Photographics India Ltd 2004 (166) ELT 3(SC). He also took us through the judgment of the Hon'ble Apex Court in the case of Sahakari Khadi Udyog Mandal Ltd. V/s Commissioner of C.Ex and Cus. 2005(181) E.L.T. 328 (S.C.)
12. The question as to whether the doctrine of unjust enrichment will be applicable to the refund of the duty finalized in the year 1999 but pertaining to period prior to 25.06.1999 when Rule 9B of the Central Excise Rules came to be amended is the moot question involved in the appeal. In the present case it can be seen that the period in question is 1998-1999 and the amendment in Rule 9B is effect from 25.06.1999. It can thus be seen that the Assistant Commissioner Central Excise on 31032003 had refunded the claim of Rs.91,59,977/on finalization of the provisional assessment for the year 199899 by and order dated 04.06.2001 passed by the Deputy Commissioner of Central Excise, Bhandup Division. The Assistant Commissioner had sanctioned the said refund by taking into consideration the orderinoriginal passed by the then Deputy Commissioner on 04.06.2001 regarding finalization of the provisional assessment for the year 199899 and by taking into consideration the quantification done on the basis of the C.A.
certificate. The said order has reached finality as the Revenue had preferred an appeal which came to be allowed by the Commissioner but the CESTAT on an appeal by the assesee, by judgment dated 28.04.2004 had allowed the appeal of the assessee and the issue was put to rest by upholding the order dated 04.06.2001 wherein the adjudicating authority allowed the deduction from the accessory value on account of the interest on the receivables. The CESTAT order attained finality and even the issue of earlier period was also decided by the Tribunal by its order No.CII/3033/03WZB dated 01.12.2013 in favour of the assessee and it was decided by the CBSC not to challenge the said order and accept the order. As such the issue was finally settled in favour of the assessee and refund relatable to the deduction i.e. deduction on account of the interest receivables was held to be admissible to the assessee. On perusal of the facts it is clear that pursuant to the finalization of the provisional assessment, a claim of refund came to be made which came to be allowed by the Assistant Commissioner of Central Excise on 31.03.2003. However, on the ground that the amount sanctioned should have been credited to the consumer welfare fund as provided and on the ground that the assessee has not produced any evidence to prove that they had not passed on the incidence of duty to the customers a demand notice came to be issued to the assessee and it was alleged that the respondent M/s. CEAT Ltd has in built the element of “interest on receivables” in the price itself and interest is neither charged nor realized over and above the sale price of the goods. In this background it was alleged that the deduction on account of the interest on receivables claimed by M/s.CEAT Ltd is not allowable and the amount and on account of such deduction which was sanctioned and refunded is liable to be recovered.
The Commissioner of Central Excise was perfectly justified in recording a finding that the said show cause notice is not at all sustainable for more than one reason. Since it is noted that the assessment for the period 9899 and 992000 was finalized by the Commissioner Central Excise, Bhandup on 04.06.2001 and there is no reason for reagitating the same after refund claim has been sanctioned on the provisional assessment. The Commissioner is justified in observing that the issue of unjust enrichment is not applicable to this case on account of the reason that the goods were assessed on the provisional basis and refund claimed is after finalization of the assessment as per provisions of Rule 9B(5) of the Central Excise Rule 1944. The argument of the assessee that the assessment was provisional and the credit notes were issued to the dealers and which were verified by the Range Officer before the finalization of the assessment cannot be termed as post clearance transaction found favour with the tribunal. The event of payment of excise duty is not completed till the finalization of assessment because it is only on the finalization of the assessment it may give rise to recovery of the duty short paid or if paid in excess than makes the assesse entitled to refund. In any case the payment of duty cannot be said to be finalized till the finalization of the assessment and therefore the question of refund would arise only on the finalization. However, in the light of the settled position of law that the said notification will have no retrospective effect the said show cause notice was not found to be sustainable in law.
