WHETHER SERVICE TAX DUE CAN BE ADJUSTED AGAINST THE REFUND CLAIM OF REBATE FOR EXPORT WHILE THE STAY PETITION IS PENDING?

[Mr. M. GOVINDARAJAN]

In Arunachala Gounder Textiles Mills (P) Limited V. Commissioner of Central Excise, Salem – 2012 (12) TMI 157 - MADRAS HIGH COURT the petitioner is a private limited company engaged in the business of manufacturing different varieties of yarns, including acrylic, polyester and viscose yarns, meant for the domestic market, as well as the exports. The petitioner availed the export benefits and exercised an undertaking for the locally manufactured to be competitive in the markets. Rule 18 of the Central Excise Rules, 2002 provides for the grant of rebate of duty paid on excisable goods which are exported and with regard to the duty paid on the raw materials used in the manufacture of the exported goods. Rule 19 of the Central Excise Rules, 2002 permits clearance of excisable goods, under bond with payment of duty. Accordingly Rule 18 provides for the refund of the central excise duty already paid on raw materials or final products cleared for export. The petitioner made a rebate claim relating to the export.

In the meanwhile show cause notices were issued to the petitioner by the service tax wing and orders have been passed holding the petitioner liable to pay the service tax under the category of ‘business auxiliary service’ on the procurement of export orders by overseas commission agents. The petitioner filed appeal before the Commissioner of Central Excise (Appeals) against the order of the adjudicating authority. The Commissioner (Appeals) rejected the appeal of the petitioner. Therefore the petitioner preferred an appeal before the Tribunal. Before filing appeal before the Tribunal the petitioner has to pay the confirmed duty, interest and penalty. For this purpose the petitioner filed stay application for waival of pre deposit.

In the meantime the Department adjusted the service tax due passed by the Adjudicating Authority and confirmed by the appellate authority against the refund claim made by the petitioner in respect of rebate for export. In view of the appropriation of the amount the stay petition filed by the petitioner in the appeal pending on the file of the Tribunal had become infructuous. The petitioner approached the High Court against the adjustment of service tax against the refund on rebate claim for export.

The petitioner submitted the following contentions before the High Court:

• The adjustment of the amounts said to be due from the petitioner, while the rebate claims made by the petitioner were pending and when the stay petition on the appeals filed before the tribunal was also pending adjudication, is arbitrary and illegal;
• The action of the department in adjusting the amounts due to the petitioner, for the alleged tax due said to be due from the petitioner, cannot be sustained in the eye of law;
• Though all efforts have been taken by the petitioner to move the stay petition before the Tribunal, it could not be taken up as the Tribunal was not sitting regularly for a long time;
• The department was informed about the pendency of the appeal before the Tribunal;
• Despite of this communication, the department issued the impugned communication, dated 13.6.2012 stating that certain amounts had been adjusted in view of the tax arrears payable by the petitioner;
• The department issued a cheque towards refund after adjusting the tax due;

The petitioner prayed the Court to set aside the communication dated 13.6.2012 and to direct the department to consider his refund on rebate claim and also to direct the Tribunal to dispose their appeal on merits in accordance with law within a specified period.

• The Department submitted the following against the submissions made by the petitioner, before the court:
•  In view of the Finance (Amendment) Act, 2006, which came into effect from 18.4.2006, the service commission paid by the petitioner to the agents abroad becomes taxable under the Finance tax as service tax;
• Since the petitioner had filed to remit the same order has been passed resulting in a demand of Rs.9,75,134/-;
• As per Section 35F ot the Act, the amount that remained unpaid should be paid by the person preferring the appeal before the Tribunal;
• Only in case of undue hardship of the petitioner can approach the Tribunal for waiver of the pre deposit amount;
• Even though the petitioner had filed appeal before the Tribunal before 2010, no order of stay had been obtained against the recovery of the amount due from the petitioner;
• As per Section 87(a) of the Finance Act, 1994, any amount payable by a person under the provisions of the Act, is not paid, the Central Excise Officer shall proceed to recover the amount due, by one or more of the modes mentioned in the Section;
• The rebate earned by the petitioner, by way of refund of excise duty paid by it, had been adjusted towards the amount of service tax due to the government under the power conferred by Section 87(a) of the Finance Act, 1994 read with Section 11 of the Central Excise Act;
• Before the adjustments has been made under Section 87 of the Finance Act a notice had been issued to the petitioner, in compliance with the principles of natural justice;
• Even though the appeal filed by the petitioner had been numbered in 2010 no steps has been taken by the petitioner to pursue the stay petition, by listing it for an early hearing of the same;
• Even if there are vacancies in the Chennai bench, it is open to the petitioner to get the appeal, along with the stay petition, transferred and listed for hearing to another bench for early disposal;
• However the petitioner has moved the High Court, without taking the necessary steps for an early disposal of the stay petition and the appeal filed by the petitioner before the tribunal;
• As such the writ petition filed by the petitioner is devoid of merits and therefore, is liable, to be dismissed.

The High Court held that the appropriation amount towards the alleged service tax dues said to be payable by the petitioner from the amount said to be due to the petitioner as export duty rebate, cannot be sustained in the eye of the law. The petitioner ought to have been given a reasonable opportunity of hearing before appropriation of the said amount. Even though the stay petition is pending before the Tribunal the adjustment done by the Department is arbitrary. Due to the adjustment only the Tribunal disposed the stay petition as infructuous. The Court found it appropriate to set aside the appropriation done by the Department. It is for the Department to consider and pass appropriate orders with regard to the rebate claim of the petitioner without undue delay. It is for the Tribunal to dispose the appeal filed by the petitioner on merits and in accordance with law, a