1985 (10) TMI 196 - AT - Income Tax

Issues Involved:
1. Levy of excise duty on synthetic red oxide of iron.
2. Classification of goods under Central Excise Tariff.
3. Refund claim and its rejection.
4. Applicability of Rule 11 of the Central Excise Rules.
5. Limitation period for issuing show cause notice under Section 36(2) of the Central Excises and Salt Act.
6. Interpretation of "erroneously refunded" and its implications.

Detailed Analysis:

1. Levy of Excise Duty on Synthetic Red Oxide of Iron:
The case pertains to the levy of excise duty on synthetic red oxide of iron cleared by the respondents from their factory during the period 1-3-1975 to 2-2-1977. Initially, the duty was paid under Central Excise Tariff Item 68. However, it was later determined that the goods were classifiable under T.I. 14 and were exempt from duty.

2. Classification of Goods Under Central Excise Tariff:
The respondents classified the goods under T.I. 14, which was exempt from duty, contrary to the initial classification under T.I. 68. This reclassification led to the filing of a refund claim for the duty paid under the incorrect classification.

3. Refund Claim and Its Rejection:
The respondents filed a refund claim on 19-1-1979 for the duty paid between 4-6-1975 and 2-2-1977. The Assistant Collector rejected the claim, citing that it was filed beyond the six-month limitation period specified under Rule 11 of the Central Excise Rules. The Appellate Collector, however, allowed the appeal, referencing a judgment from the Patna High Court in the case of M/s. Bata Shoe Company (Pvt.) Ltd. v. Collector of Central Excise, Patna-1972 Tax L.R. 1833, which held that such cases were not governed by Rule 11.

4. Applicability of Rule 11 of the Central Excise Rules:
The primary contention was whether Rule 11, which required refund claims to be filed within six months, was applicable. The Appellate Collector ruled in favor of the respondents, but the Central Government issued a show cause notice under Section 36(2) of the Central Excises and Salt Act, proposing to set aside the Appellate Collector's order on the grounds that Rule 11 was applicable and the refund claim was time-barred.

5. Limitation Period for Issuing Show Cause Notice Under Section 36(2) of the Central Excises and Salt Act:
The respondents argued that the show cause notice was barred by limitation, referencing the judgment of the Delhi High Court in the case of Associated Cement Companies Ltd. (1981 E.L.T. 421). The Tribunal considered the Supreme Court's judgment in the case of M/s. Geep Flashlight Industries Ltd. (1983 E.L.T. 1596 S.C.), which clarified that the period for issuing a show cause notice in cases of erroneous refund was six months from the date of actual refund. Since no refund had been made, the limitation did not apply, and the show cause notice was deemed valid.

6. Interpretation of "Erroneously Refunded" and Its Implications:
The Tribunal examined the term "erroneously refunded" as interpreted by the Supreme Court in the Geep Flashlight Industries case. It was held that "erroneously refunded" referred to actual payment, not just the grant of a refund. Therefore, since the refund had not been paid, the show cause notice was not time-barred. The Tribunal also noted that the amended Rule 11, effective from 6-8-1977, omitted the requirement of inadvertence, error, or misconstruction, making the Appellate Collector's reliance on the Patna High Court judgment misplaced.

Conclusion:
The Tribunal concluded that the show cause notice was not barred by limitation and that the refund claim was time-barred under Rule 11. The appeal was allowed, the Appellate Collector's order dated 23-11-1981 was set aside, and the Assistant Collector's order dated 4-7-1979 was restored.

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