13. The judgment relied upon by the learned counsel for the respondent in case of CCE V/s. Allied Photographics India Ltd. decided on 18.03.2004 is partly applicable here and Hon'ble Apex Court in paragraph No.7 had observed thus :Before analysing section 11B, it is important to note that there is a difference between making of refund and claiming of refund. Section 11B was inserted in the said Act w.e.f. 17.11.1980. Under subclause (e) to explanation B to section 11B(1), where assessment was made provisionally the relevant date for commencement of limitation of six months was the date of adjustment of duty as final assessment. Entitlement to refund would thus be known only when duty was finally adjusted. Subclause (e) referred to limitation in cases covered by rule 9B which dealt with duty paid under provisional assessment. The said rule started with a nonobstante clause. Rule 9B(1)(a) to (c) indicated the circumstances in which the proper officer would allow provisional assessment. Rule 9B(4) dealt with clearance of goods provisionally assessed whereas rule 9B(5) dealt with adjustment of provisionally assessed duty against finally assessed duty. The said rule 9B was a complete code by itself.
On compliance with the conditions therein, the proper officer was duty bound to refund the duty without requiring the assessee to make a separate refund application. The said rule, therefore, provided for making of refund. On the other hand, section 11B(1) dealt with claiming of refund by the person who has paid duty on his own accord. In this connection, section 4 of the said Act is relevant.
A bare reading of section 11B(1), therefore, shows that it refers to claim for refund as against making of refund by the proper officer under rule 9B.
14. In the said judgment the Apex Court specifically referred to the judgment in the case of Mafatlal Industries Ltd reported in 1997 (89) ELT 247 and has observed in paragraph No.14 to the following effect:“ 14. As stated above, para 104 of the judgment in the case Mafatlal Industries Ltd. (supra) states that if refund arises upon finalization of provisional assessment, section 11B will not apply. Para 104 of the said judgment does not deal with payment under protest. In the light of what is stated herein, we may now consider the judgment of this Court in the case Sinkhai Synthetics & Chemicals Pvt. Ltd. (supra). In that matter, the assessee was a manufacturer. The assessee claimed exemption which was denied by the Department. The assessee went in appeal to CEGAT. Pending appeal, assessee paid excise duty under protest. The assessee succeeded before the CEGAT and claimed refund on 17.1.1991. Refund was denied by the Department. Therefore, it was a case of payment of duty under protest. However, in the said decision, this Court applied para 104 of the judgment of the Constitution Bench in the case of Mafatlal Industries Ltd. (supra), which with respect, had no application. As stated above, para 104 of the judgment in the case of Mafatlal Industries Ltd. (supra) dealt with refund consequent upon finalization of provisional assessment. Para 104 does not deal with refund of duty paid under protest. As stated above, there is a difference under the Act between payment of duty under protest on one hand and refund consequent upon finalization of provisional assessment on the other hand. This distinction is missed out, with respect, by the judgment of this Court in the case of Mafatlal Industries Ltd. (supra). We may also point out that the judgment in the case of Sinkhai Synthetics & Chemicals Pvt. Ltd. (supra) is based on the concession made by the counsel appearing on behalf of the Department. That judgment is, therefore, per incuriam.
Learned counsel for the respondent herein placed reliance on the judgment of this Court in the case of TVS Suzuki Ltd. (supra). In that case, application for refund was filed. This was on completion of final assessment. On 9.7.1996, the Department issued a showcause notice as to why the refund claim should not be rejected for noncompliance of section 11B. By order dated 17.7.1996, the refund claim was rejected on the ground that it was beyond limitation. On appeal, the Commissioner (Appeals) observed that the bar of unjust enrichment was not applicable as the assessee claimed refund consequent upon final assessment. He allowed the refund claim.
CEGAT agreed with the view of Commissioner (Appeals).
Before this Court, the Department conceded rightly that in view of para 104 of the judgment of this Court in Mafatlal Industries Ltd. (supra), bar of unjust enrichment was not applicable in cases of refund consequent upon adjustment under rule 9B(5). The judgment of this Court in the case of TVS Suzuki Ltd. (supra), therefore, supports the view which we have taken herein above that refund consequent upon finalization of provisional assessment did not attract the bar of unjust enrichment.
