COMMISSIONER OF CENTRAL EXCISE MUMBAI – I versus M/S MORARJEE GOKULDAS SPG. & WVG. CO. LTD. on 24 March 2023

Conclusion

1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 24.09.2008 passed by the High Court of Judicature atBombay in Central Excise Appeal No.186 of 2008 by which the DivisionBBench of the High Court has dismissed the said appeal preferred by theRevenue and has affirmed the judgment and order passed by theAppellate Tribunal by which the Appellate Tribunal held that the showcause notice under Section 11A of the Central Excise Act, 1944 isrequired to be issued in case of erroneous refund of the duty, the RevenueChas preferred the present appeal.

2. The short question which is posed for consideration before thisCourt is whether the separate notice under Section 11A of the CentralExcise Act is necessary for the recovery of the amount when anerroneous refund is granted through the speaking order is reviewed underSection 35E of the Act?D

2.1 The facts leading to the present appeal in nutshell are as under:

2.2 The respondent herein was at the relevant time a manufacturerof cotton yarn which it consumed captively in its composite mills forweaving of fabric. In October, 1980 vide judgment in the case of M/s.EJ.K. Cotton Spinning & Weaving Mills Company Ltd. vs. Unionof India 1981 (8) ELT 887, the Delhi High Court held that removal ofyarn which was consumed within the factory for production did notamount to removal within the meaning of Rules 9 & 49 of the erstwhileCentral Excise Rules, 1944 and hence set aside the duty demand madeFon such captively consumed yarn. That the respondent company filed arevised classification list wherein, they declared that no duty was payableon the yarn captively consumed. By an order issued in April, 1981 theclassification 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 being WritGPetition No.1190 of 1981 inter alia challenging the levy and collectionof duty on the said yarn captively consumed by them. By judgment andorder dated 11.01.1983 the High Court disposed of the said writ petitionupholding the validity of Rules 9 and 49 and holding that the recoverycould only be done as per the time limit prescribed in Section 11A. Thatin the year 1983 the respondent – company filed a civil appeal againstH

the said judgment before this Court being Civil Appeal No.320 of 1983.The Company also files application for stay of the operation of thejudgment. On 15.03.1983, this Court passed an interim order in thefollowing terms:

“In respect of future payment of Excise Duty there will be nostay. In so for as the post dues are concerned, 50% of the pastdues shall be paid to the authority concerned within a period of 3months from today. In regard to the balance 50% the appellantsshall give bank Guarantee to the satisfaction of the Registrar ofthis Court within the same period. If the Bank Guarantee havealready been given in any case in pursuance of the directions ofthe Delhi High Court it will continue in operation and shall be keptalive from time to time.”

2.3 In pursuance to the interim directions granted by this Court on15.03.1983, the bank guarantee given by the respondent – companywas kept alive from time to time. By final judgment and order dated17.01.1995 this Court decided the case and inter alia directed that ifnotice under Section 11A has not been served the Revenue would beentitled to do so within the time limit prescribed by Section 11A of theAct. On the basis of the judgment and order passed by this Court, theDivisional Assistant Commissioner issued a show cause notice on07.04.1995 demanding a duty amounting to Rs.2,96,14,265.05.Subsequently by passing O-I-O dated 27.03.1996, the AssistantCommissioner confirmed the demand. Out of the amount demanded,Rs.1,48,07,132.84 was paid on different dates between 18.04.1983 to28.12.1984, as per the directions of this Court. Balance ofRs.1,48,07,132.91 was recovered on 28.03.1996 by encashing bankguarantees executed by the respondent – company. Being aggrievedwith the decision of the Assistant Commissioner dated 27.03.1996, therespondent assessee/company went in appeal before the Commissioner(Appeals). The Commissioner (Appeals) dismissed the said appeal andupheld the decision of the Assistant Commissioner by order dated13.06.1996. Thereafter the respondent – assessee went in appeal beforethe Tribunal against the order of the Commissioner (Appeals). TheTribunal set aside the order passed by the Commissioner (Appeals) byorder dated 15.05.2000 on the ground that there was no demand issuedby the Department under Section 11A of the Central Excise Act. TheRevenue challenged the order passed by the Commissioner (Appeals)

