Whether rebate claim sanctioned to the assessee by the adjudicating authority was erroneous?

PJ/Case Study/2012-13/47

Prepared by:- CA Neetu Sukhwani &

Kavita Thanvi

CASE STUDY

Introduction:-
The department has filed appeal in terms of OIR no. 12/2012 dated 08.05.2012 and 14/2012 dated 14.05.2012 against OIO no. 23 & 24/2012 both dated 15.02.2012 passed by the Deputy Commissioner. The appeal is filed by the department on the grounds that the rebate claim has been filed before the export of consignment and the rebate claim should also be rejected on the basis that the assessee (exporter) has not submitted the self attested copy of shipping bills, bill of lading and proof of export. Further, the assessee has neither mentioned the No. of seal with which goods were sealed nor the registration no. of the vehicle which is statutorily required under Rule 11 of CE Rules, 2002. Moreover, it has been contended by the revenue that there was no proof of ARE-1 having been received in the Divisional office in the prescribed state/condition and there were dues pending under Customs vide OIO No. 15/2005 dated 30.12.2005 amounting to Rs. 4,05,99,466/- along with personal penalty of Rs. 1,01,20,000/-. The Commissioner (Appeals) held that the allegation of the appellant that vehicle registration no. and seal no. is not mentioned on the invoice is merely a procedural lapse and thus the rebate claim should not be rejected on that ground. The other grounds were satisfactorily held to be as ineffective on submission of relevant supporting documents by the assessee.

M/S KANSARA MODLER LTD. [OIA NO. 13-14(RDN)CE/JPR-II/2013, DT. 08.02.2013]

Relevant Legal Provisions:-
Central Excise Rules, 2002:
RULE 18Rebate of duty. — Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfilment of such procedure, as may be specified in the notification.
Explanation - “Export” includes goods shipped as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.

Issue Involved:-
The issue to be decided by the Commissioner Appeals was that:-
Whether rebate claim sanctioned to the assessee by the adjudicating authority was erroneous?

Brief Facts:-
The assessee, being an exporter, filed rebate claim amounting to Rs. 499125/- and Rs. 484904/- which were sanctioned by the adjudicating authority. Thereafter, the Department filed this appeal under Section 35E(4) of the Central Excise Act, 1944 in terms of Order-in-Review No. 12/2012 dated 08.05.2012 and 14/2012 dated 14.05.2012 against the Order-in-Original No. 23 & 24/2012-R both dated 15.02.2012 passed by the Deputy Commissioner Central Excise Division, Jodhpur granting rebate claims of the above mentioned amounts in respect of M/s Kansara Modler Ltd., the respondent.
The respondent filed two rebate claims in respect of goods cleared under ARE-1 on payment of duty for export under the SB mentioned against them under Rule 18 of Central Excise Rules, 2002. The adjudicating authority sanctioned the rebate claim for Rs. 499125/- and Rs. 484904/- filed by the appellant. On examination of the impugned orders, it was observed by the Commissioner, Central Excise Jaipur-II that above orders were not proper and legal to the extent of sanction of rebate claim. These orders were reviewed vide Review in Orders No. 12/2012 dated 08.05.2012 and 14/2012 dated 14.05.2012. The Commissioner, Central Excise Jaipur-II in exercising the powers conferred upon him under Section 35E (2) of the Central Excise Act, 1962 examined the orders for its legality and propriety and found that the Deputy Commissioner of Central Excise Division, Jodhpur has erred in sanctioning the rebate claims for Rs. 499125/- and Rs. 484904/-. The appellant thus filed these appeals before the Commissioner (Appeals).

Appellant’s Contention:-
The assessee contended that the adjudicating authority has sanctioned the rebate claim under Rule 18 of Central Excise Rules, 2002 which stipulates that "Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification", meaning thereby that no claim can be sanctioned prior to the goods having been taking out of India. But on examination of records, it was observed that rebate claims had been passed before export of consignment i.e. before taking goods out of India. Further, therespondent has neither mentioned the No. of seal with which the goods were sealed nor the registration No. of the vehicle i.e. tractor, which is statutorily required under Rule 11 of the Central Excise rules, 2002. The adjudicating authority has not considered it necessary to establish the manner of transport and the vehicle by which the consignment has reached ICD. That there was no proof of ARE-1s had been received in the Division office in the prescribed state/condition.
It was further submitted that the Range Officer vide letter dated 13.02.2012 had declared that there is no arrear pending against the exporter whereas the Deputy Commissioner in his impugned order has asserted that a demand of Rs 4,05,99,466/- along with penalty of Rs 1,01,20,000/- is imposed vide Order-In-Original No 15/2005 dated 30.12.2005 issued by the Commissioner of Customs, Jaipur. On the other hand, the exporter has declared that they have filed appeal against this order. On enquiry, it has been found that the so called appeal has already been disposed of by the Hon'ble CESTAT, New Delhi. The Deputy Commissioner has thus erred by not discussing the actual and true facts in the impugned order.
In view of the above contentions, it is evident that the rebate claim has been wrongly sanctioned to the exporter and the same along with interest is recoverable from them under section 11A and section 11AA of the Central Excise Act, 1944.

