2011 (6) TMI 390 - HC - Central Excise

Rebate claim - contention of the Central Excise Department that the First Respondent was a party to the fraud involving the grant of rebate - Held that - Revisional Authority proceeded on the basis that there was no allegation of a want of bonafides on the part of the First Respondent. This assumption of the Revisional Authority is erroneous because the record before the Court, indicates to the contrary. The fact that this was under investigation right from 2005 is evident from the alert circular dated 22 September 2005 noting that during the course of the physical verification of firms, as a part of an investigation into the grant of fraudulent rebate, 71 firms at Surat were found to be bogus and nonexistent. In this view of the matter, the basis upon which the Joint Secretary to the Government of India allowed the claim for rebate was wholly erroneous. The Revisional Authority would have due regard to the parameters of the jurisdiction under Section 35EE of the Central Excise Act, 1944. According to the Revenue, in these cases no excise duty was as a matter of fact paid. Cenvat credit was accumulated on the basis of fraudulent documents of bogus firms and such credit was utilised to pay duty. Since there was no accumulation of Cenvat credit validly in law, there was no question of duty being paid therefrom. This submission warrants serious consideration and the Revisional Authority would have to apply its mind to it - order of remand would be warranted in order to enable the Revisional Authority to consider afresh the Revision filed by the First Respondent against the order of the Commissioner (Appeals) confirming the rejection of the Application for rebate. There shall be an order in these terms. In the circumstances of the case, there shall be no order as to costs.

Summary

Issues:
Challenge to order under Section 35EE of Central Excise Act, 1944 for rebate claims based on alleged fraudulent activities.

Analysis:
The High Court addressed the challenge brought by the Union of India against an order passed by the Joint Secretary to the Government of India under Section 35EE of the Central Excise Act, 1944. The case involved a merchant exporter who filed rebate claims for duty paid on goods exported through the port of Mumbai. The Department raised concerns about the authenticity of duty paying certificates submitted by the exporter, leading to an investigation revealing fraudulent practices by the manufacturer and exporter. The Assistant Commissioner rejected the rebate claims, a decision upheld by the Commissioner (Appeals). The Revision filed by the exporter was allowed by the Joint Secretary, citing a previous case precedent. However, the Petitioner argued that the circumstances were different from the precedent relied upon, emphasizing the lack of bonafides in the transaction between the exporter and the manufacturer.

The Court considered the arguments presented by both parties. The Petitioner contended that the exporter was complicit in the fraudulent activities, while the Respondent maintained that as an exporter, they were entitled to the rebate and had paid the manufacturer a composite price inclusive of duty. The Court examined the investigation reports and circulars highlighting the existence of bogus firms and fraudulent practices in the industry. It was noted that the Revisional Authority's decision was based on an erroneous assumption of no lack of bonafides on the part of the exporter, contrary to the evidence presented. The Revenue's argument regarding the illegality of duty payment due to fraudulent Cenvat credit accumulation was deemed significant and required proper consideration.

Ultimately, the High Court allowed the Petition, setting aside the order of the Joint Secretary, and called for a remand to reevaluate the Revision filed by the exporter. The Court emphasized the need for the Revisional Authority to carefully assess the circumstances, including the lack of bonafides, fraudulent practices, and the legality of duty payment in light of the Cenvat Credit Rules. The decision highlighted the importance of a thorough review based on legal parameters to ensure a just outcome.