(Per : HONOURABLE MR. JUSTICE AKIL KURESHI) 1. The petitioners have challenged an order dated 31- 3-2004 passed by the revisional authority confirming the orders passed by the revenue authorities They have further prayed for a declaration that the rebate of Rs.3,62,650/- previously sanctioned by the authorities in favour of the petitioners is not liable to be disturbed or recovered.
2. We may notice the facts in brief. The petitioner no.1 is an exporter. Petitioner no.2 is a partner of petitioner no.1 firm. The petitioners had exported textile goods in the month of June and July, 1999. As per the policy of the Government, the petitioners were entitled to rebate of the excise duty paid on such goods upon export. The petitioners, therefore, filed four separate rebate claims before the Department. Such rebate claims were sanctioned by the competent authority by passing four separate orders all dated 28-4-2000.
3. It is not in dispute that under these four orders, total rebate of Rs.3,62,650/- was also paid over to the petitioners.
4. It appears that thereafter, the Department carried out investigation on the premise that the manufacturer Anjana Textiles from whom the petitioners had purchased the textile goods had not paid excise duty on such goods. By way of culmination of such investigation, a show-cause notice came to be issued against the said Anjana Textiles and other exporters who had purchased the goods from Anjana Textiles including the present petitioner - M/s. Kapadia Enterprise. Against Anjana Textiles, the notice proposed recovery of excise duty amounting to Rs.13,20,901/- with interest as also penalty under the Central Excise Act and the rules made thereunder.
Against the exporters including the present petitioners, the notice called upon them to show cause why “the penalty should not be imposed upon them under rule 209A of the Central Excise Rules, 1944 as they were also involved in evasion of central excise duty in collusion with the Mill.”
5. The petitioners opposed the proposal. They participated in the proceedings before the adjudicating authority. The Additional Commissioner of Central Excise vide his order dated 31st January, 2002 confirmed the duty demand against Anjana Textiles with interest and also imposed penalty of matching amount. Against the exporters including the petitioners, the proposal to impose penalty under rule 209 of the Central Excise Rules, 1944 was dropped. This was on the basis that the authority found it believable that they may not be aware about the fabrication of the documents by the manufacturers. He, therefore, concluded as under:-
“As regards other noticees, at Sr. No.3 to 8 of the Show Cause Notice, I find that they had exported the MMF(P) under proper Central Excise invoices & AR-4s and it is believable that they may not be aware about fabrication of documents by the manufacturers viz. the Mill. Therefore I extend benefit of doubt to all the above said 6 noticees and do not hold them liable for penalty under Rule 209A of Central Excise Rules, 1944.”
6. It is not in dispute that such order of the Additional Commissioner dropping the penalty proceedings against the petitioners was not challenged by the Department and it thus achieved finality.
7. More than a year later, the Department issued a fresh show-cause notice to the petitioners on 12-8-2002 and called upon the petitioners to show cause why the amount of rebate claim of Rs.3,62,650/- should not be recovered under proviso to section 11A(1) of the Central Excise Act, 1944. In this show-cause notice also, no allegations were made that the petitioners claimed the rebate fraudulently or by any suppression. The allegations of fraud were repeated against the manufacturer namely, M/s. Anjana Dyeing and Printing Mills. Para 4 of the show-cause notice which is significant for our purpose reads as under:-
“4. In view of the above facts, it was appears that the exporter has claimed rebate of duty paid on the MMF(P) exported by them which were manufactured by M/s. Anjana Dyeing & Printing Mills (P) Ltd. It appears that the said M/s. Anjana Dyeing & Printing Mills (P) Ltd. had fraudulently created the credit in their PLA on the basis of fake TR-6 challans and had debited the duty from such credit created fraudulently. It, therefore appears that no duty had been paid on the above mentioned exported goods thereby the amount of rebate i.e. Rs.3,62,650/- sanctioned and paid to the exporter was erroneously paid which is required to be recovered by them under proviso to Section 11A(1) of the Central Excise Act, 1944.”