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Adated 15.05.2000 which came to be dismissed by order dated 17.02.2005.In the meantime, since the company filed a refund claim it was foundthat the refund claim was not sustainable. A show cause notice dated19.09.2000 was issued for deciding the issue of Section 11B of the CentralExcise Act. Notice dated 19.09.2000 came to be adjudicated by theDeputy Commissioner of Central Excise who vide his order datedB21.12.2000 set aside the show cause notice and ordered refund of theentire amount to the respondent – assessee/company. The said orderheld that the amounts were paid under the protest by the party andtherefore the time limit will not apply. The issue of unjust enrichmentwas not examined in the order. That thereafter the Revenue in exerciseCof powers conferred under Section 35E(2) of the Central Excise Act,preferring an appeal before the Commissioner (Appeals) prayed forsetting aside the order passed by the Deputy Commissioner dated21.12.2000 sanctioning the refund, on the grounds set out therein includingthat there was unjust enrichment and that the refund claimed was timebarred under Section 11B of the Central Excise Act. By order datedD13.05.2005 the Commissioner Central Excise (Appeals), Mumbai allowedthe appeal filed by the Revenue by inter alia upholding grounds of unjustenrichment and time bar under Section 11B of the Central Excise Act.

2.4 Being aggrieved, the assessee filed the appeal before theTribunal challenging the points of the merits upheld by the CommissionerECentral Excise (Appeals) vide order in appeal dated 13.05.2005. Pendingthe said appeal and consequent to the order dated 13.05.2005, settingaside the Order-in-Original sanctioning the refund claim of Rs.2,96,14,264/- and in absence of specific stay against the said order in appeal, theRevenue proceeded with recovery of an amount of Rs.20,00,000/- byFway of appropriation of refund claims payable to the assessee under O-I-O dated 04.01.2007. Therefore, in the pending appeal on 25.01.2007,the respondent assessee filed an application seeking directions to theDepartment to refund the said sum of Rs.20,00,000/- sanctioned to it byway of refund. That before the Tribunal, the assessee filed an application for additional grounds seeking to amend the appeal against the order inGappeal dated 13.05.2005 on the following points of law:

“(i) No notice under Section 11A of Central Excise Act, 1944 isissued to the applicants seeking to recover the refund grantedpursuant to the Order in Original dated 19.12.2000.

(ii) The order of the Commissioner of Central Excise (Appeals),impugned in the above Appeal, without issuing notice under Sectionl1A of the Act, is therefore not capable of being implemented andliable to be set aside on this ground alone.”

2.5 That the Tribunal by its Order dated 12.10.2007 consideredand decided only the points of law raised vide Misc. Application foradditional grounds and vide order dated 12.10.2007 allowed the saidappeal and set aside the order in appeal with consequential relief to theassessee. Against the order passed by the Tribunal dated 12.10.2007,the Revenue preferred the present appeal before the High Court. Bythe impugned judgment and order the High Court has dismissed the saidappeal relying upon the decision of the Division Bench of the High Courtin the case of Bajaj Auto Ltd. vs. UOI, 2003 (151) ELT-23 (Bom).At this stage it is required to be noted that before the High Court theRevenue strongly relied upon the decision of this Court in the case ofAsian Paints (India) Ltd. vs. CCE, Bombay 2002 (142) ELT-522(SC)

2.6 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the High Court, the Revenue has preferred thepresent appeal.

3. Ms. Aishwarya Bhati, learned ASG and Ms. AmeyavikramaThanvi, learned counsel have appeared on behalf of the appellant andMr. V. Sridharan, learned Senior Advocate has appeared on behalf ofthe respondent.

4. Ms. Aishwarya Bhati, learned ASG appearing on behalf of theRevenue has vehemently submitted that in the facts and circumstancesof the case the High Court has materially erred in relying upon thejudgment of the Bombay High Court in the case of Bajaj Auto Ltd(supra) which was delivered on 15.02.2002.

4.1 It is submitted that before the High Court the Revenue heavilyrelied upon the decision of this Court in the case of Asian Paints (India)Ltd. (supra) which was subsequent to the decision of the Bombay HighCourt in the case of Bajaj Auto Ltd (supra). It is submitted thattherefore, the decision of this Court in the case of Asian Paints (India)Ltd. (supra) was binding on the High Court. It is submitted that as suchthe impugned order passed by the High Court is silent on the reasoning A

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Aas to why the reliance placed by the Revenue on the decision of thisCourt in the case of Asian Paints (India) Ltd. (supra) was misplaced.