Assessee’s Contention:-
The assessee submit that the order in original passed by the Deputy Commissioner is very correct in allowing the rebate claim of duty of Rs. 484904/- paid on export goods under provisions of rule 18 of the Central Excise Rules, 2002. The impugned appeal filed by the department is therefore totally erroneous and is liable to be set aside.
Further they submit that that the impugned appeal is being filed on the grounds that the rebate claim is being passed before export of consignment, i.e. before taking the goods out of India. In this regard, it is submitted that this claim pertain to three ARE-1s and all the consignments have been exported on or before 20.01.2012. On the other hand, the rebate claim has been filed on 25.01.12 which is after the date of export. Further the rebate claim has been sanctioned on 15.02.2012. As such, the contention of the impugned appeal that the rebate is sanctioned before the goods are exported is totally baseless and is liable to be quashed and the order in original should be upheld.
The respondent further submits that the impugned appeal is being filed on the grounds that the self attested copies of shipping bills, bill of lading and proof of export has not been submitted by the exporter. In this regard, it is submitted that these documents were duly submitted by the respondent which were compared with the duplicate copy of ARE-1 received from Customs department. This fact is mentioned in the order in original itself. Further, the particulars of the Shipping bills and bill of ladings are also being mentioned in the order in original which is evident of the fact that these documents were received by the adjudicating authority. Therefore, the contention of the impugned appeal is not tenable and is liable to be quashed. Even if the contention of the department is accepted for the argument sake also, then it is rectifiable defect. If the department has asked for the same, they should have submitted the same. Further, the respondent submits that the attested copies of the shipping bill, bill of lading are also enclosed. Hence, the rebate cannot be denied on such rectifiable defect.
It is further alleged in the impugned appeal that the seal number is not mentioned on the invoice. In this regard, the appellant submit that material that was dispatched was not full container load and it was loose container load (LCL). In case of LCL, it is being sealed by lead seal. There is clear certification by them on face of ARE-1 that these goods have been sealed in their presence. There is number in case of bottle seal which is affixed on containers. But there is no number on lead seal. As such, seal number was not mentioned on the same. Hence, the proper procedure has been followed by them. The respondent reiterates that the goods were loose container load and send through truck/tractor and it was not full container load, hence it was sealed with lead seal. This fact was mentioned on ARE-1. The lead seal does not have number as such the same was not written on the same.
Further, it was also alleged that the truck number was not written on Central Excise invoice. In this regard they submit that the allegation like vehicle registration no. is not mentioned on the invoice is merely procedural lapse. There is no doubt that the goods were exported and the duty was paid at the time of removal of goods for export. The fact of export is clarified by the details of bill of lading, shipping bill and the date of shipment as mentioned in the order in original. Further, the payment of duty also gets confirmed by the particulars of debit entry no. in the Service tax register. Also, no doubt has been raised in the impugned appeal regarding these two major facts which are backbone for granting the rebate claim. Thus, when the substantial condition of export of goods and duty payment thereupon are fulfilled the technical lapses should be ignored and the rebate should be allowed.
The respondent further submits that there is no proof of ARE-1 is having received in the Divisional office in the prescribed state/ condition. As per Supplementary instructions, the custom department should submit the ARE-1 in tamper proof sealed envelope to the exporter. The exporter should submit the same in the division office. Thus, the prescribed state/condition is that the same should be received in sealed envelope. The learned Deputy Commissioner has clearly mentioned in his OIO at para 2 that the Duplicate ARE-1 has been received in sealed cover endorsed by Customs. Hence the contention of the department is totally erroneous.
The respondent submits that allegation like seal number, registration number of vehicle and non receipt of documents in prescribed state are procedural infractions. The rebate claim cannot be denied on such small procedural mistakes. There is no doubt that the goods are exported, there is no doubt about the clearance of goods from their factory and duty payment on the same. Hence the rebate claim cannot be denied. Aligning with above, it is submitted that it is a set rule affirmed by the hon’ble Supreme Court that where the major condition of export of duty paid goods is fulfilled, the rebate cannot be denied on ground of procedural lapses. This has been decided by the hon’ble Supreme Court in the case of MANGALORE CHEMICALS & FERTILIZERS LTD. Versus DEPUTY COMMISSIONER [1991 (55) E.L.T. 437 (S.C.)] that the procedural conditions should not be so rigidly interpreted that they deny the intended benefit to the beneficiaries. Similar decision was given in the following cases:-
Ø M/s Tablets India Limited v/s Joint Secretary Ministry of Finance [2010-TIOL-652-HC-MAD-CX]

Ø M/s Madhav Steel v/s UOI [2010-TIOL-575-HC-MUM-CX]
Ø FORMICA INDIA DIVISION Versus COLLECTOR OF CENTRAL EXCISE. [1995 (77) E.L.T. 511 (S.C.)]
Ø Modern Process Printers [2006 (204) E.L.T. 632 (G.O.I.)]

