Whether refund claim of SAD liable for rejection due to deficiency in submission of certain documents that was rectified later?

PJ/Case Study/2012-13/76

Case study

Prepared by: CA Neetu Sukhwani &
Hushen Ganodwala

Introduction:- The appellant- M/s Sabic Innovative Plastics India Pvt. Ltd. had filed a refund claim of Rs. 624130/- being 4% SAD paid by them at the time of import in terms of Notification no. 102/2007-Cus dt. 14/09/2007. However, the impugned Order-in-Original denied their refund claim of Rs. 624130/- of SAD on account of deficiency in submission of the documents as prescribed in the notification. The impugned order has been passed without issuing any show cause notice and without giving proper opportunity to the appellant to justify their refund claim. Aggrieved by the said order in original, the appellant preferred an appeal to the first appellate authority wherein it was submitted that the refund claim should not be rejected on such procedural lapses that have been rectified later on and when the substantial conditions for granting the refund claim stands satisfied by them.

M/S. SABIC INNOVATIVE PLASTICS INDIA PVT. LTD.
[ OIA 568/2013/Cus/ Commr (A)/KDL dated 21.08.2013]

Issue:- The following issue was made before the Commissioner Appeals:-
Whether refund claim of SAD liable for rejection due to deficiency in submission of certain documents that was rectified later?

Brief Facts:- M/s. Sabic Innovative Plastics India Pvt. Ltd., Plastic Avenue, PO Jawahar-nagar, District-Vadodara, Gujarat (hereinafter referred to as Appellant) has filed a refund claim for Rs.6,24,130/- under the provisions of Section 27 of the Customs Act, 1962 read with Notification No 102/2007-Cus. dated 14.09.2007 as amended, vide their letter dated 02.09.2011 (received on 02.09.2011) for the imported goods sold during the month of May 2010 to January 2011.

The Appellant has claimed the refund of 4% Additional Duty of Customs (4% SAD/CVD) paid by them as per provisions of sub-section 5 of Section 3 of the Customs Tariff Act, 1975, at the time of importation/clearance of imported goods. The documents as mentioned in Annexure-II of the CBEC Circular No. 18/2010-Cus dated 08.07.2010, are required to be submitted along with the refund claim by the appellant, and the claim is required to be filed within one year from the date of payment of duty as provided under Notification No. 102/2007-Cus dated 14.09.2007 as amended. The appellant has filed the following documents in support of their refund claim:

A)   Application for refund in prescribed format
B)   Duplicate/Triplicate Bill of Entry (in original)
C)   Original copy of TR 6 Challan
D) Copy of sale invoices.
E)   CA certificate dated 26.08.2011 issued by M/s. Shetty Naik &. Associates, Mumbai.

On scrutiny of the claim filed by the appellant, certain discrepancy/deficiencies were noticed by the revenue office, and they issued deficiency memo dated 14.10.2011, 31.05.2012 and 07.09.2012 to the appellant. The appellant vide their letter dated 09.07.2012 (received on 20.07.2012) and 09.08.2012 (received on 22.08.2012) submitted certain documents as single claim declaration, self-declaration regarding appointment of chartered accountant, copy of sale invoice, self-declaration by the importer that he has not passed on the incidence of 4% CVD to any other person and CA certificate dated 07.07.2012 issued by M/s. Shetty Naik & Associates, Mumbai. However, it was stated in the impugned order that till date the appellant has not submitted the following documents/information prescribed under Notification No. 102/2007-Cus dated 14.09.2007 read with Circular No. 18/2010 dated 08.07.2010 in support of their claim:

A)    CA certified Calculation Chart/Working Sheet of 4% SCVD paid_?. mentioning BE No/Date, Description of imported goods, Qty. imported, Sale Invoice No./Date containing details like description & Quantity of imported goods sold In India, appropriate VAT/ST etc.
B)    CA certified copy of VAT/CST Ledger.
C)    CA certified or notarized copy of VAT/CST Returns for the relevant period.
D)    CA certified SAD Receivable Ledger.
E)    Legible copy of VAT/CST challans in original or its duly notarized/CA certified copy.