4.2 It is submitted by Ms. Bhati, learned ASG that in the case ofAsian Paints (India) Ltd. (supra), this Court has specifically observedand held that Sections 35E and 11A of the Central Excise Act operate inBdifferent fields and are invoked for different purposes. It is submittedthat it is observed that different time limits are, therefore, set out therein.It is submitted that in the said decision this Court has not accepted thesubmission on behalf of the assessee that the recovery of the exciseduty cannot be made pursuant to an appeal filed after invoking theprovisions of Section 35E if the time limit provided in Section 11A hasCexpired. It is observed to so read the provisions would be to renderSection 35E virtually ineffective, which would be impermissible. It issubmitted that therefore the present case as such is clearly covered bythe decision of this Court in the case of Asian Paints (India) Ltd.(supra).D

4.3 It is further submitted by Ms. Bhati, learned ASG that evenotherwise from the Scheme of the Central Excise Act, 1944, it is quiteapparent that where the proceedings under Section 35E are initiated andthe appeal is filed against the order sanctioning refund, there is no needto issue any notice under Section 11A. It is submitted that a notice underESection 11A would be meaningless with a review under Section 35E, ofthe order sanctioning the refund. It is submitted by the interpretationgiven by the Revenue affirmed by the High Court that without noticeunder Section 11A, amount becoming due to proceeding under Section35E cannot be recovered, renders Section 35E ineffective and redundant.It is submitted that therefore, the correct position of law has been laidFdown by this Court in the case of Asian Paints (India) Ltd. (supra)which has been subsequently followed by the Chennai Bench of theTribunal in the case of CCE, Chennai vs. Sha HarakchandSamanthmal, 2004 (177) ELT 990 (T).

4.4 It is further submitted by Ms. Bhati, learned ASG that as suchGthe Tribunal has not at all considered the grounds on merits against theorder passed by the O-I-O that the assessee shall be entitled to refundor not. It is submitted that as such number of grounds were raised beforethe Tribunal on the ground that the refund was not payable to the assesseeincluding the unjust enrichment as envisaged in Section 11B of the CentralHExcise Act. It is submitted that question of unjust enrichment has not at all been examined by the Tribunal and the Tribunal only considered thegrounds set out in the additional grounds which was by way ofamendment/raising the additional grounds.

4.5 It is further submitted that neither the Tribunal nor even theHigh Court has considered the fact that while claiming the refund theassessee had claimed that the initial payment was under protest or whilecontesting the demand that the assessee took the stand that assessmentwas final and without notice under Section 11A amount cannot berecovered. It is submitted that however while claiming the refund theassessee claimed that payment was under protest so that the refundclaim was not time barred. It is therefore submitted that the assessee isapprobating and reprobating the issue whether the initial payment ofduty was final or not.

4.6 It is submitted that in any case when the Department preferredan appeal under Section 35E against the order in original sanctioning therefund and when the said proceedings under Section 35E terminated infavour of the Revenue thereafter the necessary consequences shall followand for recovery of any amount pursuant to the order passed underSection 35E of the Act there shall not be any separate notice issuedunder Section 11A of the Act as observed and held by the High Court aswell as the Tribunal.

Making above submissions it is prayed to allow the appeal.

5. While opposing the present appeal learned Senior Counselappearing on behalf of the assessee has vehemently submitted that assuch the Tribunal heavily relied upon the earlier decision in the case ofCollector of Central Excise, Bhubaneshwar vs. Re-Rolling Mills,reported in 1997 (94) ELT 8. It is submitted that in the case of Re-Rolling Mills (supra) the Tribunal specifically observed and held thatthe timelimit of Section 11A governs the issue of the demand under thatSection and that Section alone and therefore if no demand in accordancewith Section 11A is issued, nothing else can take its place. It is submittedthat therefore the Tribunal took the view that the demand has to beissued for the erroneously refunded money within the time limit prescribedby Section 11A.

5.1 It is submitted that subsequently the same question arose beforethe Bombay High Court in Bajaj Auto Ltd. (supra) and after referringto the Board’s Circular No. 423/56/98-CX, dated 22-9-1998 and the AB

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Acase of Re-Rolling Mills (supra) it was held that the erroneous refundcannot be recovered by mere filing an application under Section 35E(2)of the Central Excise Act, unless the notice under Section 11A is issuedwithin the stipulated time.

5.2 It is submitted that therefore in absence of any notice underBSection 11A of the Central Excise Act which was required to be issuedwithin six months from the date of actual refund, the Tribunal as well asthe High Court has rightly set aside the demand and passed an order ofrefund. It is submitted that since the time limit for filing the appeal underSection 35E(2) is longer than the time limit prescribed under Section11A, the show cause notice should precede the proceedings under SectionC35E(2).

5.3 It is submitted that therefore the issue of show cause noticeunder Section 11A of the Central Excise Act is a condition precedent forrecovery of the alleged erroneous refund within the normal period oflimitation prescribed under Section 11A of the Act notwithstandingDproceedings under Section 35E being initiated by the Revenue againstthe order granting refund.

Making above submissions it is prayed to dismiss the presentappeal.

