2019 (8) TMI 1546 - AT - Central Excise

Area Based Exemption - refund of Excise Duty - whether Units I and II resorted to paper clearances for availing erroneous refund of excise duty paid under the area-based Notification No. 32/99 dated 8 July 1999? - Revenue neutrality - time limitation. HELD THAT - The said notification is essentially an exemption notification aimed at promoting industrialization and operationalized by way of grant of refund equivalent to the amount of duty paid by the manufacturer in cash i.e. the amount of duty paid after utilization of the Cenvat credit. Therefore, the duty paid through Cenvat credit is not at all refunded under the notification. The question of misuse of the notification could still be relevant if a case of dual benefits i.e. refunds of duty paid by the manufacturer in cash and corresponding availment of Cenvat credit by the buyers, is made out. However, in the instant case, we find that the adjudicating authority has himself accepted that the buyers of finished goods from Unit II were non-existent and that no duty incidence could be passed on to such non-existent buyers while dropping invocation of Section 11D and thereby, ruling out the question of any double benefit being claimed. Under these circumstances, we concur with the contention of the Appellants that no intent to evade duty could be attributed on the part of Unit II with reference to which the bulk of duty demand has been confirmed as the entire exercise turns out to be revenue neutral - the demand confirmed by invoking the extended period deserves to be set aside on this limited point alone. Even otherwise as per the revenue s allegation, the excise duty was not at all required to be paid on the manufactured excisable goods for want of clearance thereof. Therefore, the excise duty collected from Unit II could not have been retained under Article 265 of the Constitution and in any event, ought to have been refunded by applying the principle of restitution more so when there was no case for unjust enrichment as the buyers were allegedly non-existent - The grant of refund under the said notification is subject to such verification as may be deemed necessary by the jurisdictional Assistant Commissioner or the Deputy Commissioner of Central Excise. There are force in the contention of the Appellant that when such refund orders were not reviewed or appealed against under Section 35E(2) of the Act, and therefore, attained finality, no parallel proceedings for recovery of such alleged erroneous refund under Section 11A of the Act was maintainable as something which could not be done directly cannot be permitted indirectly either - Neither is there any allegation as regards clandestine clearance of the produced goods. Given that production is not disputed and neither was any shortage detected on physical verification or any allegation of clandestine clearance, the charge of paper clearance of the produced goods cannot sustain in vaccum. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Alleged paper clearances for availing erroneous refund under Notification No. 32/1999-CE.
2. Non-existence of buyers and non-movement of goods.
3. Irregular availment of Cenvat credit.
4. Legality of recovery proceedings without reviewing refund orders.
5. Imposition of penalty on the Director.

Issue-Wise Detailed Analysis:

1. Alleged Paper Clearances for Availing Erroneous Refund:
The central issue was whether Units I and II resorted to paper clearances to fraudulently avail refunds under Notification No. 32/1999-CE. The notification aimed at promoting industrialization by granting refunds equivalent to the amount of duty paid in cash. The adjudicating authority accepted that the buyers were non-existent and ruled out double benefits, thereby making the exercise revenue-neutral. Consequently, the demand confirmed by invoking the extended period was set aside, following the Supreme Court's decision in Nirlon Ltd. The Tribunal held that no intent to evade duty could be attributed to Unit II, as the entire exercise was tax neutral.

2. Non-Existence of Buyers and Non-Movement of Goods:
The investigation alleged that there was no actual movement of goods and that the buyers were non-existent. The Tribunal found that the allegations of non-movement of goods were incorrect, as the goods cleared from Unit II had passed through the Byrnihat Check Gate, certified by the Superintendent of Taxes. The Tribunal also noted discrepancies in the vehicle numbers mentioned in the invoices and those referred to in the notice, undermining the investigation's credibility. The Tribunal concluded that the investigation was half-hearted and full of infirmities.

3. Irregular Availment of Cenvat Credit:
The adjudicating authority alleged irregular availment of Cenvat credit for 25 consignments involving 447 MT of ingots procured from Unit I. The Tribunal found that the charge was generalized without verifiable evidence. The Tribunal noted that the movement of goods between Unit I and Unit II, located within the same compound, did not require interception at any sales tax check post. The Tribunal set aside the denial of Cenvat credit, finding the allegations baseless.

4. Legality of Recovery Proceedings Without Reviewing Refund Orders:
The Tribunal addressed the legal contention that recovery proceedings initiated without reviewing the refund orders were illegal. The Tribunal referred to the decisions of the Guwahati High Court in Amalgamated Plantations Private Limited and the Madras High Court in Eveready Industries India, which held that parallel proceedings for recovery under Section 11A were not maintainable if the refund orders were not reviewed or appealed against under Section 35E(2). The Tribunal found that the adjudicating authority had passed a non-speaking order by not specifically addressing this contention.

5. Imposition of Penalty on the Director:
The Tribunal held that since the grant of refund was not erroneous, the imposition of penalty on the Director under Rule 26 of the Central Excise Rules was unsustainable and unjustified. The Tribunal set aside the penalty imposed on the Director.

Conclusion:
The Tribunal set aside the impugned order on multiple grounds, including the lack of intent to evade duty, the revenue-neutral nature of the transactions, procedural lapses in the investigation, and the illegality of recovery proceedings without reviewing refund orders. The appeals were allowed with consequential reliefs.

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