Whether assessee is eligible for refund if the goods are mistakenly cleared on payment of duty instead of removing under C.T. 3 Certificate?

PJ/Case Law/2013-14/1945

Case:- COMMISSIONER OF CENTRAL EXCISE, BELGAUM Vs GOKAK MILLS

Citation:- 2013 (295) E.L.T. 392 (Kar.)

Brief facts:- This appeal was filed by the revenue being aggrieved by the order passed by the Customs, Excise and Service Tax Appellate Tribunal. South Zonal Bench, Bangalore (hereinafter called the CESTAT) in Appeal No. Excise/479/2004, dated 1-12-2006 [2007 (212)E.L.T.56 (tribunal)] wherein the appeal filed by the assessee had been allowed and it was held that assessee was entitled to refund as claimed in the application.
The material facts of the case leading up to this appeal are as follows:
An application was filed under Section 11-B of the Central Excise Act, 1944 (hereinafter called the Act’) seeking for refund of Rs. 45,468/- averring that, the assessee had paid the excise duty wrongly in respect of cotton yarn cleared on the strength of C.T.3 certificate. It was the case of the assessee that refund was claimed on account of payment of duty by mistake as the goods were intended to be removed under C.T. 3 where no payment of duty was required. But the assessee had cleared the same under payment of duty dated 24-3-2002 and realizing the said mistake, they issued AR-3A on 24-3-2002. Subsequently, after a gap of nearly four months, they issued credit note dated 19-7-2002 to the extent of the said duty. The assessing officer after considering the reply given to the show cause as to why the application could not be rejected, by following the earlier order of CESTAT, held that refund was admissible only if credit note has been issued on passing of duty at the time of clearance and not post clearance transaction by issue of credit note and accordingly rejected the application for refund. Being aggrieved by the same, the assessee preferred an Appeal No. 60/2004 on the file of the Commissioner of Central Excise (Appeals) Mangalore. The first appellate authority, by order dated 27-2-2004 held that in view of the decision of the CEGAT in the case of CCE v. Addison & Co. [1997 (93)E.L.T.429]wherein the adjudicating authority rejected the refund, the order passed by the assessing officer was justified. The first appellate authority had also followed the decision in S. Kumar’s case 2003 (153)E.L.T.217 (Tri.-LB)and accordingly rejected the appeal. Being aggrieved by the same, the assessee preferred an appeal in E/479/2004 before the CESTAT. The CESTAT, by order dated 1-12-2006 held that in view of the ruling rendered in the cases of Alstom Ltd. v. CCE, Allahabad [2004 (168)E.L.T.511], CCE v. Audithiya Minerals Ltd. [2006 (74) RLT 818 = 2006 (199)E.L.T.868 (Tri.)] and CCE v. Triveni Glass Pvt. Ltd. [2006 (72) RLT 353],the customer had issued CT3 certificate which clearly indicated that they were not going to bear the burden of duty and the duty burden had been borne by the assessee and therefore, they were eligible for refund in terms of the cited judgments. Accordingly, CESTAT allowed the appeal with consequential relief. Being aggrieved by the same, this appeal was filed by the revenue.

Appellant’s contentions:- The learned counsel appearing for the revenue submitted that once the duty had been paid unless credit notes had been issued prior to the date of payment of duty, no refund could be ordered and in support of his contention, he had relied upon the decision of the Hon’ble Supreme Court in MRF Ltd. v. Collector of Central Excise, Madras [1997 (92)E.L.T.309 (S.C.)]wherein the Hon’ble Supreme Court had observed as follows :

“Once the assessee has cleared the goods on the classification and price indicated by him at the time of the removal of the goods from the factory gate, the assessee becomes liable to payment of duty on that date and time and subsequent reduction in prices for whatever reason cannot be a matter of concern to the Central Excise Department insofar as the liability to payment of excise duty was concerned. Therefore, subsequent fluctuation in the prices of the commodity can have no relevance whatsoever so far as the liability to pay excise duty is concerned, unless it is shown that there was some agreement in this behalf with the Government and the latter had agreed to refund the excise duty to the extent of the reduced price.”

