2007 (8) TMI 573 - AT - Central Excise

Refund - Consequential refund - recovery of the refund amounts already sanctioned to the appellants - Held that - no show cause notice was issued to recover the refund sanctioned by the Asst. Commissioner - To recover the amount already paid to the appellant, only course open to the Department was to issue a show cause notice under Section 11A of the Central Excise Act for recovery of the amount erroneously refunded to the appellant and simultaneously filing the appeal before the Appellate Authority, challenging the order of the Assistant Commissioner sanctioning the refund claim - appeal allowed.

Summary

Issues:
Refund of accumulated Cenvat credit on packing materials for exempted products, Commissioner's authority to review refund orders, Validity of recovery without issuing show cause notice, Interpretation of Rule 5 of Cenvat Credit Rules, 2002.

Analysis:
1. The case involved M/s. Tuticorin Alkali Chemicals and Fertilisers Limited (TAC) seeking refunds for accumulated Cenvat credit on packing materials due to exempted fertilizer products. The Assistant Commissioner sanctioned five refund claims totaling Rs. 4,09,932. However, the Commissioner of Central Excise reviewed these orders under Section 35E of the Central Excise Act, 1944, leading to appeals by TAC.

2. The Commissioner (Appeals) noted that Rule 5 of Cenvat Credit Rules, 2002 allows refunds for accumulated credit if not usable for duty payment on final products. Despite TAC producing both exempted and dutiable goods, the Commissioner found the credit could have been utilized for duty payment. Consequently, he set aside the refund orders based on TAC's payment patterns, emphasizing payment from PLA over Cenvat credit.

3. TAC argued that if the department believed refunds were erroneously sanctioned, a show cause notice under Section 11A should have been issued instead of appealing under Section 35E(2). Citing a Tribunal decision and a circular by the CBEC, TAC contended that recovery without a show cause notice was improper, advocating for adherence to procedural requirements for recovery of refunds.

4. The ld. SDR referenced Notification No. 11/02-CE (NT), stating conditions for Cenvat credit refund under Rule 5. The notification specified that refunds are permissible when credit cannot be utilized for duty on exported goods. Defending the impugned order, it was argued that the Commissioner's decision aligned with legal provisions and should be upheld.

5. The Tribunal analyzed Rule 5 of Cenvat Credit Rules, 2002, emphasizing the right of the assessee to claim refund if credit remains unutilized for any reason. Noting TAC's ability to use the credit for duty payment, the Tribunal found the Commissioner's decision to recover refunds unsustainable. The absence of a show cause notice for recovery further supported TAC's position, leading to the appeal being allowed.

6. Referring to a previous Tribunal case, the Tribunal reiterated the necessity of issuing a show cause notice for recovery of erroneously refunded amounts. As no such notice was issued in this case, the recovery of refunds without following due process was deemed impermissible, ultimately resulting in the appeal being allowed and the impugned order set aside.