(Per : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. These petitions involve common questions of law and facts. They have, therefore, been heard together and are being disposed of by this common judgement. The petitioners have questioned the orders passed by the Customs, Excise and Service Tax Appellate Tribunal ("CESTAT" for short), rejecting the refund claim of the petitioners. They have also prayed for a consequential relief of refund with interest.
2. Facts being similar in all petitions, they may be noted as emerging from Special Civil Application No.3095 of 2004. The petitioner No.1 is a Company registered under the Companies Act, the petitioner No.2 is its Director. The petitioner No.1 - Company is engaged in textile processing, having its factory at Surat. In the year 1998, the Union of India introduced a scheme referred to as "Compounded Levy Scheme" for independent textile processors, such as the present petitioners, under which they were obliged to pay excise duty not on actual clearance of the goods, but on the Annual Production Capacity. Such Annual Production Capacity would be decided under the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 1998 (hereinafter to be referred to as "the Rules of 1998") which rules were framed in exercise of powers under sub-section (2) of section 3A of the Central Excise Act, 1944 (hereinafter to be referred to as "the Act"). Under the Rules of 1998, compounded levy for the textile units was to be paid on the basis of chambers of Hot Air Stenter at the prescribed rate. Subsequently, the Rules of 1998 were superseded by the Hot Air Stenter Independent Textile Processors Annual Capacity Determination Rules, 2000 (hereinafter to be referred to as "the Rules of 2000"). Such Rules were published under Notification No.14/2000 dated 1.3.2000.
3. It appears that the question whether a part in the machinery known as "gallery" should be considered as part of the chamber and therefore, to be included for determining Annual Production Capacity, was not clear in the provisions contained in the Rules of 1998. Explanation I to the said Rules left some scope of ambiguity in this respect. This aspect was made clear in the Rules of 2000 whereby, by virtue of newly framed Explanation I, it became amply clear that such part, that is, the "gallery" would not form part of the chambers for the purpose of ascertaining Annual Production Capacity.
4. In case of the petitioner of Special Civil Application No.3095 of 2004, the Deputy Commissioner of Central Excise vide his order dated 10.11.2000 determined the Annual Production Capacity. The petitioner after having initially paid the duty as per such calculation of Annual Production Capacity, filed the refund claim on 18.12.2000. This refund claim was based on one single contention, namely, that the Deputy Commissioner erroneously included the galleries for ascertaining the Annual Production Capacity. As per the petitioners, such galleries were required to be excluded by virtue of the decision of the Tribunal in case of M/s R.
M. Gupta Textiles P. Ltd. and others v. Commissioner of Central Excise, Hyderabad, reported in 2000 (122) ELT 229 (T).
5. The Deputy Commissioner, Central Excise, however, issued a show cause notice dated 2.5.2001 calling upon the petitioners to show cause why refund claim should not be rejected. The show cause notice was based on three grounds, namely -
[i] that the Annual Production Capacity was finally determined by order dated 10.11.2000 and the duty liability of the petitioners arose out of such an order and that, therefore, the refund claim was not tenable;
[ii] that the refund claim was beyond the limitation prescribed under section 11-B;
[iii] that the petitioners had not produced any evidence to show that the burden of the duty of which refund was claimed, had not been passed on to the consumers.
6. The petitioners replied to the show cause notice and opposed the proposal for rejection of the refund claim. The Deputy Commissioner, however, vide Order-in-Original dated 14.6.2001 rejected the refund claim. His findings were as under:
"FINDINGS:-
7/- I have carefully gone through the case records and find that the appealable speaking order finally determining the annual capacity of production of the claimant has already been issued and the claimant has paid duty accordingly. The said order has not yet been set aside by the appellate authority so far and hence, the question of refund of duty does not arise.
8/- Since the refund is not due on merits, I do not go into other aspects or grounds raised in the SCN issued in this regard.
9/- I accordingly pass the following order :-
::
ORDER ::
I reject the claim for refund of duty of Rs.8,05,002/- (Rupees eight lakh five thousand two only) filed by M/s Premraj Dyg. & Ptg. Mills, 74, GIDC, Pandesara, Surat."