Respondent’s contentions:- The learned counsel appearing for the assessee submitted that the decision relied on by learned counsel appearing for the revenue was not applicable to the facts of this case as in the present case, as there was no liability on the part of the assessee to pay any excise duty in view of the issuance of the CT-3 certificate and excess duty had been paid by mistake and therefore, the question of price adjustment does not arise and refund has rightly been ordered by the CESTAT. In support of his contention, he has relied upon the subsequent decision of the Hon’ble Supreme Court in Commissioner of Central Excise v. International Auto Ltd. [2010 (250)E.L.T.3 (S.C.)]wherein the Hon’ble Supreme Court has observed as follows :

“In our view, with the entire change in the Scheme of recovery of duty under the Act, particularly after insertion of Act 14 of 2001 and Act 32 of 2003, the judgment of this Court in the case of M.R.F. Limited [supra] would not apply. That judgment was on interpretation of Section 11B of the Act which concerns claim for refund of duty by the assessee. That judgment was in the context of the price list approved on 14th May, 1983. In that case, assessee had made a claim for refund of excise duty on the differential between the price on the date of removal and the reduced price at which tyres were sold. The price was approved by the Government. In that case, the assessee submitted that its price list was approved by the Government on 14th May, 1983, but subsequent thereto, on account of consumer resistance, the Government of India directed the assessee to roll back the prices to pre- 14th May, 1983 level and on that account, price differential arose on the basis of which the assessee claimed refund of excise duty which stood rejected by this Court on the ground that once the assessee had cleared the goods on classification, the assessee became liable to payment of duty on the date of removal and subsequent reduction in the prices for whatever reason cannot be made a matter of concern to the Department insofar as the liability to pay excise duty was concerned.”
He had also relied upon the decision of the Division Bench of this Court in M/s. Sudhir Papers Limited v. The Commissioner of Central Excise (CEA No. 30/2009, disposed of on 28-3-2011) [2012 (276) E.L.T. 304 (Kar.)] wherein in identical circumstances where excise duty had been paid and amount was credited to the consignee and duty was borne by the assessee only, the refund was ordered holding that conditions of Section 11B of the Act have been satisfied.

Reasoning of judgment:- We have given careful consideration to the contentions of learned counsel appearing for the parties and scrutinized the material on record.
The material on record would clearly show that CT-3 certificate had been obtained and therefore there was no liability on the part of the assessee to pay excise duty. However, excise duty of Rs. 45,468/- was paid under mistake and there was no burden on the part of the consignee to pay the duty and therefore, the burden of paying duty had been borne by the assessee and in fact, there was no liability on him to pay the duty. The assessing officer and the first appellate authority had relied upon the case of Addison v. Commissioner of Central Excise but the said judgment had been set aside by the Madras High Court [2001 (129) E.L.T. 44 (Mad.)]. On similar facts, in CEA 30/2009, disposed of on 28-3-2011 referred to above, the Division Bench of this Court had held that if credit notes were raised and benefit was passed on to the customer, thus, not passing on the burden of excise duty, the assessee was entitled to refund of the same. The Division Bench of this Court had also relied upon a decision by Nine Member Bench of the Hon’ble Supreme Court in the case of Mafatlal Industries Ltd. v. Union of India [1997 (89) E.L.T. 247 (S.C.)] wherein the Hon’ble Supreme Court had held that assessee was entitled to refund and conditions of Section 11B were satisfied.
Therefore, having regard to the above said reasoning and following the judgment of this Court in CEA No. 30/2009 disposed of on 28-3-2011, we answer the substantial question of law against the revenue and in favour of the assessee.

Decision:- Appeal was dismissed.

Comment:- The analogy drawn from the case is that if credit notes are raised and benefit is passed on to the customer, thus, not passing on the burden of excise duty, the assessee is entitled to refund of the excise duty mistakenly paid.

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