8. The petitioners appeared before the adjudicating authority and opposed the proposal. The Additional Commissioner, Central Excise, Surat, however, by his order dated 31-3-2003 confirmed the demand of recovery of Rs.3,62,650/-. With respect to the extended period of limitation, he observed as under:-
“12. Coming to the next issue as to whether the said erroneously sanctioned amount of rebate can be recovered under proviso to Sec.11A(1) ibid, I find from OIO dtd. 31.01.02 of the Addl. Commr. that the Mill had taken the credit of Central Excise duty amounting to Rs.13,20,901/- in PLA on the basis of fake TR Challans without depositing the amount mentioned therein, in the Bank during the period May '99 to Jul '99. The export goods involved in the instant case were also cleared through debits in PLA against fraudulently created credits thereby without payment of duty. The said fraud committed by the Mill and the facts regarding clearances of export goods without payment of duty were never disclosed to the department until detected by the department. In other words, I am convinced that the element of fraud and suppression of facts are very much available in the instant case, for which the provision contained in proviso to Sec. 11A(1) for recovery of erroneously refunded amount are squarely applicable. I do not find any merit in the arguments of the exporter that the demand is time barred, in view of the clearcut provisions of proviso to Sec.11A(1) ibid. Moreover, it is held by majority by CEGAT in case of Nizam Sugar Factory Vs. CCE Hyd. 1999 (114) ELT 429 (T) that the date of knowledge by the department is not relevant according to the provisions of Sec.11A and the notice issued beyond the period of 6 month from the date of knowledge will not be barred by limitation. Tribunal observed that “relevant date has been defined in Sec.11A(3) and no where this section provides that the relevant date means the date of acquiring knowledge by the department. As such acquiring the knowledge by the department does not take away the period of five years provided by the law makers in the Act itself.”
9. The petitioners carried the matter in appeal. The Commissioner (Appeals) dismissed the appeal on 1-10-2003 observing that proviso to section 11A(1) has been rightly invoked in the instant case for recovery of the erroneously refunded duty to the appellant.
10. The petitioners filed revision application against such orders of the authorities. The Government as the revisional authority, however, by the impugned order dated 31- 3-2004 dismissed the revision application. The authority was of the opinion that refund and duty are integrally linked and it cannot be argued that while duty payment was fraudulent, at the time of refund of such duty which was fraudulently claimed to have been paid is not erroneous and is not touched by the fraud purported at the stage of duty payment. It was observed that if the receiver of the refund is not involved in any way in the fraud committed at the duty payment stage, he can put forth a case for non-imposition of penalty but he cannot escape from recovery of erroneous refund for the simple reason of being a beneficiary of such refund.
11. The petitioners have, therefore, filed the present petition challenging the revisional order and have prayed for consequential reliefs.
12. Learned counsel Shri Paritosh Gupta for the petitioners submitted that the first show-cause notice issued against the manufacturer and the exporters resulted into dropping of the proceedings against the exporters including the petitioners. The clear finding therein was arrived that there was no collusion on part of the exporters. In that view of the matter, extended period of limitation could not have been invoked. He submitted that the excise authorities and the Government gravely erred in holding that even if the fraud was committed by some person other than the petitioners, since the petitioners had received rebate in a case where such fraud of non-payment of excise duty was involved, extended period of limitation can be invoked against the petitioners.
12.1 The counsel submitted that the duty demand against Anjana Textiles was confirmed. The rebate granted to the petitioners thereafter cannot be recovered since that would amount to double recovery by the Government.
12.2 The counsel lastly submitted that once the first show-cause notice was issued proposing penalty against the petitioners which was later on dropped after adjudication, subsequent notice for recovery of the refund invoking extended period of limitation could not have been issued on the ground that such refund was erroneously made.
12.3 In support of his contentions, the counsel relied on the decision of a Division Bench of this court in the case of Commissioner of C.Ex. & Customs vs. D.P. Singh reported in 2011 (270) E.L.T. 321 (Guj.) wherein the court finding that the exporter was not party to the fraud committed by the manufacturer, came to the conclusion that rebate claim of such an exporter cannot be denied.
12.4 The counsel also relied on the decision of the Apex Court in the case of Union of India vs. Rajasthan Spinning & Weaving Mills reported in 2009 (238) E.L.T. 3 (S.C.) wherein comparing the provisions contained in proviso to section 11A(1) and section 11AC of the Central Excise Act, the Apex Court noted that the language is similar and the same grounds on which the extended period of limitation can be invoked are also the grounds on which penalty can be imposed under section 11AC of the Act.
12.5 The counsel relied on the decision of the Apex Court in the case of Raj Bahadur Narain Singh Sugar Mills Ltd. vs. Union of India reported in 1996 (88) E.L.T. 24 (S.C.) wherein the Apex Court held that a show-cause notice which did not allege any collusion, wilful mis-statement or suppression of facts and which was issued beyond the period of limitation was time barred.
13. On the other hand, learned counsel for the Department opposed the petition contending that the authorities have correctly appreciated the facts and applied the law. Since the rebate claim of the petitioners arose out of a fraudulent act of the manufacturer, extended period of limitation was rightly invoked.