7. Aggrieved by the said order dated 14.6.2001, the petitioners preferred an appeal before the Appellate Commissioner. Such appeal came to be dismissed by an order dated 5.9.2002. Such appellate order was carried further in appeal before the Tribunal. The Tribunal by its impugned order dated 17.12.2003, confirmed the decisions of the excise authorities holding that in view of the decision of the Apex Court in case of Mafatlal Industries Ltd. v. Union of India, reported in 1997 (89) ELT 247 (SC) and decision in case of Collector v. Flock (India) Pvt. Ltd., reported in 2000 (120) ELT 285 (SC), the authorities rightly did not grant refund because the petitioners could not have claimed refund on the ground of a decision in case of another assessee. At that stage, the petitioners have approached this Court by filing the present petition. Facts are essentially the same in all petitions and they are, therefore, not independently recorded.
8. On the basis of the above facts, counsel Shri Paritosh Gupta for the petitioners vehemently contended that the excise authorities and the Tribunal committed grave error in rejecting the refund claims of the petitioners. He submitted that the petitioners were not claiming refund on the strength of decision in the case of other manufacturer, but were claiming such refund on the basis of correct legal proposition of law laid down by various courts. He submitted that the order passed by the Deputy Commissioner determining Annual Production Capacity in case of the petitioners was not an appealable order. The petitioners, therefore, had no opportunity to challenge the same by filing independent appeal. On the basis of settled law, the petitioners, therefore, claimed refund. Such refund claim ought to have been allowed.
9. In support of his contentions, counsel relied on the following decisions:
[a] In case of M/s R. M.
Gupta Textiles P. Ltd. (supra) in which the Tribunal held that the Explanation I to rule 5 of the Rules of 2000 was only clarificatory in nature and would, therefore, apply with retrospective effect.
[b] Decision of the Larger Bench of the Tribunal in case of M/s. Sangam Processors Bhilwara Ltd. v. Commissioner of Central Excise, Jaipur, reported in 2001 (42) RLT 429 (CEGAT-LB). The said decision was rendered by the Larger Bench of the Tribunal in a reference in view of conflicting decisions of the Tribunal in case of M/s R. M. Gupta Textiles P. Ltd. (supra) and in case of C.
M. Paints (P) Ltd. v. Commissioner, reported in 2000 (120) ELT 829 (Tribunal). The Larger Bench approved the decision of the Tribunal in case of M/s R. M. Gupta Textiles P. Ltd. (supra).
[c] Counsel pointed that such decision of the Larger Bench in case of M/s. Sangam Processors Bhilwara Ltd. v. Commissioner of Central Excise, (supra) was carried further in appeal before the Apex Court and the Apex Court in case of Commissioner of Central Excise, Jaipur-II v. S.P.B.L. Limited, reported in 2002 (146) ELT 254, upheld the decision of the Tribunal.
[d] Counsel also relied on the decision of the Bombay High Court in case of Om Textile Pvt. Ltd. v. Commissioner of Central Excise, Belapur, Navi Mumbai, reported in 2006 (74) RLT 233, wherein the Bombay High Court observing that the determination of Annual Production Capacity is not an appealable order, proceeded to uphold the claim of the processor for refund even though the determination of Annual Production Capacity was not challenged.
[e] Counsel also relied on yet another decision of the Bombay High Court in case of Mahalaxmi Dyeing & Ptg. (I) Pvt. Ltd. v. Union of India, reported in 2011 (271) ELT 194, wherein also, such refund claim, even without challenging the determination of Annual Production Capacity, came to be upheld.
[f] Counsel relied on the decision of the Delhi High Court in case of Aman Medical Products Ltd. v. Commissioner of Customs, Delhi, reported in 2010 (250) ELT 30, wherein the Delhi High Court upheld the refund claim without challenging the order passed by the customs authorities holding that in case on hand, there was no contest or lis and therefore, no adversarial assessment order passed by the authorities and that therefore, it was not necessary to challenge the same.
[g] In support of his contention that the determination of Annual Production Capacity is not a judicial or even a quasi-judicial order, counsel relied on decision of the Apex Court in case of Jaswant Sugar Mills Ltd. Meerut v. Lakshmi Chand and others, reported in AIR 1963 SC 677, wherein the Apex Court pointed out the difference between a judicial order and an administrative order.
