2017 (2) TMI 483 - HC - Central Excise

Recovery u/s 11D of amount collected by the assessee in the name of duty of excise - retrospective effect - Cigarettes - Whether Notification No.355/86-CE dated 24/06/1986 is a notification granting Set Off of the duty paid on the input viz., cut tobacco while paying duty on the finished product i.e. Cigarettes or is a notification granting exemption, simplicitor from payment of excise duty to Cigarettes? - Held that - exemption Notification is required to be construed strictly and having regard to the language employed therein. Under the circumstances, we are of the opinion that no error has been committed by the learned tribunal in holding N/N. 355/86-CE dated 24/06/1986 as exemption Notification. It may be a different thing that while making the payment of excise duty on the final product Cigarettes the assessee might use such credit of the duty of excise already paid on Cut Tobaco. However, by that, it cannot be said that Notification No.355/86-CE is a Notification granting set off of excise on the duty already paid on Cut Tobaco as sought to be contended on behalf of the assessee - decided in favor of Revenue. Whether the Board Circulars dated 06/07/1990 and 01/04/1981 and the Trade Notice dated 08/08/1986 did not establish that N/N.355/86 in effect conferred benefit on the manufacturer in the nature of Set Off and the same was not in the nature of an exemption notification simplicitor? - Held that - the said Circular and the Trade Notices are clarificatory in nature with respect to the procedure to be followed while availing set off /claiming the set off with respect to the amount of excise duty paid on input Cut Tobaco. The said Trade Notices, as such, cannot be said to be in conflict with the Notification No.355/86-CE dated 24/06/1986. As observed and held hereinabove, N/N.355/86-CE dated 24/06/1986 is a Notification granting exemption on excise duty payable on Cigarettes to the extent of duty paid on the input, namely, Cut Tobaco - decided in favor of Revenue. Whether by virtue of the operation of Notification No.355/86-CE dated 24/06/1986, the appellants had in fact paid the full effective duty on the final products and hence were within their rights to recover the full duty from their customers? - Held that - As per exemption N/N.355/86-CE excise duty liability would be ₹ 80/- only. In the present case though the assessee paid the excise duty at ₹ 80/- (after debiting ₹ 20/- paid on input, namely, Cut Tobaco) they recovered excise duty at ₹ 100/- from the customer. Thus, ₹ 20/- was recovered by the assessee in excess of the duty payable, and therefore, to that extent, ₹ 20/- can be said to be enrichment, which is not permissible, that is exactly for which Section 11D of the Act has been introduced - decided in favor of revenue. Whether the provision of Section 11D of the Central Excise Act, 1944 could be invoked in respect of payment of duty under Notification No.355/86 when the duty collected from the buyer of the finished products was not more than the duty already paid on the input and the duty paid on the finished product at the time of removal cumulatively? - SCN - period of limitation - Held that - the show cause notice came to be issued in the year 2000 for the alleged transactions for the period between 1993 to 1995, and therefore, the same has been issued after six years i.e. unreasonable period. The aforesaid seems to be attractive but has no substance. It is required to be noted that Section 11D of the Act came to be amended by the Finance Act, 2000 making it applicable retrospectively with effect from 20/09/1991, and therefore, the cause of action for the Department to invoke the provisions of Section 11D of the Act can be said to have been occurred on amendment of Section 11D of the Finance Act, 2000. When Section 11D of the Act is made applicable retrospectively with effect from 20/09/1991, show cause notice has been issued in the month of December, 2000, and therefore, it cannot be said that the same can be said to have been issued after unreasonable period. If the submissions on behalf of the assessee is accepted, in that case, the amendment in Section 11D by Finance Act, 2000 making Section 11D applicable retrospectively with effect from 20/09/1991 would become nugatory. If the show cause notice is issued after five or six years or unreasonable period from the amendment of Section 11D by Finance Act, 2000 then the assessee can justifiably make a grievance. However, after amendment in Section 11D by Finance Act, 2000, immediately show cause notice has been issued, and therefore, the same cannot be said to be either issued after unreasonable period or beyond the period of limitation - decided in favor of Revenue. Appeal dismissed - decided against assessee and in favor of Revenue.

Issues Involved:
1. Interpretation of Notification No.355/86-CE dated 24/06/1986.
2. Relevance of Board Circulars and Trade Notices in interpreting Notification No.355/86-CE.
3. Right of the appellant to recover full duty from customers under Notification No.355/86-CE.
4. Applicability of Section 11D of the Central Excise Act, 1944.
5. Reasonableness of the delay in issuing the show cause notice.

Detailed Analysis:

1. Interpretation of Notification No.355/86-CE dated 24/06/1986:
The primary issue was whether Notification No.355/86-CE is a notification granting set off of the duty paid on the input (cut tobacco) while paying duty on the finished product (cigarettes) or a notification granting exemption from payment of excise duty on cigarettes. The court held that Notification No.355/86-CE is an exemption notification. It exempts cigarettes from so much of the duty of excise as is equivalent to the duty already paid on cut tobacco used in their manufacture. The court emphasized that exemption notifications should be construed strictly, and thus, the notification was rightly treated as an exemption notification by the tribunal.

2. Relevance of Board Circulars and Trade Notices in interpreting Notification No.355/86-CE:
The appellant argued that Board Circulars dated 06/07/1990 and 01/04/1981 and Trade Notices dated 08/08/1986 indicated that Notification No.355/86-CE conferred a benefit in the nature of set off and not an exemption. The court held that these circulars and trade notices are clarificatory in nature and pertain to the procedure for claiming set off. They do not conflict with the exemption notification. Therefore, the court concluded that the notification is an exemption notification, and the trade notices do not alter its nature.

3. Right of the appellant to recover full duty from customers under Notification No.355/86-CE:
The appellant contended that they had paid the full effective duty on the final products and were within their rights to recover the full duty from their customers. The court found that the appellant had recovered the entire duty from the customers, including the amount of set off for duty paid on cut tobacco, resulting in over-collection. The court held that this over-collection amounted to unjust enrichment, which is not permissible. Therefore, Section 11D of the Act, which addresses the principle of enrichment, was applicable.

4. Applicability of Section 11D of the Central Excise Act, 1944:
The appellant argued that Section 11D could not be invoked because the duty collected from the buyers was not more than the duty paid on the input and the finished product cumulatively. The court disagreed, stating that the appellant had collected more duty from customers than what was paid, leading to unjust enrichment. Section 11D mandates that any excess amount collected as representing duty must be credited to the Central Government. Therefore, the court upheld the applicability of Section 11D.

5. Reasonableness of the delay in issuing the show cause notice:
The appellant claimed that the show cause notice issued in 2000 for the period 1993-1995 was unreasonably delayed. The court noted that Section 11D was amended by the Finance Act, 2000, making it applicable retrospectively from 20/09/1991. The cause of action for issuing the notice arose with this amendment. Since the notice was issued shortly after the amendment, the court held that it was not issued after an unreasonable period. The court rejected the appellant's argument and found the notice to be timely.

Conclusion:
The court dismissed the appeal, answering all questions against the appellant and in favor of the revenue. The court upheld the tribunal's interpretation of Notification No.355/86-CE as an exemption notification, confirmed the applicability of Section 11D, and found the delay in issuing the show cause notice to be reasonable. The appellant's contentions were rejected, and the demand for recovery of excess duty collected was upheld.

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