ADJUDICATION ORDER IN TERMS OF AMENDED LAW, AFTER ISSUANCE OF SHOW CAUSE NOTICE, HAVING RETROSPECTIVE EFFECT.

[Mr. M. GOVINDARAJAN]

                        The tax laws gives power to the Central Government to give exemption from any levy of tax either in full or in part for some period or permanently.   At the same time it can revoke the exemption already given either fully or in partly with immediate effect or retrospective effective.    In this regard the Supreme Court in ‘R.C. Tobacco Private Limited V. Union of India’ – 2005 -TMI - 47410 – (SUPREME COURT OF INDIA) held that it is established law that benefits granted by exemptions may be modified or withdrawn.  By the  Notification the accrued liability to pay tax/duty is merely suspended.  Such exemption by its very nature is susceptible to being revoked or modified or subjected to other conditions.   The Government and a fortiori the Parliament is free to determine the priorities in the matter on the basis of any legislature should be able to cure inadvertent defects in statutes or their administration by making what has been aptly called ‘small repairs’  The Supreme Court further held that an individual who claims that a vested right has been arisen from the defect is seeking a windfall since had the legislature’s or administrator’s action had the effect it was intended to an could have had, no such right would have arisen.   Thus the interest in the retroactive curing of such a defect in the administration of government outweighs the individual’s interest in benefiting from the defect.   The Court has been extremely reluctant to override the legislative judgment as to the necessity for retrospective taxation, not only because of the paramount governmental interest in obtaining adequate revenues, but also because taxes are not in the nature of a penalty or a contractual obligation but rather a means of apportioning the costs of government among those who benefit from it.

                        In ‘New Tobacco Co Limited V. Commissioner of Central Excise, Shillong’ – 2008 -TMI - 93663 - (CESTAT, KOLKATA) the appellant availed exemption from central excise duty to pan masala containing tobacco for the locational advantage of being situated within the Shillong Central Excise Commissionerate vide Notification No. 32/99-CE, dated 8.7.1997. The appellant claimed refund in respect of duty paid by them through debits in PLA.   The Department sanctioned the refund but the same could not be disbursed because of the objections raised by the Department of Industry and Commerce of Government of Assam.  The contention of the Assam Government is that the provisional registration certificate granted to the appellant shall not be the basis to grant refund before they go into commercial production.  The Assam Government requested the Central Excise Department to withhold the refund till they file certain documents in this regard with the Central Excise Department.  The refund has not been made and a show cause notice was issued to the appellant on 28.8.2001. 

                        The High Court of Guwahati vide its order dated 8.2.2001 on the parties who claimed similar advantage, directed the Department to examine the refund claim and deal the same in accordance with the law.   Accordingly the Department questioned the appellants on the eligibility of the claim of refund.   In addition to the show cause notice the Department directed the appellant to make deposit of the duty which has been failed to deposit relating to both fortnights of August 2000 and first fortnight of September 2000.

                        During the pendency of the above two cases the Finance Bill, 2003 vide Section 154 amended the Notification No. 32/99-CE retrospectively to deny exemption earlier available to pan masala containing tobacco with effect from 8.7.1999.   The said Bill got the assent of the President on 14.5.2003.   Sec.154(3) of Finance Act, 2003 provides that no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for any action taken or anything done or omitted to be done, in respect of any goods under the said notifications, and no enforcement shall be made by any court, tribunal or other authority of any decree or order relating to such action taken or anything don or omitted to be done as if the amendments had been in force at all material times.    Sec. 154(4) provides that recovery shall be made of all amounts of duty or interest or other charges which have not been collected or, as the case may be, which have been refunded but which would have been collected, as the case may be, which would have not been refunded if the provisions of this section had been in force at all material times, within a period of thirty days from the date on which the Finance Bill 2003 receives the assent of the President, and in the event of non payment of duty or interest or other charges so recoverable, interest at the rate of 15% per annum shall be payable from the date immediately after the expiry of the said period of 30 days till date of payment.

                        The Commissioner of Central Excise, Shillong, taking into account of the amendments made in Finance Act, 2003 passed an order on 31.10.2007 held that no refund is eligible to the appellant and also the appellant is liable to pay the duty as directed by the Department.

                        Aggrieved against the order the appellant filed this present appeal before the Tribunal.   The appellant contended that-

• The Adjudicating Authority without affording opportunity of being heard confirmed the demand;
• No corrigendum to show cause notice has been issued;
• Confirmation of demand was uncalled for;
• The proviso to Section 11A was not invocable for which confirmation of demand was unwarranted;
• The ground for confirmation of duty, not appearing in the show cause notice, subsequent confirmation of demand on the basis of provision Section 154 of Finance Act, 2003 was traveling beyond the scope of show cause notice;
• The order of adjudication was passed on 31.10.2007 in respect of show cause notices issued on 28.8.2001 and 10.9.2001 proposing recovery of the duty not paid for three fortnights and recovery of refund respectively.   Such delay of adjudication is bad in law;
• Interest was not leviable;

The High Court relied on the judgment of Supreme Court in ‘R.C. Tobacco’ case (supra) held that it can be said that all along the law existed to deny exemption benefit from the date the original Notification for the legislative intent conveyed by Section 154 of the Finance Act, 2003 and duty not paid was recoverable.   Accordingly the appellant was neither entitled to the refund nor also entitled to be exonerated from the recovery of duty determined under the order of Adjudication.  The recovery of the duty with applicable interest shall be proper in the eyes of law and denial of refund shall also be justified.   The High Court dismissed the appeal.