Thus, the impugned order in original rejected the refund claim of Rs. 6,24,130/- filed by M/s. Sabic Innovative Plastics India Pvt. Ltd.
Hence, the present appeal has been filed by M/s. Sabic Innovative Plastics India Pvt. Ltd., Plastics Avenue, PO Jawahar Nagar, Dist. Vadodara [hereinafter referred as 'appellant', for brevity] under section 128 of Customs Act, 1962 against Order-in-Original. No. MP&SEZ/127/AC/MG/REF/I 2-13 dated 27.09.2012 [impugned order, for brevity] passed by the Assistant Commissioner, Customs House, MP&SEZ. Mundra [adjudicating authority].

Appellant contentions:-The appellant made following submissions before the Commissioner Appeals:-

It was submitted that even after submission of all the documents as required under the deficiency memo, refund was wrongly rejected in violation of principles of natural justice. It was also stated that if the VAT payment challan was not legible, they could have been asked to submit the same. Reliance was placed upon the following cases:

·         COMMISSIONER OF CUSTOMS, BANGALORE Versus MERCHANT IMPEX [2012 (276) E.L.T. 458 (Kan)]

Demand - Scope of - Order rejecting exemption claimed by importer passed after issuance of mere letter by jurisdictional authority, and not a show cause notice - HELD : Letter could not be deemed to be a show cause notice, and without same, entire proceedings were bad - Section 28 of Customs Act, 1962. [para 3]

·         KANJI SHAVE PAREKH (CAL) P. LTD. Versus APPRAISER, CUS., POSTAL APPRAISING DEPT. [2010 (262) E.L.T. 83 (Cal.)]

Natural justice - Violation of- Order without SCN - Show cause notice not issued and hearing opportunity not granted - Order passed in breach of principles of natural justice - Impugned order set aside - Respondent at liberty to proceed afresh after issuing SCN and giving opportunity of hearing - Section 122A of Customs Act, 1962. [paras 1, 3, 4]

·         J.J.M. MEDICAL COLLEGE Versus DIRECTOR GENERAL OF HEALTH SERVICES [2006 (193) E.L.T. 401 (Kan)]

Exemption - Medical equipment - Imported duty free - Certificate of eligibility issued by Ministry of Health sought to be cancelled without issuing show cause notice - HELD : This was against natural justice principles and directions given for affording opportunity of hearing - Notification No. 64/88-Cus. [Para 6]

Natural justice - Violation of - Show cause notice and opportunity of hearing not given - Certificate for claiming exemption on import of medical equipment, cancellation of only after affording petitioner a reasonable opportunity of hearing. [paras 6, 7]

The analysis of above cases makes it clear that the passing of order without issue of show cause notice is not sustainable. In the case of appellant also, no show cause notice was issued and directly order was passed. This is not sustainable in the light of above cited decisions. Thus, the benefit of these decisions is extendable here and the impugned order is liable to be quashed.

It was further submitted that the impugned order in original has been passed without giving an effective opportunity of being heard. In this respect, it is submitted that only two hearings were given — on 21.9.2012 and on 27.09.2012. The first hearing could not be attended by the appellant. However, for the second hearing given on 27.09.2012, the hearing letter was received on 26.09.2012. In such a short span of time, it was not possible to attend the personal hearing due to some pre-scheduled program. After this, no hearing was given. Thus, only two hearing dates were granted and that too within a short span of 10 days. Thereafter, the matter was decided. This approach is not sustainable as no effective opportunity of personal hearing has been granted. It has been held by the hon'ble Supreme Court that giving the opportunity of personal hearing is not plain formality, it should be effective enough to make it possible for the appellant to attend the same. Reliance is placed on the following decisions:-

ANDHRA AGENCIES VS STATE OF AP [2008-TIOL-228-SC-CT]

"Personal Hearing is must: The stand of the assesses before the Tribunal and the High Court was that they were not given personal hearing and only on consideration of their objections, the orders were passed by the authorities. The Tribunal and the High Court held that since objections were considered, there was no need for giving personal hearing. The Supreme Court held that, "Such conclusion is clearly unsustainable”: SUPREME COURT:

In the case of Uma Nath Pande Ws State of UP, the Hon'ble Supreme Court has held as under:

Natural justice is the essence of fair adjudication — Even God did not pass an order against Adam without enquiry — purpose of following the principles of natural justice is the prevention fo miscarriage of justice: Natural justice is the essence of fair adjudication, deeply rooted in tradition and conscience, to be ranked as fundamental. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled: Supreme Court;
Appellant also relies upon the judgment given in Automotive Tyre Manufacturers Association v/s The Designated Authority & Ors [2011- TIOL-03-SC-CUS] wherein it was held that:

Principles of Natural Justice: It is well settled that unless a statutory provision, either specifically or by necessary implication excludes the application of principles of natural justice, because in that event the court would not ignore the legislative mandate, the requirement of giving reasonable opportunity of being heard before an order is made, is generally read into the provisions of a statute, particularly when the order has adverse civil consequences which obviously cover infraction of property, personal rights and material deprivations for the party affected.

