2015 (3) TMI 735 - HC - Central Excise

Denial of refund claim - Unjust enrichment - Held that - as is evident from the records, it is not a case of refund of duty. It is a pre-deposit made under protest at the time of investigation, as has been recorded in the original proceedings itself. In this regard, it has to be noticed it has been the consistent view taken by the Courts that any amount, that is deposited during the pendency of adjudication proceedings or investigation is in the nature of deposit made under protest and, therefore, the principles of unjust enrichment does not apply. - Refund allowed - Decided against the revenue. Whether the Tribunal was justified in holding that without a show cause notice issued under Section 11-A, there could be no recovery consequent to proceedings initiated under Section 35-E of the Act - Held that - In the impugned order passed by the Tribunal, however, the judgment in Asian Paints (supra) was distinguished by the Tribunal on the ground that the said decision did not deal with the issue as to whether a notice under Section 11A of the Central Excise Act is mandatory for the purpose of proceeding for recovery and, thereby, on the facts of the present case, it was held to be not applicable. On a perusal of the above decision, as also the impugned order of the Tribunal, this Court is of the considered view that the distinction as drawn by the Tribunal distinguishing the said judgment with the facts of the present case is fully justified and does not warrant any interference, since the issue that arise in the case on hand is whether issuance of show cause notice is mandatory under Section 11A of the Act. On a careful reading of Section 11-A, it is clear that the said section mandates the issuance of a show cause notice, prior to passing an order, asking the person to show cause as to why duty, which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, shall not be paid. From a perusal of the documents available on record, as also the order of the Tribunal, it is clear that no such notice, as mandated under Section 11A, was issued for recovery of the duty on the ground of erroneous refund. This view is further fortified by the decision of the Supreme Court in the case of Collector Vs Re-rolling Mills (1997 (7) TMI 124 - SUPREME COURT OF INDIA). Further, the Board s Circular No.423/56/98-CX dated 22.9.1998 also stresses the need for the concerned Departments to issue timely demands through show cause notices within six months period as contemplated under Section 11A of the Act. This in itself shows that the show cause notice, as provided under Section 11A of the Act is mandatory in nature and the same has to be adhered to before proceeding further in the matter. Further, as has been observed by the Tribunal, circulars issued by the Board are binding on the Departmental authorities. Therefore, In the absence of any such show cause notice, which is mandatory, the Department cannot seek recovery of the amount. - Decided against Revenue.

Summary

Issues Involved:

1. Applicability of the principle of unjust enrichment to deposits made during an investigation.
2. Legality of recovering erroneously refunded amounts without issuing a demand notice under Section 11A of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Applicability of the Principle of Unjust Enrichment:

The first issue revolves around whether the principle of unjust enrichment applies to deposits made during an investigation. The Tribunal allowed the refund on the ground that unjust enrichment does not apply to such deposits, referencing the Chartered Accountant's certificate which indicated that the refund had not been passed on to the customers. The Department contested this, citing the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India, which emphasizes the principle of unjust enrichment.

The Court examined the nature of the deposit, noting it was made under protest during the investigation. It referenced multiple judgments, including those from the High Court of Bombay and Gujarat, which consistently held that deposits made during adjudication or investigation are considered deposits under protest and are not subject to unjust enrichment. Consequently, the Court concluded that the principle of unjust enrichment does not apply to such deposits and ruled in favor of the assessee on this issue.

2. Legality of Recovering Erroneously Refunded Amounts Without Issuing a Demand Notice Under Section 11A:

The second issue concerns whether the Department can recover erroneously refunded amounts without issuing a demand notice under Section 11A of the Central Excise Act, despite initiating proceedings under Section 35E. The Tribunal held that a show cause notice under Section 11A is mandatory for recovery, even if an appeal is filed under Section 35E.

The Department argued, referencing the Supreme Court's decision in Asian Paints (India) Ltd. v. Commissioner of Central Excise, that recovery can proceed without a Section 11A notice if an appeal under Section 35E is timely. However, the Tribunal distinguished this case, emphasizing that the Supreme Court's decision did not address the necessity of a Section 11A notice for recovery.

The Court upheld the Tribunal's view, stressing the mandatory nature of a Section 11A notice for recovering erroneously refunded amounts. It cited the Supreme Court's decision in Collector v. Re-rolling Mills and the CBEC Circular No. 423/56/98-CX, which reinforced the need for timely issuance of show cause notices within the statutory period. The Court concluded that the absence of a Section 11A notice invalidated the recovery proceedings, ruling in favor of the assessee on this issue as well.

Conclusion:

The Court dismissed the Department's appeal, affirming the Tribunal's decisions on both issues. It held that the principle of unjust enrichment does not apply to deposits made under protest during investigations and that a show cause notice under Section 11A is mandatory for recovering erroneously refunded amounts, even if proceedings are initiated under Section 35E.