Supreme Court: No Separate Notice is Necessary under Section 11A of Central Excise Act for Recovery of Erroneous Refund Granted

Supreme Court: No Separate Notice is Necessary under Section 11A of Central Excise Act for Recovery of Erroneous Refund Granted

The Supreme Court in a significant ruling has held that, no separate notice under Section 11A of the Central Excise Act is necessary for the recovery of the amount when an erroneous refund is granted through the speaking order.

In the present case, the respondent- M/S. Morarjee Gokuldas Spg. & Wvg. Co.Ltd., was at the relevant time a manufacturer of cotton yarn which it consumed captively in its composite mills for weaving of fabric.

In October, 1980 vide judgment in the case of M/s. J.K. Cotton Spinning and Weaving Mills Company Ltd. vs. Union of India 1981, the Delhi High Court held that removal of yarn which was consumed within the factory for production did not amount to removal within the meaning of Rules 9 and 49 of the erstwhile Central Excise Rules, 1944 and hence, set aside the duty demand made on such captively consumed yarn. Thereafter, the respondent company filed a revised classification list wherein, they declared that no duty was payable on the yarn captively consumed.

By an order issued in April, 1981 the classification list was rejected by the Department and the respondent – company was directed to file a fresh classification list. The respondent – company filed a writ petition before the Delhi High Court inter alia challenging the levy and collection of duty on the said yarn captively consumed by them. By judgment and order dated 11 January, 1983 the High Court disposed of the said writ petition upholding the validity of Rules 9 and 49 and holding that the recovery could only be done as per the time limit prescribed in Section 11A.

In pursuance to the interim directions granted by this Court on 15 March, 1983, the bank guarantee given by the respondent – company was kept alive from time to time.

By final judgment and order dated 17 January, 1995 of the Supreme Court, held that if notice under Section 11A has not been served the Revenue would be entitled to do so within the time limit prescribed by Section 11A of the Act. Based on the judgment and order passed by the Supreme Court, the Divisional Assistant Commissioner issued a show cause notice on 7 April, 1995 demanding a duty amounting to Rs. 2,96,14,265.05. Subsequently, by passing O-I-O dated 27 March, 1996, the Assistant Commissioner confirmed the demand. Out of the amount demanded, Rs. 1,48,07,132.84 was paid on different dates between 18 April, 1983 to 28 December, 1984, as per the directions of the Supreme Court. Balance of Rs. 1,48,07,132.91 was recovered on 28 March, 1996 by encashing bank guarantees executed by the respondent – company.

Being aggrieved with the decision of the Assistant Commissioner, the respondent assessee/company went in appeal before the Commissioner (Appeals). The Commissioner (Appeals) dismissed the said appeal and upheld the decision of the Assistant Commissioner. Thereafter the respondent – assessee went in appeal before the Tribunal against the order of the Commissioner (Appeals).

The Tribunal set aside the order passed by the Commissioner (Appeals) on the ground that there was no demand issued by the Department under Section 11A of the Central Excise Act. The department challenged the order passed by the Commissioner (Appeals), which was dismissed by order. In the meantime, since the company filed a refund claim, it was found that the refund claim was not sustainable. A show-cause notice was issued for deciding the issue of Section 11B of the Central Excise Act. The Deputy Commissioner of Central Excise adjudicated the show cause notice and ordered a refund of the entire amount to the respondent-company. According to the order, the amounts were paid under protest by the party, so the time limit does not apply.

The issue that came up for consideration before the Apex Court was whether Notice under Section 11A of the Central Excise Act is necessary for the recovery of the amount when the refund granted is reviewed under Section 35E of the Act and whether a separate notice under Section 11A of the Act to be issued within the time limit prescribed under Section 11A and before the proceedings under Section 35E of the Act are initiated and/or the notice under Section 11A of the Act shall precede the proceedings under Section 35E of the Act?

The Apex Court observed that once the order in original sanctioning the refund came to be set aside in a proceeding under Section 35E of the Act and the proceedings under Section 35E was initiated within the time prescribed under Section 35E of the Act, thereafter there was no question of any further notice under Section 11A of the Central Excise Act as observed by the Tribunal affirmed by the High Court on quashing and setting aside the order in original sanctioning the refund in exercise of powers under Section 35E of the Act which otherwise was prescribed under the Act within the time stipulated under Section 35E of the Act, thereafter necessary consequence shall follow and thereafter there was no question of any refund pursuant to order in original.

In addition to this, the Apex Court remarked that the High Court has without giving any reasons how the same was misplaced had ignored to follow the decision of the Supreme Court in the case of Asian Paints (India) Ltd. vs. CCE, Bombay 2002, which was binding on the High Court and despite the same was pointed out and pressed into service by the Revenue. The High Court had rather followed its earlier decision in the case of Bajaj Auto Ltd vs. UOI, 2003, which admittedly was prior to the decision in the case of Asian Paints.

In view of the observations, the Supreme Court quashed the impugned judgment and order passed by the High Court and set aside the order passed by the Tribunal, while restored the order passed by the Commissioner (Appeals), Mumbai.