15. The subsequent judgment of the Hon'ble Apex Court in case of Commissioner of C.EX. BangloreII V/s. ITC Limited has also dealt with the similar issue and in peculiar facts of the case their Lordship observed thus :
“5. From the aforesaid material on record, it is clear that the Appellate Authority, the Tribunal and the department proceeds on the assumption that this is a case of claim for refund by the Assessee under section 11b of the excise act, 1944 and therefore, the burden of unjust enrichment applies. However, the material on record, which is not in dispute, discloses that the duty was paid in pursuance of a provisional assessment whereas in the final order of assessment, the Assessing Authority directed the Assessee to pay the differential duty. The said order was challenged before the Appellate Authority. The Appellate Authority set aside the said order and directed for redetermination of the duty payable by the Assessee.
After said redetermination of the duty payable, the Assessing Authority found that the duty paid by the Assessee is in excess of what is liable to be paid under the Act. The amount was quantified. The Assessee was called upon to furnish the documents to substantiate his case.
The Assessee produced the documents. Refund was sanctioned.
Now, the question is whether this amount which is already refunded to the Assessee is liable to be reclaimed and credited to the Welfare Fund account. The Apex Court at Para 104 of the judgment in the case of Mafatlal Industries Ltd. v. Union of India, has clearly laid down under what circumstances a claim for refund arises under the Act, i.e. when the levy is unconstitutional or when the levy is illegal or when on the basis of the calculation made if it is found that an excess amount has been paid. It is only in those circumstances, Section 11A is attracted. The subsequent judgment of the Apex Court in the case of Commissioner of Central Excise, MumbaiII v. Allied Photographies India Ltd. reported in 2004 (166) E.L.T. 3 (S.C.) at paragraph 14 held that "Para 104 of the judgment in the case Mafatlal Industries Ltd. (supra) states that if refund arises upon finalisation of provisional assessment, Section 11B will not apply."
Similarly, the judgment of the Apex Court in the case of Commissioner of Central Excise, Chennai v. T.V.S. Suzuki Ltd. reported in 2003 (156) E.L.T. 161 (S.C.) held that the refund claims consequent upon finalization of the provisional assessment does not attract the bar of unjust enrichment. Even subsequent to 1989 to the amendment to Section 113(2), the case of unjust enrichment is not attracted.
6. In the instant case, the relevant period is from 1101975 to 2821983 before the amendment to Section 11B(2) of the Act. This is not a case arising out of Section 11B of the Act. The refund is paid in pursuance of the finalization of the provisional assessment order and in fact, the Assessing Authority was right in holding that the doctrine of unjust enrichment does not apply in the facts of the case relying on the judgment of the Constitution Bench as well as subsequent decisions.
16. In view of the settled position of law, it is clear that the entitlement to refund and finalization of the provisional assessment under Rule 9B of the Central Excise Rules, 1944 is independent from the provisions of refund under Section 11B of the Central Excise Act, 1944. Even if the amendment made by the notification 45/99 with effect from 25.06.1999, is noted, only the procedure established under subsection 2 of Section 11B of the Central Excise Act has been made applicable to the refund arising out of the finalization of the provisional assessment under Rule 9B of the Central Excise Rules, 1944. The procedure regarding unjust enrichment of finalization of provisional assessment will be applicable to the provisional assessment made after 1999 and not before that date as the proviso to Rule 9B in the form of sub Rule 5 did not have a retrospective effect. The doctrine of unjust enrichment therefore would not be attracted to the refunds pertaining to the finalization of the provisional assessment for the period prior to 1999 and sub Rule 5 to Rule 9B of the Central Excise Rule, 1944 will not operate retrospectively. The proviso to Rule 9B(5) would be made applicable only with effect from 25.06.1999 and therefore the principle of unjust enrichment cannot be made applicable to the refunds arising out of finalization of the provisional assessments pertaining to the period prior to 25.06.1999 even if the assessments are finalized after 25.06.1999.
17. In the present case the period in question is 199899 and the assessment was finalized on 04062001.
Applying the aforesaid principle, the principle of unjust enrichment could not be made applicable. The impugned order passed by the CESTAT in Appeal No.E310/ 2007MUM does not suffer from any illegality or perversity and is therefore upheld. There is no substance in the appeal filed by the revenue and the question posed in the appeal is answered in aforesaid terms, namely, in favour of the assessee. The appeal is dismissed. No order as to costs.
(SMT.BHARATI H. DANGRE, J.) (S.C. DHARMADHIKARI, J.)