In the above decisions, it was ruled that the procedural lapses should be the reason to deny the credit where the substantial conditions are satisfied. In the instant case, the substantial conditions of duty paid goods and their export is not doubted, rather the rebate is being withheld on account of some meager technical mistakes which are procedural in nature. Therefore, the benefit of above decisions is squarely applicable in their case and alleged procedural lapses should be condoned as the substantial condition of export is being fulfilled. On the basis of the above grounds, they submit that the learned Deputy Commissioner has rightly granted the rebate of duty paid on export goods. As such, the order in original should be upheld and the appeal filed by the department should be set aside.
It was also submitted that it has been specified in the grounds of appeal that the Range Officer vide his letter dated 13.02.2012 has declared that there is no arrear pending against the exporter whereas the Deputy Commissioner in his Order-in-Original No. 24/2012-R dated 15.02.2012 has asserted that a demand of Rs. 4,05,99,466/- along with personal penalty of Rs. 1,01,20,000/- is imposed vide OIO No. 15/2005 dated 30.12.2005 of Commissioner of Customs, Jaipur. On the other hand the exporter has declared that they have filed appeal against this order. On enquiry, it has been found that the so called appeal has already been disposed off by Hon’ble CESTAT, New Delhi. The Deputy Commissioner has thus erred by not discussing the actual and true facts in the order-in-original. In this respect, the respondent submitted that there is no error in the order passed by the learned Deputy Commissioner as the said order is still under litigation and has not attained finality. They submitted that they have filed special leave petition to the Supreme Court in this matter having Civil Appeal No. 7514 of 2009 and so the contention that there are arrears pending for recovery against the, in respect of the said order is not tenable. A copy of the above Record of Proceedings pending in Supreme Court was also enclosed.
It was further in continuation submitted that they are sick company, duly registered under BIFR and there is order passed by the Board in their case that the Commissioner of Customs, Jodhpur, shall refrain from implementing the said order and refrain from taking any coercive measures for the recovery of dues unless specifically permitted by the Board. Therefore, it is wrong to say that there are arrears pending for recovery and hence the appeal filed by the department is liable to be quashed. A copy of the said order of Board was also enclosed.
It was also submitted that as per section 11 of the Central Excise Act, 1944, regarding Recovery of sums due to Government, there is no provision as regards withholding rebate claims filed under Central Excise Laws for default or recovery of customs dues under the Customs Act, 1962. The said section 11 of the Central Excise Act, 1944 is reproduced as follows:
“SECTION 11 Recovery of sums due to Government — In respect of duty and any other sums of any kind payable to the Central Government under any of the provisions of this Act or of the rules made thereunder including the amount required to be paid to the credit of the Central Government under Section 11D, the officer empowered by the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963 (54 of 1963) to levy such duty or require the payment of such sums may deduct the amount so payable from any money owing to the person from whom such sums may be recoverable or due which may be in his hands or under his disposal or control, or may recover the amount by attachment and sale of excisable goods belonging to such person; and if the amount payable is not so recovered, he may prepare a certificate signed by him specifying the amount due from the person liable to pay the same and send it to the Collector of the district in which such person resides or conducts his business and the said Collector, on receipt of such certificate, shall proceed to recover from the said person the amount specified therein as if it were an arrear of land revenue.

Provided that where the person (hereinafter referred to as predecessor) from whom the duty or any other sums of any kind, as specified in this section, is recoverable or due, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all excisable goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold by such officer empowered by the Central Board of Excise and Customs, after obtaining written approval from the Commissioner of Central Excise, for the purposes of recovering such duty or other sums recoverable or due from such predecessor at the time of such transfer or otherwise disposal or change.”
On analyzing the above section, it is clear that while recovering dues under the Central Excise Act, 1944, the proper officer has power only to deduct that amount so payable to the assessee as is under his control i.e. amounts payable to the assessee under the Central Excise Act,1944. The respondent submitted that the rebate claim is filed under Central Excise Laws and as such withholding rebate claim admissible under Central Excise Laws is not at all justifiable when recovery of dues is pending under the Customs Act, 1962 and so the contention that the rebate claim sanctioned should be recovered from the assessee on account of dues pending under the Customs Act, 1962 does not has any force. Hence, the appeal filed by the department has no merits and is as such liable to be quashed.