10. On the other hand, Mr. P. C. Champaneri, counsel appearing for the respondents with Ms. Naina Gadhavi, opposed the petitions contending that the orders passed by the Deputy Commissioner determining Annual Production Capacity in case of the petitioners had become final in absence of any challenge to such orders. In that view of the matter, it was not open for the petitioners to claim refund which was rightly rejected by the excise authorities and upheld by the Tribunal. He further pointed out that in any case, out of the three grounds mentioned in the show cause notice, refund claims were rejected only on one ground and in that view of the matter, other two grounds were not decided.
11. Having heard the learned counsel for the parties and having perused the documents on record, the crucial question that calls for consideration is whether the determination of Annual Production Capacity by the Deputy Commissioner in case of a processor under the Rules of 1998 or the Rules of 2000, as the case may be, is an appealable order or not. Before entering into such controversy, we may trace the judicial pronouncements on the inclusibility of the galleries while determining the Annual Production Capacity.
12. Rules of 1998 contained Explanation I, which reads thus:
"Explanation I. - For the purposes of this notification, a float drying machine or any other equipment of a length 3.05 metres installed in or attached to a stenter for aiding the process of heat setting or drying of the fabrics shall be deemed to be one chamber of a stenter and any fraction of such length shall be computed on a pro-rata basis."
12.1 The Rules of 1998 and in particular, the Explanation I noted above gave rise to contrary stand taken by two sides. The processors contended that the galleries contained in Hot Air Stenters would not form part of Annual Production Capacity since such galleries do not, in any manner, aid the heat setting or drying of the fabrics. On the other hand, revenue contended that such galleries would form part of the stenters for determining the Annual Production Capacity. This aspect was clarified in the subsequent Rules of 2000 where in the new form, Explanation I provided as under:
"Explanation I. - For the purposes of this notification, a float drying machine or any other equipment, except the galleries, of a length 3.05 metres installed in or attached to a stenter for aiding the process of heat setting or drying of the fabrics shall be deemed to be one chamber of a stenter and any fraction of such length shall be computed on a pro-rata basis."
12.2 The significant difference in the Explanation I in the Rules of 2000 was the introduction of the words "except the galleries". This Explanation in the Rules of 2000, though made it sufficiently clear that the galleries should be excluded for computing the Annual Production Capacity, the legal controversy that arose was whether such explanation should apply only to the cases covered under the Rules of 2000 or also to earlier cases which may have arisen at the time when the new rules were not yet framed. The Tribunal in case of M/s R. M. Gupta Textiles P. Ltd. (supra) took the view that such explanation is only clarificatory in nature and therefore, would apply with retrospective effect. We may recall that it is on the basis this decision that the petitioners filed the refund claims. We have also notice that the decision in case of M/s R. M. Gupta Textiles P. Ltd. (supra) came to be referred to Larger Bench in view of conflicting of opinions and the Larger Bench of the Tribunal in case of M/s. Sangam Processors Bhilwara Ltd. v. Commissioner of Central Excise, (supra), ruled in favour of the assessee and approved the decision of the Tribunal in case of M/s R. M. Gupta Textiles P. Ltd. (supra). Such decision was carried in appeal. The Apex Court confirmed the decision of the Tribunal and held that the Tribunal did not commit any error in holding that such explanation only amounted to remove the ambiguity which arose out of the language used in the Rules of 1998.
12.3 The legal position, thus, is amply clear and stands concluded right upto the stage of the Apex Court. The fact that the galleries in Hot Air Stenters should not be included for determining the Annual Production Capacity of a processor, is not in dispute. Thus, this is an issue which is no longer possible to debate. A short question in the present case is whether the present petitioners are entitled to refund of the excess duty collected by the revenue on the basis of inclusion of such galleries for determining the Annual Production Capacity in view of the fact that such determination was not challenged by the respective petitioners.
12.4 The answer to this question would depend on the answer to the question whether such determination by the Deputy Commissioner was appealable. If the order that the Deputy Commissioner passed was appealable, it would be open for the Department to contend that in view of the decisions of the Apex Court in the case of Mafatlal Industries (supra) in which the Apex Court held that refund claim on the basis of adjudication in favour of some other persons cannot be entertained and in case of Collector v. Flock (India) Pvt. Ltd. (supra), wherein also the Apex Court took a similar view, would be justified. However, if on the other hand, the determination of Annual Production Capacity by the Deputy Commissioner did not give rise to any appealable order, surely it would be open for the petitioners to claim refund on the basis that the duty was erroneously collected. This is precisely the view adopted by the Bombay High Court in case of Om Textile Pvt. Ltd. (supra). In the said case also, the manufacturer had not challenged the determination of Annual Production Capacity. The manufacturer opposed recovery of duty demand on the ground that the length of gallery could not have been included for determining the Annual Production Capacity. The Tribunal ruled against the assessee. The Bombay High Court held and observed as under:
"12.
