Whether refund of SAD paid admissible even if it is exempted?

Case:-COMMISSIONER OF CUSTOMS, AIR, CHENNAI VERSUS M/S EPSON INDIA PVT LTD

Citation:-2014-TIOL-1045-CESTAT-MAD

Brief facts:-In this proceeding 24 appeals filed by the Revenue against different orders of the Commissioner (Appeals) passed in the case of refund of ‘Special Additional duty of Customs (“SAD” for short) levied under Section 3 (5) of the Customs Tariff Act, 1975, are being considered along with stay petitions filed by the Revenue and also Cross Objections filed by the respondents in certain cases. The cross objections are for supporting the arguments in the Orders-in-Appeal and no additional relief is prayed for. When the matter came up on 02.01.2014, it was seen that the Bench had already passed one Final Order in the matter and it was considered that the stay petitions and appeals and cross objections could be heard together and accordingly, both the sides were informed and the matter was finally taken up on 07.01.2014 and both the sides were heard accordingly.
As already stated, the basic issue involved in all the appeals relates to refund of SAD claimed by respondents in terms of the provisions in Notification No. 102/07-Cus dated 14.09.2007. Special Additional Duty of Customs is levied under Section 3(5) of Customs Tariff Act, 1985 by issuing notification No. 19/06-Cus dated 01.03.2006 in exercise of powers under Section 3 (5) of Customs Tariff Act. This duty is levied at the time of importation of goods, in lieu of Sales Tax/Value Added Tax levied by the States. There is a scheme under which the importer can claim refund of SAD paid if it is proved that after importation the goods are sold on payment of Sales Tax/Value Added Tax as applicable. The scheme is operated under Notification No. 102/07-Cus dated 14.09.2007 and the impugned refund claims were filed as per the provisions of this Notification.
The original refund claims covered broadly two types of goods namely (i) where SAD was imposed on the goods as per the Notification No. 19/06-Cus dated 1.3.06 and for which there was no exemption from payment of such SAD. (ii) where SAD was imposed on the goods under Notification No. 19/06-Cus., but there was exemption under Notification No. 29/10-Cus dated 27.02.2010 at S. No. 1. This exemption from SAD was for pre-packaged goods intended for retail sale in relation to which it is required under the provisions of the Standards of Weight and Measurement Act, 1976 (60/1976) or the Rules made there under or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods. In cases where the goods were exempted by Notification No. 29/10-Cus, the respondents herein did not claim such exemption but instead paid duty as notified under the Notification No. 19/06-Cus, just as for goods not covered by Notification No. 29/10-Cus and later claimed refund of such SAD paid as per the provisions of Notification No. 102/07-Cus. The adjudicating authority granted refund in respect of goods not covered by the Notification 29/10-Cus, but rejected the refund claims in respect of the goods covered by Notification No. 29/10-Cus, for the reason that allowing such refund amounted to change of assessment originally done and such a change was possible only if an appeal was filed against the orders of assessment as per the bill of entry and cannot be done through a refund claim under Notification No. 102/2007-Cus. In this matter, the adjudicating authority relied on the decision of the Apex Court in the case of Priya Blue Industries Vs, CC 2004 (170) ELT 308 (S.C) = 2004-TTOL-78-SC-CUS. Against such orders the respondents herein filed appeals before the Commissioner (Appeals). The Commissioner (Appeals) held that these are cases where the appellants before him (respondents herein) had option to pay duty as per the provisions of Notification No. 19/06-Cus or avail the full exemption from duty under Notification No. 29/10-Cus. He relied on the following decisions namely:-
Ø CCE Vs, Modi Xerox Ltd. 2012 (275) ELT 406 (All)
Ø Shanu Medical Care Vs, UOI 2007 (209) ELT 321 (S.C.)
and held that the refund claim cannot be rejected on the ground that the importers did not claim Notification No. 29/10-Cus or did not challenge the original assessment as per the Bill of Entry and therefore, the Commissioner (Appeal) directed the lower authority to process the refund claim and to grant consequential relief in accordance with law. Aggrieved by the order, the Revenue has filed these appeals against the order of the Commissioner (Appeals) in all these cases.
The appeals are basically on two grounds. The first ground is that such refund under Notification 102/07-Cus involves re-assessment of bill of entry under Section 17 of the Customs Act. But the importer had not taken any legal action for re-assessment but instead claimed refund and refund claims cannot a route to change assessment done at the time of import. The second ground is that when SAD is exempted under Notification 29/10-Cus, the importer had no option to pay duty and subsequently file refund of the same under Notification No. 102/07-Cus.

