2022 (5) TMI 1041 - HC - Central Excise

Area Bases Exemption - fixation of special rate representing the actual value addition - Recovery of refund / reversal of credit received by the petitioner as per the interim order - Later Hon'ble SC has upheld the validity of withdrawal of area based exemption - principles of promissory estoppel - effect of judgment of the Supreme Court in the case of V.V. F. Ltd. 2020 (4) TMI 669 - SUPREME COURT and its effect of the said judgment on the amendment made by the Notification No. 38/2008-CE dated 10/6/2008 - HELD THAT - In the instant judgment, this Court had explained the scope and ambit of Paragraph 3(1) as was inserted by the Notification No. 38/2008-CE. In terms with the said provision, the manufacturer shall have the option not to avail the rates specified in the table and apply to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, having jurisdiction over the manufacturing unit of the manufacturer for fixation of a special rate representing the actual value addition in respect to any goods, manufactured and cleared under the said Notification, if the manufacturer finds that the actual value addition in the production or manufacture of the goods is at least 115% of the rates specified in the table and for that purpose, the manufacturer may make an application in writing to the Commissioner of Central Excise or the Commissioner of Customs and Central Excise, as the case may be, not later than 30th day of September in a given financial year for determination of such special rate, stating all relevant facts including the proportion in which the material or components are used in the production or manufacture of goods. It is relevant to take note of the judgment of the Supreme Court in V.V.F. Ltd. In Paragraph No. 24, the Supreme Court held that the impugned Notifications therein including the Notification No. 20/2008-CE and 38/2008-CE were clarificatory in nature and it can be defined as an Act to remove doubts. It is in that perspective, the Supreme Court observed that the subsequent Notification/industrial policies cannot be said to have taken away the benefits which were accrued/granted under the earlier Notifications. In Paragraph 24.1 to 24.1.4 the Supreme Court on the basis of the materials on record had observed the misuse of the earllier Notifications granting exemption. Taking into consideration that the Petitioner s applications were filed on 18/3/2021 for fixation of the special rate for value addition, this Court deems it appropriate and accordingly directs the Principal Commissioner of Central Goods and Service Tax, Dibrugarh, the Respondent No. 2 herein to decide the applications of the Petitioner dated 18/3/2021 on its own merit as regards the claim for fixation of the special rate to actual value addition to the manufactured goods of the given financial years - Petition allowed.

Summary

Issues Involved:
1. Challenge to the Order No. 02/SR/2021-22 dated 5/8/2021.
2. Direction to expedite proceedings for special rate fixation.
3. Prevention of recovery proceedings until special rate fixation.

Issue-wise Detailed Analysis:

1. Challenge to the Order No. 02/SR/2021-22 dated 5/8/2021:
The petitioner challenged the order dated 5/8/2021 which rejected their applications for special rate fixation for the financial years 2009-10 to 2018-19 as barred by limitation. The petitioner argued that the need to file such applications arose only after the Supreme Court's judgment on 22/4/2020 in Union of India Vs. V.V.F. Limited, which upheld the subsequent notifications/industrial policies. The court observed that the interim orders and national lockdown due to the COVID-19 pandemic prevented timely filing. The court noted that the Supreme Court's judgment clarified that pending refund applications should be decided as per the subsequent notifications and on merits. The court found the rejection of applications based on limitation contrary to the principles laid out by the Supreme Court and the doctrine of substantial compliance, which allows for some procedural leniency in the interest of justice. Consequently, the impugned order dated 5/8/2021 was set aside and quashed.

2. Direction to expedite proceedings for special rate fixation:
The court directed the Principal Commissioner of Central Goods and Service Tax, Dibrugarh, to decide the applications filed by the petitioner on 18/3/2021 for fixation of the special rate for value addition on their merits. This direction was based on the understanding that the petitioner had a legitimate expectation to file such applications following the Supreme Court's judgment and the subsequent national lockdown, which justified the delay.

3. Prevention of recovery proceedings until special rate fixation:
The court observed that the order in Original No. 11/Asstt.COM/ADJ/CE/ACT/2021-22 dated 16/2/2022, which confirmed a demand of Rs. 99,82,752/- along with applicable interest, had a direct correlation with the question of special rate fixation. Therefore, the court directed the concerned respondent authority not to give effect to the said order until the applications for special rate fixation were decided. This ensured that the petitioner would not face recovery proceedings until a fair determination of the special rate was made.

In conclusion, the court allowed the writ petition, setting aside the impugned order dated 5/8/2021, directing the expeditious determination of the special rate applications, and staying recovery proceedings until such determination.