Dr. Balabhai Nanavati Hospital and Nanavati Hospital Medical Research Centre v/s The Union of India [2008-TIOL-632-HC-MUM- CUS]:-

Customs — Hospital Equipment — Withdrawal of Customs Duty Exemption Certificate by DGHS without following principles of natural justice — Not sustainable — An opportunity of being heard, before passing the impugned order, is not an empty formality, but is a valuable right of an individual and is also requirement of law, particularly, when the order has civil consequences.

In the light of above decisions, it is clear that the order should not be passed without giving effective opportunity of being heard. It is also held that grant of personal hearing should not be a plain formality, it should be actually granted in such a way that the appellant is able to represent the case. At least three personal hearings should be granted at substantial intervals before deciding the case. This has not been done here. Only two hearings have been granted and that too in the short span of 10 days and thereafter the issue is decided without any further correspondence. Thus, the principles of natural justice have been violated. Such an order passed in violation of principles of natural justice is not legally sustainable and is liable to be quashed.

Reasoning of Judgment:-The Commissioner Appeals has carefully gone through the appeal memorandum, written and oral submissions made by the appellant along with the case laws cited by them, as well as the records of the case placed. At the outset, the Commissioner Appeals agree with the appellant's contention that the impugned order was passed in gross violation of the established principles of natural justice, as no SCN was issued to the appellants regarding the action proposed to be taken against them and no opportunity for personal hearing was afforded before passing the order. The records of the case reveal that the refund claim was filed on 02.09.2011, and after a lapse of nearly nine months, adjudicating authority issued the first deficiency memo on 31.05.2012. listing out 11 points of discrepancies. After submission of the required documents on 22.08.2012, another letter dated 07.09.2012 was issued to the appellant stating that these documents were not certified by the CA, besides asked the appellant to remain present for PH on 21.09.2012. As the appellant did not attend the hearing on 21.09.2012, another letter was issued on the same day (21.09.21012) intimating next PH on 27.09.2012 without even leaving a gap of one week to reach the letter to the appellant. As the appellant could not attend the hearing on 27.09.2012 as the letter was received by them late, as stated in the appeal memorandum, adjudicating authority passed the impugned order on the very same day. 27.09.2012. It was held that the undue haste with which the impugned order was passed, and that too without issuance of any SCN and without affording PH has violated the established norms of adjudication procedures causing injustice to the appellant.

Impugned order for rejection of refund claim was issued on the basis of four points mentioned in para 2 supra, i.e. appellant has not furnished (i) CA certified calculation sheet; (ii) CA certified copy of VAT/CST ledger; iii) CA certified of notarized copy of VAT/CST return; (iv) CA certified SAD receivable ledger; and (v) legible copy of VAT/CST challan. It was found that neither Notification 102/2007 (supra) nor any of the circulars issued by the Board on the subject requires such documents to be certified by the CA or to be notarized. It is not the case that the appellant had not furnished the CA certificate as required under these circulars. The CA certificate dated 07.07.2012 submitted by the appellant before the adjudicating authority vide their letter dated 09.07.2012 and again vide letter dated 08.08.2012, a copy of which is available of page 112 of the paper-book, contains each and every point required to be certified by the CA as provided under these circulars. The certificate is also attached with a summary chart, duly certified by the CA, indicating BOE-wise details of SAD paid and refund claimed. Therefore, it was held that the adjudicating authority has cited extraneous reasons for rejection of refund claim. Moreover, if any of the documents need to be verified for its truthfulness or legibility, adjudicating authority was free to call for the originals for such verification and return, instead of rejecting the refund claim on same grounds.

