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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.3959 OF 2010
Union of India through
Commissioner of Central Excise, Mumbai-I. ..Petitioner.
Versus
M/s. Sheetal Exports & Anr. ..Respondents.
.....
Mr.M.I.Sethna, Senior Advocate with Mr.Pradeep S.Jetly and
Mr.Jitendra B.Mishra for the Petitioner.
Mr.Prakash Shah with Mr.Jas Sanghavi i/b. M/s.PDS Legal for he
Respondent No.1.
......
CORAM : DR.D.Y.CHANDRACHUD AND
ANOOP V. MOHTA, JJ.
28 June 2011.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
This petition by the Union of India under Article 226 of
the Constitution, is to challenge an order passed by the revisional
authority in exercise of jurisdiction under Section 35EE of the Central
Excise Act, 1944. The Assistant Commissioner had initially rejected
rebate claims preferred by the First Respondent in the amount of Rs.
13.57 lakhs. In appeal, the Commissioner remanded the proceedings
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back to the adjudicating authority for reconsideration, after
complying with the principles of natural justice. The First
Respondent challenged that order of remand before the revisional
authority. By the order impugned in these proceedings, the revisional
authority has come to the conclusion that the First Respondent is
entitled to claim rebate. The revisional application has been allowed.
The Union of India has impugned that order.
2.
The First Respondent is a merchant exporter. The
manufacturer of the goods in question was Radha Dyeing and
Printing Mills. The manufacturer claimed Cenvat Credit in respect of
duty paid inputs alleged to have been purchased by the manufacturer
from an input supplier. The First Respondent purchased finished
goods from the manufacturer which in turn were exported by the First
Respondent. As against that export, the First Respondent claimed a
rebate of central excise duty.
3. Rule 18 of the Central Excise Rules, 2002 provides 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
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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. The First Respondent claimed rebate on
the basis that it had exported goods and the rebate was in respect of
duty alleged to have been paid by Radha Dyeing and Printing Mills.
4. The Assistant Commissioner while rejecting the
application for the grant of rebate noted that between the period May
2003 and November 2004, Radha Dyeing and Printing Mills had
wrongly availed of credit to the extent of Rs.5.41 crores on the basis
of documents issued by various bogus firms and had cleared the
goods by availing of Cenvat Credit. The Assistant Commissioner
held that the exported goods could not be said to be duty paid goods.
The First Respondent was furnished an opportunity to put forth its
explanation, but had not appeared at the personal hearing.
Accordingly, the claim for the grant of rebate was disallowed.
5. In appeal, it was argued by the First Respondent that the
claim for the grant of rebate had been wrongfully rejected without
ascertaining the role that was played by the First Respondent.
According to the First Respondent, its claim was rejected on the basis
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of an alleged fraud or misrepresentation by the manufacturer or its
supplier. It was urged that action for the availment of Cenvat Credit
on a wrongful basis could be taken against the manufacturer, but not
against the First Respondent in the absence of material to indicate an
act of abetment by the First Respondent.
6. The Commissioner (Appeals) noted that the manufacturer,
Radha Dyeing and Printing Mills received raw materials from units
which either did not exist or had issued bogus Cenvat documents. If
the documents were from non-existent firms, there could be no
accumulation of credit in the account. Hence, if no credit balance
was properly available to discharge the duty on finished goods, it
could not be held that the goods exported were duty paid goods.
However, the Commissioner (Appeals) noted that though 4 ARE forms
were involved, the First Respondent had neither submitted its reply
nor had it appeared before the Assistant Commissioner for a personal
hearing. The First Respondent was furnished an opportunity in the
interests of justice by the Commissioner (Appeals) for producing
relevant evidence before the Assistant Commissioner. It was, in this
view of the mater that the proceedings were remanded back to the
Assistant Commissioner.
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7. The First Respondent challenged the order of the
Commissioner (Appeals) before the revisional authority. The
revisional authority was of the view that if the manufacturer had
obtained Cenvat Credit wrongfully, Rule 14 of the Cenvat Credit
Rules, 2004 enables the Central Government to recover the amount
wrongfully availed of together with interest. However, the revisional
authority was of the view that the First Respondent had bona fide
purchased and exported the goods after the payment of the entire
amount, inclusive of duty and cannot be penalised by denying his
claim for rebate when there is no evidence to show any mutuality of
interest, financial control or flow back of funds. In taking this view,
the revisional authority relied upon its decision in the case of Shyam
International decided on 18 May 2007.
8. Counsel appearing on behalf of the Petitioner has taken
serious exception to the manner in which the revisional authority has
proceeded in the case. Before we deal with the other submissions
which have been urged before the Court we are inclined to accept the
submission that the entire approach of the revisional authority has
been misconceived. The revisional authority has transgressed the
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settled limitations on the exercise of the revisional jurisdiction under
Section 35EE. The First Respondent neither appeared before the
Assistant Commissioner, nor had it chosen to produce any material
whatsoever that would establish the bona fides nature of its
transaction. The Assistant Commissioner noted that despite
opportunity, the First Respondent had not appeared in the
proceedings. The Assistant Commissioner found that Radha Dyeing
and Printing Mills had wrongfully availed of Cenvat Credit in the
amount of Rs.5.41 crores between May 2003 and November 2004 on
the basis of documents issued by bogus firms. When the matter went
in appeal to the Commissioner (Appeals), the Appellate Authority
was of the view that in the interests of justice, liberty should be
granted to the First Respondent to establish its case for the grant of
rebate before the adjudicating authority. The proceedings were
remanded back to the Assistant Commissioner. Instead of availing of
this opportunity which was furnished by the Commissioner (Appeals),
the First Respondent moved the revisional authority against an order
of remand which was passed in order to afford an opportunity to the
First Respondent to produce evidence and submissions. In such a
revisional application, the revisional authority proceeded to enter a
finding of fact that the First Respondent had purchased the goods
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bona fide and having exported the goods on the payment of the entire
amount inclusive of duty, the First Respondent cannot be penalized by
denying the claim for rebate. There is merit in the submission that
the revisional authority ought not to have rendered such a finding of
fact, for the first time, in the exercise of the revisional jurisdiction,
particularly having regard to the background of the case which has
already been noted earlier.