E6. We have heard learned counsel appearing on behalf of therespective parties at length.

7. The short question which is posed for consideration before thisCourt is whether Notice under Section 11A of the Central Excise Act isnecessary for the recovery of the amount when the refund granted isFreviewed under Section 35E of the Act and whether a separate noticeunder Section 11A of the Act to be issued within the time limit prescribedunder Section 11A and before the proceedings under Section 35E of theAct are initiated and/or the notice under Section 11A of the Act shallprecede the proceedings under Section 35E of the Act?

7.1 While considering the aforesaid issue it is required to be notedGthat as such in the present case the original authority while passing theO-I-O allowed the refund. That the order-in-original sanctioning therefund was the subject matter of review under Section 35E of the Act.On merits the Reviewing Authority set aside the order-in-originalsanctioning the refund. Therefore, as such stricto sensu it can be saidHto be giving effect to the order passed under Section 35E of the Act. As such the assessee is claiming the refund on the basis of O-I-O sanctioningthe refund which as such has been set aside in the proceedings underSection 35E of the Central Excise Act.

7.2 Now so far as the submissions made on behalf of the Assesseerelying upon the decisions of the Tribunal in the case of Re-RollingMills (supra) and Bajaj Auto Ltd (supra) that for refund of the dutya separate show cause notice under Section 11A of the Act is reviewedand that too within the time limit prescribed under Section 11A and thatas such notice under Section 11A must precede within the time limitprescribed under Section 11A before the notice under Section 35E ofthe Act is concerned, as such the aforesaid issue is now not res integrain view of the direct decision of this Court in the case of Asian Paints(India) Ltd. (supra).

7.3 In the case of Asian Paints (India) Ltd. (supra), the decisionwhich has been rendered subsequent to the decision of the High Courtin the case of Bajaj Auto Ltd (supra) it is observed and held as under:

“We have read the judgments of the larger Bench of theCustoms, Excise and Gold (Control) Appellate Tribunal, whichare impugned in these appeals. We are of the view that thejudgments viewed Section 35-E and 11-A of the Central ExciseAct in the proper perspective. The two sections operate in differentfields and are invoked for different purposes. Different time-limitsare, therefore, set out therein. We do not accept the contentionthat recovery of excise duty cannot be made pursuant to an appealfiled after invoking the provisions of Section 35-E, if the timelimitprovided in Section 11-A has expired. To so read the provisions,would be to render Section 35-E virtually ineffective, which wouldbe impermissible.”

7.4 Before this Court in the case of Asian Paints (India) Ltd.(supra) the judgments of the larger Bench of the Tribunal were underchallenge. The Special Bench of the Tribunal took the view that Section35E and Section 11A operate in different fields and are invoked fordifferent purposes and different time limits are therefore set out therein.This Court in the case of Asian Paints (India) Ltd. (supra) specificallynegated and/or did not accept the submission on behalf of the assesseethat the recovery of excise duty cannot be made pursuant to an appealfiled invoking the provisions of Section 35E if the time limit under Section AB

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A11A has expired.

7.5 The law laid down by this Court in the case of Asian Paints(India) Ltd. (supra) as such was binding on the High Court and despitethe same was pointed out and pressed into service by the Revenue beforeBthe High Court, the High Court has without giving any reasons how thesame is misplaced has ignored to follow the decision of this Court in thecase of Asian Paints (India) Ltd. (supra) and rather has followed itsearlier decision in the case of Bajaj Auto Ltd (supra) which admittedlywas prior to the decision of this Court in the case of Asian Paints (India)Ltd. (supra).C

8. As observed hereinabove, once the order in original sanctioningthe refund came to be set aside in a proceeding under Section 35E of theAct and the proceedings under Section 35E was initiated within the timeprescribed under Section 35E of the Act, thereafter there is no questionof any further notice under Section 11A of the Central Excise Act asDobserved by the Tribunal affirmed by the High Court on quashing andsetting aside the order in original sanctioning the refund in exercise ofpowers under Section 35E of the Act which otherwise is prescribedunder the Act within the time stipulated under Section 35E of the Act,thereafter necessary consequence shall follow and thereafter there isEno question of any refund pursuant to order in original.

9. In view of the above and for the reasons stated above, presentappeal succeeds. The impugned judgment and order passed by the HighCourt and that of the Tribunal are hereby quashed and set aside and theorder passed by the Commissioner (Appeals), Mumbai dated 13.05.2005Fis hereby restored.

However, in the facts and circumstances of the case there is noorder as to costs.

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Ankit Gyan

(Assisted by : Abhishek Pratap Singh and Rakhi, LCRAs)

Appeal allowed.

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