Reasoning of the Commissioner (Appeals):-
The Commissioner (Appeals) held that the department has filed the appeal on the ground that the adjudicating authority has wrongly sanctioned the rebate claim of Rs. 499125/- and Rs. 484904/- under Rule 18 of Central Excise Rules, 2002 before export of goods and without obtaining the self attested copies of Shipping Bills, Bill of Lading and proof of export. Further, seal No. and registration No. of the transport vehicle were not mentioned in the invoices which is statutory requirement under Rule 11 ibid. There was no proof of receiving of ARE-1 in the division office in the prescribed state/condition. Further arrears against the respondent were also not discussed in the impugned order. Further in this appeal, number of basic question has been raised on the part of rebate sanctioning authority. The first issue that rebate was granted before export of goods. The respondent has submitted that all the consignments were exported on or before 20.01.2012 and rebate claims were filed on 24.01.12 and 25.01.12, which is after the date of export. Further the rebate claim has been sanctioned on 15.02.2012. As such, the contention of the impugned appeal that the rebate is sanctioned before the goods were exported is totally baseless and is liable to be quashed and the order in original should be upheld. In this regard they find force in the contention of the respondent that rebate claims were filed after the date of let export allowed by the Customs Authority which is evident from the self attested copies of Shipping Bills produced before them. Further they observe that Bill of Lading were also on or before 20.01.2012 and claims were filed on 24.01.2012 and 25.01.2012 which is after the completion of export procedure and ARE-1 were also cleared by Customs authority which was examined by the adjudicating authority at the time of sanctioning of rebate claims as discussed by him in the order. Moreover the department has not adduced any incriminating evidence regarding non exportation of impugned goods cleared under subjected ARE-1s on payment of duty even at the time of filing appeal which clearly proves that subjected goods were duly exported by the Customs Authority after taking the same into their custody. The respondent has also produced the photo copies of BRC which reveals that the goods had been exported and payment from the foreign buyers has been received.
The department has also contended that the respondent has neither mentioned the No. of seal with which the goods were sealed nor the registration No. of the vehicle i.e. tractor, which is statutorily required under Rule 11 of the Central Excise rules, 2002. The adjudicating authority has not considered it necessary to establish the manner of transport and the vehicle by which the consignment has reached ICD. The respondent in this regard submitted that material cleared was loose container load (LCL) which was sealed by lead seal. There is clear certification on the face of ARE-1 that these goods have been sealed under self sealing. There is number in case of bottle seal which is affixed on containers. But there is no number on lead seal affixed by the respondent due to his own seal. Further, the allegation like vehicle registration no. is not mentioned on the invoice is merely a procedural lapse. In this regard they observe that the higher judicial forum has always held that rectifiable error can not lead to rejection of substantial benefit to the respondent. As the consignment was not full container load, Seal No. was not mentioned by the respondent. This contention is justifiable and as Loose consignments were sealed under self sealing with the lead seal of which No. was not available and thus not mentioned in the Invoice. Similarly due to LCL consignment, the tractor No. was not mentioned. Thus they opined that these fallacies are condonable for the fact that goods were received by the customs authority and were exported out of India before the rebate was sanctioned by the adjudicating authority.
The department has contented that the adjudicating authority did not discuss about the arrears of Rs 4.05 crore along with personal penalty of Rs 1.01 crore pending for recovery. In this regard the respondent has produced a order of BIFR dated 24.01.2006 which has refrain the Commissioner of Customs Jodhpur for taking coercive measures for recovery of their dues against the respondent company. The adjudicating authority has mentioned in the impugned order that the unit is registered under BIFR. Thus they find that there were no live arrears for recovery as observed by the Range Officer. As such they do not find any reason to intervene in the findings of the adjudicating authority.
The department has also contended that there was no proof of ARE-1s had been received in the Division office in the prescribed state/condition. In this regard they find that the adjudicating authority has discussed in the impugned order that duplicate copy of ARE-1s received in the sealed cover endorsed by the Customs. As such the contention of the department is not tenable.
In view of the above findings, the department appeal was rejected and the order in originals were upheld.

Decision:-Department’s appeal rejected.

Conclusion:-The essence of this case is that rebate cannot be denied when the substantial conditions of export have been satisfied and evidenced by the assessee. In the instant case, most of the doubts of the department were cleared by the assessee except few procedural infractions which in any case cannot come in way of sanctioning the genuine and admissible rebate claim to the assessee.

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23 March 2013

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