In so far as the present is concerned, as indicated above, though the appellant did not challenge the correctness of the order dated 12th July, 1999 in independent and substantive proceedings, in response to the show-cause notice, the appellant did raise objection to the correctness thereof. In our considered view, by the time the matter reached to the Tribunal, the law having been settled by the Supreme Court holding that the length of galleries having no fan or radiator attached to it cannot be taken into consideration while determining the numbers of chambers, the Tribunal was competent to consider and rather ought to have considered the applicability of law laid down by the Supreme Court in the case of SPBL Limited to the facts of the present case."
13. We would ordinarily have adopted the same course. In decision of the Bombay High Court, however, it was noted that admittedly, no appeal lie from the order passed by the Excise Commissioner determining the Annual Production Capacity. Thus, the Bombay High Court proceeded on the concession that the order determining Annual Production Capacity was not appealable.
14. In that view of the matter, we have tried to ascertain for ourselves the legal position emerging from the Rules.
14.1 Section 35 of the Act provides for appeals to the Commissioner (Appeals). Sub-section (1) of section 35 of the Act reads as under :
"Any person aggrieved by any decision or order passed under this Act by a Central Excise Officer, lower in rank than a Commissioner of Central Excise, may appeal to the Commissioner of Central Excise (Appeals) [hereinafter in this Chapter referred to as the Commissioner (Appeals)] within sixty days from the date of the communication to him of such decision or order."
14.2 Thus, under sub-section (1) of section 35 of the Act, any person aggrieved by any decision or order passed under the Act by specified authorities may appeal to the Commissioner within the time prescribed. Section 35B of the Act, in turn, provides for appeals to the Appellate Tribunal and provides for appeals, inter alia, against the decision or order passed by the Commissioner of Central Excise as an adjudicating authority or against an order passed by the Commissioner (Appeals) under section 35A of the Act.
14.3 The Rules of 2000 have been framed in exercise of powers under sub-section (2) of section 3A of the Act. These Rules apply to specified processed textile fabrics for determining the Annual Production Capacity and the average value of production of an independent processor if such textile fabrics are manufactured or produced with the aid of a hot-air stenter. Rule 3 of the Rules of 2000 require an independent processor to make a declaration with respect to various items mentioned therein, such as, the number of hot-air stenters installed in the factory, the name of the manufacturer of each of the hot-air stenter, its identification number and the date of its purchase, etc. Sub-rule (3) of rule 3 provides that on receipt of the declaration to be so made, the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, shall take necessary action to verify its correctness and ascertain the correct value of each of the parameters. Proviso to sub-rule (3) of rule 3 provides that such authority may, if he so desires, consult any technical authority for this purpose.
14.4 Rule 4 of the Rules of 2000 pertains to determination of annual capacity and average value. Detailed rules have been made for the manner in which the Annual Production Capacity of an independent processor shall be determined. Sub-rule (3) of rule 4 provides that the Deputy Commissioner of Central Excise or the Assistant Commissioner of Central Excise, as the case may be, shall, as soon as may be, after determining the annual capacity of production and the average value of processed textile fabrics and the number of chambers (of a hot-air stenter) of the factory of the independent processor, by an order, intimate the same, as also the rate of duty applicable to the independent processor. Proviso to sub-rule (3) of rule 4 permits the competent authority to determine the annual capacity of production on a provisional basis pending verification of the declaration furnished by the independent processor and pass an order accordingly and thereafter, determine the annual capacity, as soon as may be, and pass an order accordingly.
14.5 Rule 5 provides for changes in parameters for capacity determination and covers the cases where independent processor proposes to make any change in the installed machinery or any part thereof which tends to change any of the parameters referred to in rule-4 and requires him to intimate about such change to the concerned excise authority.
