2014 (11) TMI 702 - HC - Central Excise

Denial of refund claim - Submission of photocopy of relevant documents - refund claim was with respect to Cenvat Credit in respect of input used in the manufacture of final product and in regard to which, a show cause notice for recovery of wrongly availed Cenvat Credit had been issued by the Commissioner - bonafide belief that application returned not rejected - Held that - Petitioner perceived the communication dated 26th May, 2008 as a communication returning the petitioner s application for refund and did not consider it as an order rejecting the refund claim. It is only when the petitioner approached this Court by filing Application 2014 (11) TMI 656 - GUJARAT HIGH COURT making prayer for decision on the refund claim that the Court clarified the position and held that the communication dated 26th May, 2008 was an order rejecting the petitioner s refund application and that therefore, there was no further need to give any direction to decide such application. The petitioner had a bona fide belief may be erroneously held that the communication dated 26th May, 2008 was not an order rejecting his refund claim. In our view, the petitioner could bona fide hold such a belief, though as held by this Court, such a belief was erroneous. Firstly because, the Deputy Commissioner returned the application along with annexed documents to the petitioner. In our experience, when the authority decides to rejects the refund application, we have never come across an incident where the application itself is returned. Secondly, the normal procedure is to issue show cause notice why such refund application should not be rejected before final decision is taken. All quasi judicial orders passed by the Dy. Commissioners which are appealable also come with format specifying that the order is appealable, the period within which such appeal could be filed and the appellate authority before which the appeal could lie. In the present case, admittedly no such steps were taken by the Deputy Commissioner. He summarily disposed of the petitioner s refund application by returning the application and the annexures accompanying it. If, therefore, the petitioner held a honest belief that his application was not rejected but only returned and he therefore persuaded the cause with the said authority, we see no lack of bona fide on his part. The petitioner, therefore, requested the Deputy Commissioner to pass an order, after hearing him, which he can appeal against, if the Deputy Commissioner was of the opinion that the refund claim was to be rejected. At no stage, the Deputy Commissioner in response to the petitioner s communications conveyed to him that his refund application is already rejected and there is no scope of any further decision. Department has not produced any proof of service of the communication dated 19th August, 2009. In such communication, the petitioner was granted 10 days to clarify how refund could be granted when the Commissioner has issued show cause notice why wrongly taken Cenvat credit not be withdrawn; failing which the application shall stand rejected. When such a communication was not served on the petitioner, he obviously could not respond to the same within 10 days as granted, or any time thereafter. Order of Deputy Commissioner was passed without any notice to the petitioner. The first order dated 26th May, 2008 was passed without a show cause notice as to why the refund claim should not be rejected. Secondly, it is based on Deputy Commissioner s belief that the petitioner had wrongly availed Cenvat Credit. For such purpose, the Commissioner of Central Excise, Vapi had already issued a show cause notice dated 17th July, 2007 and such proceedings were pending. Therefore, to press in service, the element of wrongful availment of Cenvat credit for rejecting a refund claim, an issue which was still to be adjudicated, in our opinion, was wholly wrong. - Matter remanded back - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality of the orders dated 26th May 2008 and 18th February 2009 rejecting the petitioner's refund claims.
2. Compliance with principles of natural justice in rejecting the refund claims.
3. Impact of pending show cause notice on the refund claims.
4. Procedural lapses in handling the refund claims.

Detailed Analysis:

1. Legality of the Orders Dated 26th May 2008 and 18th February 2009:
The petitioner challenged the orders dated 26th May 2008 and 18th February 2009 passed by the Deputy Commissioner, Central Excise, Silvassa, which pertained to refund claims of Rs. 71,22,270/- and Rs. 17,08,758/- respectively. The Deputy Commissioner's communication on 26th May 2008 stated that the refund application was returned because the petitioner submitted photocopies instead of original documents and due to a pending show cause notice regarding wrongful availment of Cenvat Credit. The communication on 18th February 2009 reiterated the rejection based on the same grounds.

2. Compliance with Principles of Natural Justice:
The petitioner argued that the rejection of the refund claims without a hearing violated the principles of natural justice. The Court observed that the Deputy Commissioner's summary disposal of the refund application without issuing a show cause notice or providing an opportunity to be heard was improper. The Court emphasized that quasi-judicial orders should follow due process, including issuing a show cause notice and providing an appealable order format.

3. Impact of Pending Show Cause Notice on Refund Claims:
The Deputy Commissioner's orders were partly based on a pending show cause notice dated 17th July 2007 for recovery of allegedly wrongly availed Cenvat Credit amounting to Rs. 5,88,24,949/-. The Court found it improper to reject the refund claims based on an issue that was yet to be adjudicated. The Court directed that the refund applications should be reconsidered only after the Commissioner of Central Excise, Vapi, adjudicates the show cause notice.

4. Procedural Lapses in Handling the Refund Claims:
The Court noted several procedural lapses in handling the refund claims. The Deputy Commissioner returned the refund application along with documents, which is unusual for a rejection order. The petitioner's belief that the application was not rejected but merely returned was considered bona fide. The Court also highlighted the lack of proof of service of the communication dated 18th February 2009 on the petitioner, which granted a 10-day period to respond.

Conclusion:
The Court quashed the orders dated 26th May 2008 and 18th February 2009 and remanded the matter back to the Deputy Commissioner for fresh consideration after providing a reasonable opportunity of being heard to the petitioner. The Deputy Commissioner was directed to decide the refund applications only after the Commissioner of Central Excise, Vapi, adjudicates the show cause notice dated 17th July 2007. The Court acknowledged the pending litigation before the Supreme Court affecting the Commissioner's decision and expected a prompt conclusion once the Supreme Court renders its decision. The writ petition was disposed of accordingly.