The aforesaid deficiency memo indicates that the refund claim was subjected to scrutiny at the hands of the sanctioning authority, and thus it is evident that except for the so-called discrepancies listed therein, refund claim was in order. There is no dispute that the goods were imported on payment of appropriate SAD; that the goods were subsequently sold on payment of appropriate VAT/CST; that all documents listed in para (e) of the subject notification have been submitted and all conditions of the notification have been fulfilled. Merely for the reason that the documents are not notarized or not attested by the CA, it cannot be alleged that the appellant has not submitted these documents and the observation made by the adjudicating authority in regard is wrong. Impugned order states that since the appellant had not submitted requisite documents and thereby not fulfilled the conditions of notification, adjudicating authority did not find reason to consider the merits of the case. It was found that this observation as wrong and objectionable, as it would only help to prolong the case unnecessarily by way of remand proceedings even after establishing the eligibility of refund to the appellant. As already stated above, refund claim was subjected to scrutiny at the hands of adjudicating authority, and further compliance required at the hands of "the appellant were already communicated by way of deficiency memos. After such compliance by the appellant, the only reasons found for rejection of claim were stated above. The Commissioner Appeals fail to understand that what further consideration of the claim is required on merits at the hands of the adjudicating authority. Nevertheless, they have gone through the records and find that the refund claim dated 02.09.2011 submitted by the appellant and the compliance letters dated 09.07.2012 and 08.08.2012 along with documents and records submitted by the appellant before the adjudicating authority, copies of which form port of appeal memorandum, satisfy the conditions specified under Notification 102/2007 (supra) and Board's Circular No. 18/2010-Cus dated 08.07.2010. Therefore, the Commissioner Appeals find no reason to deny the refund claim or to delay the sanctioning thereof under further remand proceedings.

Notification No. 102/2007 (supra) provides for refund of SAD paid at the time of import of any goods, if such goods are subsequently sold on payment of appropriate VAT/CST. Thus the basic facts which require compliance are payment of SAD, subsequent sale of imported goods, and payment of VAT/CST on such subsequent sale. All conditions prescribed and all documents required under this notification are meant to satisfy these three factors. Para 2 of Notification No. 102/2007 (supra) specifies the conditions which govern sanctioning refund is reproduced below:-
2.         The exemption contained in this notification shall be given effect if the following conditions are fulfilled:
a)    the importer of the said goods shall pay all duties. including the said additional duty of customs levialbe thereon, as applicable, at the time of importation of the goods;
b)    the importer, while issuing the invoice for sate of the said goods, shall specifically indicate in the invoice that in respect of the goods covered therein, no credit of the additional duty of customs levied under sub-section (5) of section 3 of the Customs Tariff Act 1975 shall be admissible:
c)     the importer shall file a claim for refund of the said additional duly of customs paid on the imported goods with the jurisdictional customs officer;
d)    the importer shall pay on sale of the said goods, appropriate sales tax or value added tax, as the case may be:
e)    the importer shall, inter alia, provide copies of the following documents alongwith the refund claim:

                i.        document evidencing payment of the said additional duly;
               ii.        Invoices of sale of the imported goods in respect of which refund of the said additional duly is claimed;
              iii.        documents evidencing payment of appropriate sales tax or value added tax, as the case may be, by the importer, on sale of such imported goods."

Meanwhile, the Commissioner Appeals find no reason to deny refunds in the absence of incontrovertible evidences relating to the identity of goods or payment of VAT, and find that such gratuitous action on the basis of minor procedural issues will certainly defeat the very purpose of benefit extended to the trade by the Government vide subject notification which has been emphasized by Hon’ble Tribunal in the decision of Posco Delhi Steel Processing Centers Pvt. Ltd. - 2012 (285) ELT 410 (Tri.- Ahd.), as:-

"The objective Is to create level playing- field for domestic manufacturer and the importer who imports goods for sale. The domestic manufacturers are not affected by the SAD since they can take Cenvat credit whereas the importer who sells the goods as such does not get the benefit of credit and therefore either exemption to be extended or he is to be given refund.”

Hon'ble Tribunal has held in the aforesaid case of Posco Delhi Steel Processing Centers Pvt. Ltd. (supra) that:-

14....Unless we are able to hold that the goods sold by the importer are different from the one imported by him, it cannot be held that the Notification benefit would not be available. We are in agreement with the ld. AR's, submission that the Notifications are to be interpreted strictly in terms of wads used therein and nothing can be added or subtracted as observed in the Case of M/S. Novapan India Ltd. v. CCE. Hyderabad -1994 (73) E.L.T.769 (S.C.)."