Appellant contentions:-The main argument of the appellant is that SAD is exempted under Notification 29/10-Cus, at Sr.No. 1 regarding pre-packaged goods intended for retail sale in relation to which it is required under the provisions of the Standards of Weight and Measurement Act, 1976 (60/1976) or the Rules made there under or under any other law for the time being in force, to declare on the package thereof the retail sale price of such goods. Even Though SAD had been paid by respondent, it cannot be made eligible for refund under the notification no. 102/2007-Cus. Appellant prays that the appeal is disposed of in his favour.

Respondent contentions:-The main argument of the respondents is that these are not cases where they want to change the assessment done at the time of importation. It is only cases where they are asking for refund of SAD paid, as per Notification No. 102/07-Cus. The refund under this Notification is always granted (even in cases not covered by Notification No. 29/2010-Cus.) much after importation and payment of SAD and no reassessment of bill of entry is being done in such cases. So the argument that in these cases reassessment has to be done is not in conformity with the practice or what is intended vide Notification No. 102/07-Cus because refund can be claimed only by producing evidence that the imported goods were sold on payment of Sales Tax/VAT as applicable. The second line of argument is that unlike under Section 5A of Central Excise Act, 1944, there is no provision under Section 25 of the Customs Act, 1962, to the effect that when goods are unconditionally exempted from duty, the importer cannot pay duty on such goods. It is also pointed out that the judicial decisions have been in favour of the central excise assessees and importers holding that when two notifications were operative for the same goods at the same time each manufacturer or importer, as the case may be, can avail the notification, which is considered to be suitable by each. After such decisions by the Court, an amendment was made under Section 5A of Central Excise Act, 1944 by incorporating sub-section (1A) effective from 13.05.05 as under:-

"(1A) For the removal of doubts, it is hereby declared that where an exemption under sub-section (1) in respect of any excisable goods from the whole of the duty of excise leviable thereon has been granted absolutely, the manufacturer of such excisable goods shall not pay the duty of excise on such goods."

Reasoning of Judgment:-Tribunal has heard arguments on both sides on this issue. On an earlier occasion we had occasion to consider these issues in appeal Nos. 40302 - 40305/13, which were disposed of vide Final Order No. 40492 - 40495/13 dated 23.09.2013 wherein the appeals filed by Revenue were rejected. It is argued that similar provisions has not been incorporated under Section 25 of the Customs Act and therefore the importers still have the option to avail or not to avail any exemption Notification issued under section 25 of Customs Act.

Tribunal has considered submissions on both sides and its view that this is not a case where the importer is seeking change in assessment made at the time of importation of goods. Only in such a situation, the decision of the Apex Court in Priya Blue Industries (supra) would apply. Even in such cases, the Hon’ble Delhi High Court has clarified that the said decision would apply only in a case where there was a dispute between the Department and the importer at the time of importation of the goods and the matter was adjudicated either through assessment of BE or through further proceedings. Where there was no lis at the time of importation, the Delhi High Court held in the case of Aman Medicals Products Ltd, Vs, CC 2010 (250) E.L.T. 30 (Del.) = 2009-TIOL-566-HC-DEL-CUS that provisions under Section 27 of the Customs Act, 1962 for refund can be made use of for claiming duty erroneously paid without challenging the original assessment.

In this case, the refund is not claimed under section 27 of the Customs Act. The appellant is not requesting for change of the assessment made at the time of importation. For grant of refund of SAD as per notification 102/07-Cus re-assessment of Bills of Entries are not prescribed under the notification. In such a situation the argument of Revenue based on the decision of the Apex Court in the case of Priya Blue Industries (Supra) is totally misplaced.

