2016 (4) TMI 688 - HC - Central Excise

Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded - Whether the first respondent is right in holding that there can be a demand notice under Section 11A of the Central Excise Act, 1944 by the Original Authority for alleged erroneous refund (earlier granted by the same Original Authority) without reviewing at all the refund order of the Original Authority by the Superior Authority in terms of Section 35E of the Act ibid (vide para No. 6 of the impugned order) ? - Held that - In this case, an order of refund was passed on an application under Section 11B. The appeal against the finalisation of the assessment was closed on the basis of the refund order. There can be no doubt about the fact that the statutory right of appeal is a valuable right conferred upon the assessee. That right was actually altered on the basis of an order of refund. Suppose there had been no order of refund, the appeal could have been pursued against the finalisation of the assessment. As decided in Asian Paints (India) Limited 2002 (4) TMI 62 - SUPREME COURT OF INDIA there is no nexus between Section 11A and Section 35E. Section 11A does not indicate that the legislature intended to override Section 35E. Both sections have to be read harmoniously. In the present case, Annexure-I certificate has been issued in favour of the petitioners from time to time on executing B-8 security bond and on furnishing a bank guarantee. The Department has to follow the procedure under Section 35E for setting aside the Annexure-I certificate. Unless, the Annexure-I certificate is cancelled or rejected by the competent Authority, by following the procedure under Section 35E, it is not permissible for the respondents to invoke Section 11A of the Act. Therefore, we are of the considered opinion that the issuance of show cause notices is without jurisdiction and is liable to be struck down Unfortunately, in none of the decisions relied upon by the learned Standing Counsel, the Courts were confronted with an order of adjudication passed under Section 11B on an application. Once an application for refund is allowed under Section 11B, the expression erroneous refund appearing in Sub-Section (1) of Section 11A cannot be applied. If an order of refund is passed after adjudication, the amount refunded will not fall under the category of erroneous refund so as to enable the order of refund to be revoked under Section 11A(1). One Authority cannot be allowed to say in a collateral proceeding that what was done by another Authority was an erroneous thing. Therefore, the question of law has to be answered in favour of the appellant/assessee.

Summary

Issues Involved:
1. Applicability of Section 11A of the Central Excise Act, 1944 for recovery of erroneous refunds.
2. Interaction between Section 11A and Section 35E of the Central Excise Act, 1944.
3. Finality of adjudication under Section 11B of the Central Excise Act, 1944 and its impact on subsequent proceedings under Section 11A.

Issue-wise Detailed Analysis:

1. Applicability of Section 11A for Recovery of Erroneous Refunds:
The primary issue revolves around whether the Department can invoke Section 11A to recover an erroneously refunded amount without first reviewing the refund order under Section 35E. Section 11A(1) prescribes the procedure for recovery of duties not levied, short-levied, or erroneously refunded. The court noted that Section 11A allows a Central Excise Officer to recover such amounts within one year from the relevant date. However, the court emphasized that this provision should not be used to undermine the adjudication process under Section 11B, which is a complete code in itself for processing refund claims.

2. Interaction between Section 11A and Section 35E:
The court examined the interplay between Sections 11A and 35E. Section 35E provides the Board and Commissioners of Central Excise with the power to review decisions made by subordinate officers. The court highlighted that Section 35E(2) allows the Commissioner to direct a subordinate authority to apply to the Commissioner (Appeals) for determination of specific points. This limited revisional power does not allow direct correction of errors but mandates an appeal process. The court concluded that the Department should have used Section 35E to challenge the refund order instead of directly invoking Section 11A.

3. Finality of Adjudication under Section 11B and Impact on Subsequent Proceedings:
The court underscored that once a refund order is passed under Section 11B, it is an adjudicated order and should be treated as final unless appealed. The court noted that the refund order passed by the Assistant Commissioner was based on an adjudication process, and the Department did not challenge this order through an appeal as prescribed under Section 35E. The court held that allowing the Department to invoke Section 11A after the adjudication under Section 11B would undermine the finality of the adjudication process and the statutory right of appeal.

Conclusion:
The court concluded that the Department's attempt to recover the refund under Section 11A without first challenging the refund order under Section 35E was not permissible. The court emphasized that Sections 11A and 35E must be read harmoniously, and the Department should follow the appeal process under Section 35E to set aside the refund order. Consequently, the court allowed the appeal in favor of the assessee, setting aside the recovery order issued under Section 11A.