9.
What we have observed above assumes some significance
having regard to the nature of the submissions which have been
urged before the Court by Counsel appearing on behalf of the Union
of India. Counsel has adverted to the fact that a Show Cause Notice
had been issued to Radha Dyeing and Printing Mills on 24 April 2008.
The show cause notice inter alia contained an allegation that the
transactions which had been put into place, were made to camouflage
dubious transactions undertaken in collusion with various groups of
suppliers. Alert circulars were issued by the Department declaring the
units from which inputs have been purchased by Radha Dyeing and
Printing Mills to be dubious/fake and it is alleged that the Units were
floated to cushion a chain of passing inadmissible cenvat credit with
each of these entities in a syncronized manner both at the upstream
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and down stream stage of the cenvat chain. A thin structure of bank
transactions is alleged to have been put into place to effect the
ultimate design. Cenvat Credit was alleged to have been availed of
for the removal of finished goods for home consumption or for export
on the basis of invalid documents. The total Cenvat Credit thus
availed of is alleged to be in the amount of Rs.16.22 crores. Since the
notice to show cause is pending adjudication, we must clarify that we
have not made any observations on the merits of the allegations.
Counsel appearing on behalf of the Petitioner has also adverted to an
order passed by the Commissioner of Central Excise in certain other
proceedings on 29 January 2010. Counsel has taken us through
various parts of the order inter alia to highlight the submission that
the role of the First Respondent in the entire chain of events has
come under scrutiny.
10. We are not inclined in these proceedings, particularly
having regard to the limitations on the exercise of the writ jurisdiction
of this Court under Article 226 of the Constitution, to investigate into
all the factual allegations. The exercise of judicial review must
follow along the well settled principles. The Court under Article 226
would interfere where, as in this case, there has been a manifest
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error or misdirection on the part of a quasi judicial authority in
exercising its jurisdiction. The revisional authority in the present case
was called upon to exercise its jurisdiction against an order of remand
passed by the Appellate Authority. The order of remand was with a
view to enable the First Respondent to have an adequate opportunity
to substantiate its case for the grant of rebate, despite the fact that the
adjudicating authority had denied the rebate on the ground that
Cenvat credit had been wrongfully availed of on the basis of
documents which were fraudulently obtained from Units which were
found to be non-existent or bogus. Rule 18 of the Central Excise
Rules, 2002 provides that when any goods are exported, the Central
Government may by notification grant rebate of duty paid on such
excisable goods. Whether duty on the excisable goods has, in fact,
been paid to be determined. According to the Excise Department,
the duty has not, in fact, been paid. The duty was sought to be paid
by utilising Cenvat credit. The Cenvat credit was accumulated on the
basis of duty paid documents brought up in collusion with non-
existent or bogus firms. These allegations would have to be enquired
into by the adjudicating authority. We are, therefore, of the view that
the proper course of action for the revisional authority would have
been to allow the order of remand to stand so as to enable the First
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Respondent to have a full and proper opportunity of establishing its
case for the grant of rebate. Instead the revisional authority has
purported to make a finding of fact in the absence of virtually any
material whatsoever and in the face of the case of the Department
that the chain of events in the present case will show a fraudulent
attempt to evade the payment of duty. Hence, we are of the view
that the order passed by the revisional authority is unsustainable.
11.
We accordingly quash and set aside the impugned order
passed by the Joint Secretary in the Ministry of Finance, dated 10 July
2009. We maintain the order passed by the Commissioner (Appeals),
remanding the proceedings back to the Assistant Commissioner
(Rebate), Central Excise-I.
12. During the course of the hearing, the Court has been
informed that after the revisional authority had passed the impugned
order dated 10 July 2009, allowing the application of the First
Respondent for the grant of rebate, a Writ Petition was filed in this
Court (Writ Petition 2114 of 2010) on 17 March 2010, seeking
enforcement of the order of the revisional authority and the grant of
rebate in the amount of Rs.13,57,200/-. The Department has, in the
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present petition as amended, averred that during the pendency of the
petition, the First Respondent was paid an amount of Rs.13,57,200/-
by a cheque dated 26 March 2010, following which the Petition was
withdrawn. In amended paragraph 8 in the present petition, it has
been averred that when the earlier petition came up before the Court,
Counsel appearing on behalf of the Union of India apprised the Court
of the fact that the Department was in the process of filing a Writ
Petition to challenge the impugned order dated 10 July 2009. All that
remains for us to observe and direct would be that since the amount
of Rs.13,57,200/- was paid to the First Respondent in pursuance of
the order of the revisional authority dated 10 July 2009, which has
now been set aside, the Petitioner would be at liberty to recover the
amount. The recovery if made, however, shall abide by the final result
of the proceedings before the Assistant Commissioner in terms of the
directions issued in the earlier part of this order. Having regard to
the time that has elapsed in the meantime, we direct that the
adjudicating authority shall decide upon the rebate application
expeditiously and within a period of three months from the date on
which a certified copy of this order is placed on the file of the
adjudicating authority.
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13. Rule is made absolute in the aforesaid terms. There shall
be no order as to costs.
( Dr.D.Y.Chandrachud, J.)
( Anoop V. Mohta, J.)
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