1998 (1) TMI 294 - AT - Central Excise

Summary

Issues Involved:
1. Applicability of the time limit under Section 11A for recovery of erroneous refunds.
2. Whether higher input credit taken by the assessee amounts to an erroneous refund.
3. Validity of recovery of erroneous refunds without a show cause notice under Section 11A.

Detailed Analysis:

Issue 1: Applicability of the Time Limit Under Section 11A for Recovery of Erroneous Refunds
The primary issue in these appeals is whether the time limit under Section 11A of the Central Excise Act, 1944, applies to the recovery of erroneous refunds when the order sanctioning the refund by the Assistant Commissioner is reviewed under Section 35E. The Commissioner (Appeals) held that an order under Section 35E does not automatically result in the recovery of an erroneous refund and that a notice under Section 11A is required for such recovery. This view was supported by the Tribunal's decision in the case of Digvijay Cement, which stated that an order under Section 35E(2) does not suffice for recovering the erroneous refund without a notice under Section 11A.

The Department argued that the view taken by the Commissioner (Appeals) was erroneous, citing the Madras High Court decision in Sivananda Pipe Fittings Limited, which did not approve the Tribunal's decisions in Re-rolling Mills and Universal Radiators Ltd. The Madras High Court held that Section 35E could be used independently of Section 11A for recovery of erroneous refunds.

However, the Tribunal noted that the Supreme Court had dismissed appeals against Tribunal decisions that held the demand for recovery of erroneous refunds must be made within the time limit of Section 11A. Therefore, the Tribunal concluded that the law is settled by the Supreme Court decision in Re-rolling Mills, and the erroneous refund can only be recovered by issuing a notice within the time limit prescribed under Section 11A, notwithstanding action under Section 35E.

Issue 2: Whether Higher Input Credit Taken by the Assessee Amounts to an Erroneous Refund
In the appeal by M/s. Fag Precision Bearings Ltd., another issue was whether the higher input credit taken by the assessee amounted to an erroneous refund. The Commissioner (Appeals) concluded that the higher credit taken by the assessee amounted to an erroneous refund. The Tribunal upheld this view, stating that there was no serious infirmity in the Commissioner (Appeals)'s conclusion regarding the nature of the higher credit, as what is taken as credit is only the duty paid on the input materials.

Issue 3: Validity of Recovery of Erroneous Refunds Without a Show Cause Notice Under Section 11A
In the appeals involving M/s. Gujarat Communication & Electronics and another assessee, the Commissioner (Appeals) rejected the review applications on the ground that no show cause notice under Section 11A was issued for the recovery of the erroneous refunds. The Tribunal supported this view, citing the Supreme Court's affirmation that the demand for recovery of erroneous refunds must be made within the time limit of Section 11A, and this cannot be bypassed by action under Section 35E.

Conclusion
The Tribunal concluded that the erroneous refunds in these cases could only be recovered by issuing a notice within the time limit prescribed under Section 11A of the Central Excise Act, 1944. The Department's appeals were rejected, and the appeal of M/s. Fag Precision Bearings Ltd. regarding the higher input credit was also rejected. The appeals were disposed of accordingly.