2013 (4) TMI 301 - HC - Central Excise

Recovery of rebate / refund earlier allowed - export of goods - supplier had not paid excise duty on goods. by the competent authority it is held in favour of the petitioners that the petitioners were not a party to the fraud committed by Anjana Textiles. The question of applicability of extended period of limitation therefore shall have to be judged on this basis. Held that - Strangely the revenue authority was of the opinion that a person who is not party to a fraud or collusion or wilful mis-statement may avoid penal consequences but not extended period of limitation. To us the logic does not appeal. Our conclusion gets further support from the observations made by the Apex Court in the case of Union of India v. Rajasthan Spinning and Weaving Mills (2009 (5) TMI 15 - SUPREME COURT OF INDIA) noted above. Under the circumstances quite apart from and in addition to the decision of the Division Bench of this Court in the case of Commissioner of C.Ex. & Customs v. D.P. Singh reported in 2011 (3) TMI 1370 Gujarat High Court the decisions of the authorities are legally not sustainable. The same are therefore quashed and set aside. Resultantly the petitioners are held entitled to retain the rebate previously sanctioned and paid over. The authorities are refrained from seeking any recovery thereof. If during the pendency of this petition in view of no interim relief being granted such rebate is already recovered the same shall be refunded to the petitioners with simple interest at the rate of 9% per annum from the date of recovery till actual refund. The petition is disposed of accordingly. Rule made absolute. No costs.

Issues Involved:
1. Legality of the revisional authority's order confirming the recovery of rebate.
2. Applicability of the extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944.
3. Validity of the recovery of rebate granted to the petitioners.
4. Impact of the previous adjudication dropping penalty proceedings against the petitioners.
5. Entitlement of the petitioners to retain the rebate previously sanctioned and paid.

Detailed Analysis:

1. Legality of the Revisional Authority's Order Confirming the Recovery of Rebate:
The petitioners challenged the order dated 31-3-2004 by the revisional authority, which confirmed the recovery of the rebate amount of Rs. 3,62,650/-. The petitioners argued that the rebate previously sanctioned should not be disturbed or recovered. The revisional authority's decision was based on the premise that the rebate was erroneously paid due to the fraudulent actions of the manufacturer, Anjana Textiles.

2. Applicability of the Extended Period of Limitation under Proviso to Section 11A(1) of the Central Excise Act, 1944:
The petitioners contended that the extended period of limitation could not be invoked against them as they were not involved in any fraud, collusion, or suppression of facts. The court noted that the first show-cause notice issued against the petitioners resulted in dropping the penalty proceedings, establishing that the petitioners were not aware of the fraud committed by Anjana Textiles. The court emphasized that the proviso to Section 11A(1) extends the limitation period only if the non-payment or erroneous refund of duty is due to fraud, collusion, or suppression by "such person or his agent."

3. Validity of the Recovery of Rebate Granted to the Petitioners:
The Department issued a fresh show-cause notice on 12-8-2002, seeking recovery of the rebate amount. The Additional Commissioner confirmed the demand, invoking the extended period of limitation due to the fraud committed by Anjana Textiles. However, the court found that since the petitioners were not involved in the fraud, the extended period of limitation could not be applied to them. The court highlighted that the rebate was erroneously refunded due to the manufacturer's fraud, not the petitioners'.

4. Impact of the Previous Adjudication Dropping Penalty Proceedings Against the Petitioners:
The court noted that the Additional Commissioner had previously dropped the penalty proceedings against the petitioners, finding their explanation believable that they were unaware of the fraud. This order was not challenged by the Department, achieving finality. Therefore, the extended period of limitation could not be invoked against the petitioners based on the same facts.

5. Entitlement of the Petitioners to Retain the Rebate Previously Sanctioned and Paid:
The court concluded that the recovery of the rebate from the petitioners was not legally sustainable. The petitioners were entitled to retain the rebate previously sanctioned and paid. If the rebate was recovered during the pendency of the petition, it should be refunded to the petitioners with interest at the rate of 9% per annum from the date of recovery till actual refund.

Conclusion:
The court quashed and set aside the orders of the authorities, holding that the petitioners were entitled to retain the rebate previously sanctioned and paid. The authorities were refrained from seeking any recovery of the rebate. If the rebate was already recovered, it should be refunded with interest. The petition was disposed of accordingly, with no costs.

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