The only issue to be decided is whether an importer can be penalized for not having claimed exemption under Notification No. 29/2010- Cus at the time of importation by refusing to grant refund under Notification No. 102/2007-Cus, when both the notifications were in operation on the date of importation and date of claiming refund. The decisions of the courts are to the effect that an assessee cannot be forced to avail any particular exemption. The following decisions are relevant:-

Ø CCE Vs, Narayan Polyplast -2005 (179) ELT. 20 (S. C.) = 2004-TIOL-110-SC-CX-LB
Ø Reliance Industries Ltd. v. CCE, Ahmedabad - 2003 (152) ELT. 423 (Tri.-Mumbai) = 2002-TIOL-131-CESTAT-MUM
Ø Mafatlal Industries Ltd. v. CCE, Vadodara - 2003 (162) E.L.T. 1143 (Tri- Mumbai) Maintained in 2005 (179) ELT 276 = 2004- TIOL-113-SC-CX-LB (Supreme Court)
Ø Pankaj Petropack Pvt. Ltd. v. CCE, Vadodara - 2002 (143) E.L.T. 600 (Tri.- Mumbai) Maintained in 2005 (179) ELT 276 = 2004-TIOL-113-SC-CX-LB (Supreme Court)
Ø CCE, Jaipur v. Global Overseas - 2005 (192) ELT. 334 (Tri. - Del,) = 2005-TIOL-1687-CESTAT-DEL
Ø Nikita Transphase Adducts Pvt. Ltd, Vs, CCE- 2007 (7) S.T.R. 182 (Tri. Mumbai

These decisions were in the context of Central Excise duty. In the case of Central Excise duty there is a consequence in paying duty on exempted goods because the assessee will be able to pass on the duty incidence on the raw material and capital goods to the next stage by paying duty whereas such incidence cannot be passed on if the goods are exempted. Thus there is an adverse consequence to revenue when excise duty is paid on an exempted product.

Against the back ground of such decisions of Courts and Tribunal, on 13-05-2005, the Legislature introduced the sub-section (1A) in section 5A of Central Excise Act, 1944 as already reproduced above. But no such explanation has been inserted in section 25 of Customs Act, 1962. Further in the case of SAD, payment at the time of importation and claiming refund at a later point of time can cause financial disadvantage to the importer and no such consequence to Revenue. Therefore we find that the appeals filed by the Revenue on the above grounds are not maintainable.

Before disposing of the matter finally, we note that in some cases, the adjudicating authority raised marginal issues like original documents were not filed or that the invoices for sale of the goods were raised on the day of import or prior to that etc. In those cases, the Commissioner (Appeals) has given appropriate directions and the Revenue is not in appeal on those issues. Therefore, we are not making any observation on those issues. However in Appeal No.41326/2013 with HCL Infosystems Ltd as respondent refund in respect of two Bills of Entries were rejected by original adjudicating authority for the reason that the goods were imported through Sea Customs, Chennai but refund claim was filed before authorities in Air Customs Chennai. The Commissioner (Appeal) noted that the refund claims were not returned promptly by the authorities in Air Customs. Then he relied on decision in CCE Vs, AIA Engineering Ltd reported in 2011 (21) STR (Guj) and directed that if the respondent file claim before the appropriate authority the claim should be processed by excluding the period for which the claims remained with Air Customs Authorities. Revenue is aggrieved by this order of the Commissioner (Appeal). We have considered this matter. In view of the decision as cited by Commissioner (Appeal) we do not find any reason to interfere with the order of Commissioner (Appeal) on this issue.

In view of the above decisions and discussions, the appeals filed by the Revenue are rejected by upholding the orders of the Commissioner (Appeals). The stay petitions and cross objections also get disposed of as above.

Decision:-Appeal rejected.

Comment:-The crux of this case is that refund of SAD is available if the importer has paid SAD even though it is exempted vide notification no. 29/10-Cus. It has been concluded in this case that SAD refund cannot be denied merely on the ground that due to exemption prevailing for SAD, there was no requirement to pay SAD by the importer. It was held that section 5A(1A) of the Central Excise Act states that manufacturer shall not pay excise duty in case of absolute exemption. However, there is no such provision in the Customs Act and so the contention that no SAD was required to be paid as there was exemption is not tenable. Further in the case of SAD, payment at the time of importation and claiming refund at a later point of time can cause financial disadvantage to the importer and no such consequence to Revenue. Therefore, the refund of SAD was allowed even if there was exemption notification prevalent.

Prepared by:- Hushen Ganodwala

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