Since the norm is to grant refund to the importers who imported the goods which are subsequently sold on payment of VAT/ST. and not to deny the same, Commissioner Appeals was of the view that it is incumbent upon the authorities lo look for correlation of goods even by calling for additional documents or information, instead of rejecting forthwith the documents and declarations filed in this regard. This intention of the legislature is fortified from the specific provisions laid down under Para-3 of the notification, wherein the onus is upon the sanctioning authority to satisfy himself about fulfillment of the conditions before sanctioning refund. The Commissioner Appeals find no compelling rationale to adopt a hairsplitting approach at this stage, without irrefutable supporting evidences or new facts on record especially when the appellant has successfully demonstrated their accounting records to rebut all the grounds raised by the adjudicating authority.

The Commissioner appeals also considered itself bound by the instructions laid down by Hon'ble Apex in the case of Malwa Industries Ltd - 2009 (235) ELT 214 (SC) wherein it is held that an exemption notification should be read literally, and once it is found that the exemption notification is applicable to the case of the assessee the same should be construed liberally. It is also held therein that a notification like any other provision of a statute must be construed having regard to the purpose and object it seeks to achieve, and for the aforementioned purpose, the statutory scheme in terms whereof such a notification has been issued should also be taken into consideration. Hon'ble Apex Court further stated that those who are entitled to the benefit cannot be deprived therefrom by taking recourse to the doctrine of narrow interpretation simplicitor, although the purpose and object thereof would be defeated thereby. Further, the revision order passed by the Government in case of Cotton Exports - 2006 (205) ELT 1027 (GOI) was also followed which is based on different orders passed by the Hon'ble Apex Court as under:-

“in case of - 1989 (39) E.L.T. 503 (S.C.) Union of Indo v. Suksha International & Nutan Gems Anr, the Hon’ble Supreme Court has observed that on interpretation unduly restricting the scope of beneficial provision is to be avoided so that it may not tote away with one hand what the policy gives with the other. In Union of India v. A. V. Narasimhalu - 1983 (13) ELT. 1534 (S.C.), the Apex Court also observed that the administrative authorities should instead of relying on technicalities, act in a manner consistent with the brooder concept of justice. Similar observation was mode by the Apex Court in The Farmika India v. Collector of Central Excise 1995 (77) E.L.T. 511. (S.C.) in observing that once a view is taken that the party would have been entitled to the benefit of the Notification had they met with the requirement of the concerned rule, the proper course was to permit them to do so rather than denying to them the benefit on the technical grounds that the time when they could have done so had elapsed. While drawing a distinction between a procedural condition of a technical nature and a substantive condition in interpreting statute similar view was also propounded by the Apex Court in Mangalore Chemicals and Fertilizers Ltd. v, Deputy Commissioner 1995 (55) E.L.T. 437(S.C.). In fact, it is now a trite law that the procedural infraction of Notifications/circulars etc. is to be condoned if exports have really taken place, and the law is settled now that substantive benefit cannot be denied for procedural lapses."

The Commissioner Appeals was also not swayed to traverse beyond these established principles. In the aforesaid cases, the Commissioner Appeals find no dispute that the subject goods were imported on payment of SAD and further sales were made on payment of appropriate VAT/CST. The Commissioner Appeals also find no allegations regarding non-compliance of any conditions- specified under the said Para-2(a) to (d) or non-submission of documents specified at Para-2(e) to (iii) and Board's Circulars issued on the subject which included certificates from the statutory auditors certifying the requisites for refund in respective cases. The allegations of non-attestation by the CA or notary, as observed by the adjudicating authority, are extraneous and unwarranted without support of law. Therefore, the Commissioner Appeals was not impressed by the impugned order passed on the basis of insignificant procedural issues and unsubstantiated conjectures; hence the Commissioner Appeals had no hesitation to set aside the same to meet the ends of justice.

Accordingly, impugned order passed by the adjudicating authority is set aside, and the appeal filed by the appellant is allowed, with consequential benefits.

Decision:-Appeal allowed.

Conclusion:-The essence of this case is that as the impugned order was passed without issuance of SCN and without affording any opportunity for personal hearing the same was in gross violation of the principles of the natural justice and was consequently not sustainable. Moreover, it was also inferred from this case that when the substantial conditions for claiming refund stands satisfied like import of goods on payment of SAD and further sale of the same goods on payment of VAT and all the evidentiary documents have also been submitted, the refund claim should not be rejected for procedural lapses. Further, when there is no condition of getting the said documents attested by CA, the same cannot be demanded to be complied with as it is beyond the provisions contained in the law.

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09 November 2013

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PJ/Case Study/2013-14/76
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