REFUNDS, DEMANDS, ARISING OUT OF APPELLATE ORDERS

 

By

 

Vijay.K.Kumar

 

 

Under Section 11 A of the Central Excise Act 1944, When any duty of excise has not been levied or paid or has been short paid or short levied or short paid or erroneously refunded, a Central Excise Officer may, within six months from the relevant date, serve notice …… requring him to show cause why he should not pay the amount specified in the notice.

Similarly under section 11B, any person claiming refund of any duty of excise may make an application for refund of such duty …….. before the expiry of six months from the relevant date…….

Relevant date for the purpose of demanding duty under section 11A is

………..

…………

………….

 

And Relevant date for the purpose of refunds under section 11B is

 

…………………….

……………….

……………..

 

Let us study some hypothetical situations (though I call them so, they are not really hypothetical as there are many such cases):-

1. An Assistant Commissioner grants refund. After about eight months from the date of AC's order, the Commissioner, reviews it and directs the AC to file an appeal with Commissioner (Appeals). The appellate authority quashes the orders of the AC and decides that no refund is payable. The assessee has already got the refund. Now how can the department recover this wrongly given refund? Issue a notice under Section 11A. But that is time barred because the notice is to be issued within six months from the date of refund. Is there no way out?
   
2. An assessee who has paid an amount of Rs. 5 Lakhs as demanded consequent to a notice under Section 11A, goes in appeal and gets the AC's order quashed. Now he is entitled to refund. But as per Section 11B, he has to file the refund claim within six months from the date of payment of duty. If his appellate order came after two years, what is his fate?
   
3. An assessee aggrieved by the order passed after a notice under Section 11A, goes in appeal and the appellate authority requires him to pre deposit 50% of the duty demanded. After pre deposit, his case is heard and the appellate authority sets aside the order of the lower authority and sends it back for reconsideration. Is he entitled to refund of the pre deposit?
   
4. An assessee makes the pre deposit and goes to appeal. His appeal is allowed and the lower authority's order is quashed – after three years. Will he get the refund of his pre deposit amount?
   

Let's analyse the above questions.

1. As per section 11A, when any duty of excise has been erroneously refunded, a Show Cause Notice has to be issued within six months from the relevant date which in this case would be the date of refund. Under Section 35E(2), the Commissioner can review the order of the AC, within one year of the date of the order and an appeal is to be filed within three months from the date of review order. In effect, the department has one year and three months from the date of adjudication order to go in appeal. But does this provision help the department in getting its erroneously refunded amount back?. Here the mischief of Section 11 A would come into operation. If the assessee does not voluntarily pay the amount, the department may have to issue a Show Cause Notice and then they can say TIME BARRED. There was an interseting case reported in the 15 November 1999 ELT. 1999 (114) ELT 92 (Tribunal). Brief facts are: An AC allowed a refund. Department appealed before Commissioner(Appeals) under Section 35 E. Commissioner(Appeals) held that since no show cause notice was issued under Section 11 A for recovery of refund allegedly given erroneously, no order could be passed. Against this order Revenue went in appeal to CEGAT and the Hon,ble CEGAT held
   

 

1. Section 11A is for recovery of refunds, whereas 35E is a right to revenue to seek remedial measures by using appellate machinery provided by law. The effect of the Commissioner(Appeal)'s order is that revenue would stand denied of this appellate machinery unless and until the revenue's appeal is preceded by a show cause notice under Section 11 A . This is an incorrect position of law.
   
2. The two sections noted above exist and operate independent of each other.
   
3. The Commissioner (Appeals) should have applied his mind and passed the order on merits of the case as provided for under Section 35 E. But that order could have fallen short of ordering any recovery , if he had found that there was no notice under Section 11A.
   

 

The order was remanded for de novo consideration.

This in effect means that the revenue can appeal under Section 35 E within about 15 months even without issuing a SCN under Section 11 A and the Commissioner (Appeals) is bound to decide that appeal, but no recovery can be made if there was no SCN under Section 11 A within time. Then what use is such appellate order to the Revenue? May be it is because of the impossibilty of demanding after the appellate order or the total uselessness of an appellate order that the Commissioner (Appeals) chose not to pass any order. Now that the Hon'ble CEGAT has categorically stated that this is an incorrect position of law, what the department should do immediately on granting a refund is to issue a SCN demanding the refund back and then going in appeal. Similar would be the case of an assessee claiming refund of duties paid consequent to an adjudication order. He should immediately file a refund claim and then go in appeal. There is another school of thought which believes that once the AC's orders are quashed by the Commissioner (Appeals), the order granting refund does not exist and there is no need for another demand or SCN. Similarly for refunds arising out of appellate orders, there need not be a refund claim. But Section 11 A and 11 B do not speak of suo moto payment or refund consequent to appellate orders. The earlier provisions had taken care of such situations and it was mandatory but after the advent of the concept of unjust enrichment, may be it was felt that even if an appellate authority in principle allowed refund, the fact of the incidence of duty being absorbed had to be verified before granting refund. In fact Section 11B(3) emphatically states that not withstanding anything to the contrary in any judgement, decree ordere or direction of the Tribunal or any Court, NO REFUND SHALL BE MADE EXCEPT AS PROVIDED IN SUB SECTION 11B(2).

But the Hon'ble AP High Court in VBC Industries v Union of India in WP No. 34511 of 1997 ( Not yet reported) took a different view. It may be of interest to know briefly the facts of this case.

A refund of over Rs. 18 Lakhs were paid to the assessee by the department on the directions of the AP High Court. Union of India went in appeal to The Supreme Court. The hon'ble Supreme Court set aside he judgement of the High Court. Consequent to this, the Range Supdt sent a letter to the assessee requiring them to pay back the amount with interest. The assessee replied that the demand was time barred. Then the AC wrote to the copmany that the original order rejecting refund stood restored as a consequence of the judgement of the Supreme Court and that coerrcive action would be initiated if the amount is not paid. Against this letter of the AC, the party went in writ petition to the Hon'ble AP High Court. While dismissing the writ petition, the Hon'ble High Coourt remarked " The plain and logical consequence of the judgement setting aside the judgement of the High Court which ordered refund is to restore status quo ante and imposing a duty and obligation on the assessee who got the refund….. to pay back that amount………… assesssee can not approach this court to scuttle the recovery instead of discharging its obligation voluntarily. The petitioner has no legal or moral right to approach this court under Article 226 raising hyper technical grounds to wriggle out of the situation….."

 

The High Court also referred to a case where the Supreme Court held     

    " Where the refund claim is rejected by this court, the assessee who has already obtained any amount by way of refund shall be liable to pay back the same to the department…….."

 

The High Court started its judgement with the words " Legal ingenuity knows no bounds. It baffles an ordinary person whether the pleas such as those put forward in the present case would be available at all. The petitioners having got the refund pursuant to the judgement of this Court, which was later reversed by the Supreme Court tries to resist the move of the Excise department to recover back the amount refunded."

 

EXCISE LAW TIMES – 15.01. 2000 – A 82