2017 (6) TMI 895 - AT - Central Excise

Adjustment of sanctioned refund towards other alleged dues - It is the case of the appellant that no SCN has been issued raising such demand and that the department cannot adjust the alleged demand of ₹ 4,61,268.36 and ₹ 7,87,024/- being interest thereon from the sanctioned refund - appellant claims that the department has suo moto adjusted the refund / rebate against duty demand which has never been adjudicated or crystalized by issuance of a SCN - Held that - The SCN dated 18.12.1982 admittedly did not raise any demand of duty. The allegation raised in the said SCN was only with regard to classification and proposal for denying the exemption under N/N. 66/82. This being the case, the department cannot unilaterally adjust the amounts from the sanctioned refund. It has also to be mentioned that with effect from 28.2.1986, the new Central Excise Tariff Act, 1985 came into force and the impugned products were brought under different classification i.e. Chapter 48. The N/N. 66/82 was rescinded. The department has taken this opportunity to include in the show cause notice the proposal for demand of duty and interest. Relating to the classification dispute raised in the SCN dated 18.12.1982. In our view, such a SCN issued belatedly after adjustment of the rebate / refund claim, and that too after much agitation of the issues, is not legal and proper. The Hon ble Supreme Court in the case of Metal Forgings Vs. Union of India 2002 (11) TMI 90 - SUPREME COURT OF INDIA has held that a SCN is a mandatory requirement for raising demand. The letter dated 2.5.2003 or 14.5.2003 issued by the department raising the demand for the first time or the show cause notice dated 13.5.2004 issued by the department belatedly pursuant to Order-in-Appeal dated 8.1.2004 will not take the place of a show cause notice for the dispute relating to the show cause notice dated 18.12.1982. Whether the department can suo moto adjust from the sanction refund / rebate? - Held that - reliance placed in the case of COMMISSIONER OF C. EX., BANGALORE-III Versus STELLA RUBBER WORKS (UNIT-II) 2013 (3) TMI 299 - KARNATAKA HIGH COURT , where it was held that Section 11 of the Central Excise Act, 1944 does not contemplate adjustment of monies due to the assessee towards the amount due to the revenue. The SCN dated 18.12.1982 did not quantity the differential duty demand arising out of the denial of benefit of N/N. 66/82. As a consequence to Supreme Court s decision in the absence of SCN quantifying demand, it is not possible to say that the appellant is liable to pay the duty demand / interest confirmed in the denovo adjudication order No. 16/2005 dated 31.1.2005. The SCN dated 13.5.2004 cannot be taken to correct the flaw or fill in the lacuna in the SCN dated 18.12.1982. Therefore, it cannot be concluded that the amount adjusted to the sanctioned refund has been properly quantified. Such adjustment of uncrystalized demand is against law. The appellant is eligible for the entire refund/rebate - adjustment set aside - appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Adjustment of sanctioned refund towards alleged dues.
2. Validity of duty demand without a show cause notice.
3. Applicability of the Supreme Court's decision on classification.
4. Legality of suo moto adjustment by the department.

Issue-Wise Detailed Analysis:

1. Adjustment of Sanctioned Refund Towards Alleged Dues:
The appellant contested the adjustment of the sanctioned refund towards an alleged duty demand of ?4,61,268.36 and interest of ?7,87,024/-. The appellant argued that no show cause notice was issued raising such demand, and thus, the department could not adjust the alleged dues from the sanctioned refund. The Tribunal found that the department's unilateral adjustment of the refund without a proper adjudicated demand was not justified. The Tribunal emphasized that the show cause notice dated 18.12.1982 did not raise any duty demand but only addressed classification and exemption issues.

2. Validity of Duty Demand Without a Show Cause Notice:
The appellant argued that the initial show cause notice dated 18.12.1982 did not specify the period of dispute, the value of clearances, or the duty demand proposed, and thus could not be treated as a show cause notice for recovery of the demand of ?4,61,268/-. The Tribunal agreed, citing the Supreme Court's ruling in Metal Forgings Vs. Union of India, which held that a show cause notice is a mandatory requirement for raising a demand. The Tribunal concluded that letters dated 2.5.2003 and 14.5.2003 or the belated show cause notice dated 13.5.2004 could not substitute for the required show cause notice.

3. Applicability of the Supreme Court's Decision on Classification:
The appellant contended that the Supreme Court's decision on classification did not apply to their case, as the clearances in question were merely hinged lit cut-outs without inner frames. The Tribunal noted that the department's demand letters following the Supreme Court's decision did not provide an opportunity for the appellant to contest the applicability of the classification ruling to their specific case. The Tribunal found that the department's adjustment of the refund based on this classification dispute was not legally sound.

4. Legality of Suo Moto Adjustment by the Department:
The appellant argued that Section 11 of the Central Excise Act does not empower the department to adjust sanctioned refunds against unadjudicated demands. The Tribunal referred to the Karnataka High Court's judgment in Commissioner of Central Excise Vs. Stella Rubber Works, which held that Section 11 does not contemplate such adjustments. The Tribunal concluded that the department's suo moto adjustment of the refund was against the law, as the demand had not been properly quantified or adjudicated.

Conclusion:
The Tribunal set aside the department's adjustment of the refund and held that the appellant was eligible for the entire refund/rebate. The orders passed by the authorities below were annulled, and the appeal was allowed with consequential relief, if any.