15. From the above set of Rules, it can be seen that the entire exercise of determination of annual production capacity is to be made by the competent authority, that is, the Deputy Commissioner or the Assistant Commissioner, as the case may be. At a such stage, no hearing of the independent processor is envisaged. Such determination is to be made on the basis of declaration made by the processor with the aid of the expert advice, if so found necessary. Such determination and inquiry can be on provisional basis, but would be followed by final determination as soon as possible thereafter. In either case, the Rules do not envisage any participation by an independent processor other than of making a declaration as required under rule 3. At no stage of such determination, the independent processor is granted any audience. Even the expert's view that the prescribed authority may obtain, is not required to be shared with the independent processor. The Rules do not provide for any appeal against the determination of Annual Production Capacity. Significantly, sub-rule (3) of rule 4 which provides for communication of such determination, provides that after determining the annual capacity of production and the average value of processed textile fabrics, the prescribed authority shall intimate the same by an order as also the rate of duty applicable to the independent processor. The Rules, therefore, do not refer to such determination as an order to be passed by the prescribed authority, but envisages communication of such determination through an order to the independent processor along with the rate of duty applicable to him.
16. From the tenor of the Rules, the provisions made thereunder and the nature of exercise envisaged for determination of Annual Production Capacity, on the basis of the declaration made by the independent processor and if found necessary with the aid of consultation of the technical expert, it becomes clear that the determination which is arrived at cannot be termed as a judicial or even a quasi-judicial order. It is an administrative exercise undertaken by the prescribed authority of determining the Annual Production Capacity and other related issues. The appeal envisaged under section 35 of the Act would necessarily be against quasi-judicial order that the competent authority may pass under the Act deciding the list between the parties. In our view, therefore, mere determination of an Annual Production Capacity by the prescribed authority under the Rules of 2000 or even under the earlier Rules of 1998, would not give rise to any appealable order.
17. If the determination was not appealable, in our view, it would be incorrect to hold that without challenging such an order, the manufacturer cannot claim refund of duty erroneously collected. The fact that the galleries were included while determining the Annual Production Capacity and as such, the galleries were otherwise not required to be included by virtue of the decisions of the Tribunal and the Apex Court, there is no dispute. In our view, therefore, the petitioners were justified in filing refund claims in terms of section 11B of the Central Excise Act claiming refund of excess duty collected on the basis of such consideration of galleries in determining Annual Production Capacity and collecting corresponding excise duty on such capacity. In our view, the excise authorities as well as the Tribunal erred in rejecting such claims merely on the ground that the determination of Annual Production Capacity was not challenged. The decisions of the Apex Court in case of Mafatlal Industries (supra) as well as Collector v. Flock (India) Pvt. Ltd. (supra) would not apply. In case of Mafatlal Industries, the Apex Court ruled that an assessee cannot claim refund that too after the indefinite period of time on the strength of decision in case of another assessee. In Collector v. Flock (India) Pvt. Ltd. (supra), it was a case where classification of a product was the controversy. The Assistant Collector passed an order of such classification. Such order though appealable, was not challenged by the assessee. The assessee, however, filed a refund claim. The Apex Court observed that there is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing the order. It was, thus, clearly a case where an order which was appealable was not challenged by the party. The legality thereof, however, was questioned in refund proceedings. It was in this background that the Apex Court held that the refund claim was not maintainable. In the present case, the facts are vitally different. We have already held that the determination of Annual Production Capacity by the prescribed authority under the Rules of 2000 did not give rise to an appealable order.
18. We may, however, recall that in the show cause notice, three objections were raised. The refund claims were declined only on one ground, namely, that without challenging the determination of annual capacity of production, the processor could not have sustained refund claim. In that view of the matter, the Deputy Commissioner did not go into other aspects. Therefore, even while setting aside the orders passed by the Tribunal and the central excise authorities and holding that the refund claims were maintainable without challenging the determination of Annual Production Capacity, we would still like to remand the proceedings to the Deputy Commissioner for further consideration and adjudication on other two issues raised in the show cause notice.
19. Under the circumstances, the orders under challenge in these petitions are set aside. All proceedings are placed back to the Deputy Commissioner for further consideration of the refund claims in the light of the show cause notice issued to each petitioner bearing in mind the observations made hereinabove. Such exercise should be completed expeditiously and preferably within a period of six months from the date of receipt of a copy of this judgement.
20. All these petitions stand disposed of. Rule is made absolute accordingly.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] parmar* Top