14. Having thus heard learned counsel for the parties, we may recall that in the first show-cause notice dated 10-5- 2001 issued by the Additional Commissioner to Anjana Textiles and the exporters including the petitioners, there was a proposal to impose penalty against the petitioners. However, upon final adjudication, the Additional Commissioner dropped the penalty proceedings against the petitioners and other exporters. This was on the basis that he found their explanation of not being aware of the fraud committed by Anjana Textiles quite believable. In short, the Department did not establish any collusion on the part of the petitioners in such a fraud. Qua the petitioners, this order achieved finality. The Department did not challenge this order.
15. In view of these facts, one thing which clearly emerges is that by the competent authority it is held in favour of the petitioners that the petitioners were not a party to the fraud committed by Anjana Textiles. The question of applicability of extended period of limitation, therefore, shall have to be judged on this basis.
16. It is well-known that sub-section (1) of section 11A permits recovery of duty not levied or not paid or short levied or short paid or erroneously refunded ordinarily within a period of one year from the relevant date. Such period of limitation is extended under certain circumstances by virtue of proviso to section 11A which reads as under:-
“Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if [* * *] for the words “one year”, the words “five years” were substituted :”
The term 'relevant date' has been defined under clause (ii) of sub-section (3) of section 11A with which we are not directly concerned. The short question is whether extended period of limitation can be invoked particularly when indisputably the petitioners are not responsible for any fraud, collusion or wilful mis-statement or suppression of fact or contravention of any of the provisions of the Act or the rules with intent to evade payment of duty. We may recall that all authorities proceed on the basis that though the petitioners may not be responsible for any of the above acts, nevertheless since the rebate claim was arising out of a fraud committed by Anjana Textiles regarding payment of excise duty, extended period of limitation would apply.
17. To our mind, the stand of the Department suffers from legal fallacy. Proviso to section 11A in clear terms provides that normal period of limitation of one year for initiation of proceedings for recovery of excise duty would be extendable in cases where such duty has not been levied or paid or short levied or short paid or erroneously refunded by reason of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of the Act or the rules with intent to evade payment of duty by such person or his agent. The words 'such person or his agent' are extremely significant. The recovery is to be made from a person from whom such duty is not levied or has not paid or short levied or short paid or erroneously refunded. Extended period of limitation therefore, would be applicable if it is found that such occurrence of non-levy of duty etc. is on account of any fraud, collusion, wilful mis-statement or suppression of facts or contravention of statutory provisions with intent to evade duty by such a person or his agent. Specific language of the section does not permit any other meaning.
18. Even in absence of such expressly clear language of the Statute, it stands to reason that by invoking extended period of limitation, the Statute permits the Department to recover duty short levied or short paid for a longer period when such short payment or non-payment has occasioned on account of fraud, wilful mis-statement etc. on part of the person who is responsible to pay the same. It cannot be accepted that the statute envisages invocation of extended period of limitation against a person who had nothing to do with such fraud, collusion, mis-statement etc.
19. At this stage, we may usefully refer to the observations of the Apex Court in the case of Union of India vs. Rajasthan Spinning and Weaving Mills (supra). Comparing the language used in proviso to section 11A(1) providing extended period of limitation and that used in section 11AC of the Act pertaining to penalty, the Apex Court observed as under:-
“18. One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section 11AC use the same expressions : “....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty....”. In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.”
20. Strangely, the revenue authority was of the opinion that a person who is not party to a fraud or collusion or wilful mis-statement, may avoid penal consequences but not extended period of limitation. To us, the logic does not appeal. Our conclusion gets further support from the observations made by the Apex Court in the case of Union of India vs. Rajasthan Spinning and Weaving Mills (supra) noted above.
21. Under the circumstances, quite apart from and in addition to the decision of the Division Bench of this court in the case of Commissioner of C.Ex. & Customs vs. D.P. Singh (supra), the decisions of the authorities are legally not sustainable. The same are, therefore, quashed and set aside. Resultantly, the petitioners are held entitled to retain the rebate previously sanctioned and paid over. The authorities are refrained from seeking any recovery thereof. If during the pendency of this petition in view of no interim relief being granted, such rebate is already recovered, the same shall be refunded to the petitioners with simple interest at the rate of 9% per annum from the date of recovery till actual refund. The petition is disposed of accordingly. Rule made absolute. No costs.
( Akil Kureshi, J. ) ( Harsha Devani, J. ) hki