2018 (11) TMI 15 - HC - Central Excise

Refund claim - duty paid on Scented Supari pending adjudication - Section 5-B of the Central Excise Act, 1944 - reversal of MODVAT Credit - Section 5-B of the Central Excise Act, 1944 - time limitation - Held that - There is no dispute that a refund claim accrues on the petitioner as a result of the Order dated 27.04.2010 in Writ Appeal No. 1271 of 2000 going in favour of them against the department. And there is also no dispute that the modvat credit taken and utilized for the payment of duty on the final products shall not be allowed as refund - And a proceeding is pending on the file of the respondents, one on the refund claim and another regarding the ineligibility of modvat credit. Whether the impugned Show Cause Notice No 34/2010 dated 11.10.2010 is sustainable? - Held that - Admittedly there was a dispute going on at the material time. The duty was paid by the petitioner under protest - In the peculiar circumstances of the case, the question of demanding modvat credit availed is not tenable. It is arbitrary exercise of power. It is not correct to argue that the dispute got settled in favour of the petitioner by virtue of an order of this Court and as a consequence a demand notice gets slapped on them. Such a preposition borders on absurdity. The recourse to Section 5-B of the Central Excise Act, 1944 by the respondents is not correct. At the material time, while the petitioner had contested the assessment by registering protest, the respondents endorsed the assessment that included the availment of modvat credit. Also the dispute in the pending court cases pertained to the dutiability of the final products and the availing of modvat credit was never in dispute during the pendencies. Therefore the plea on the principle of equity made by the respondents on the bar of limitation is misplaced. The modvat credit was availed during the period May, 1994 to March, 1995 - Even the Writ Petition was decided against the Department on 12.04.1999. The Show Cause Notice was issued on 11.10.2010. Therefore, the Show Cause Notice is hit by limitation also. The issue of Show Cause Notice No 34/2010 dated 11.10.2010 is arbitrary exercise of authority and hit by the bar of limitation. Therefore the statutory remedy is not efficacious making it a fit case warranting Writ interference under Article 226 - Petition allowed.

Summary

Issues:
1. Validity of Show Cause Notice demanding modvat credit availed by the petitioner during a specific period.
2. Jurisdiction of the Court in quashing the Show Cause Notice under Article 226 of the Constitution.

Issue 1: Validity of Show Cause Notice
The petitioner, a manufacturer of Scented Supari, had a long-standing dispute regarding the excisability of their products, which was settled in their favor by court orders. Subsequently, the Department initiated proceedings for a refund claim and issued a Show Cause Notice demanding modvat credit availed during the same period. The petitioner contended that the Notice was without jurisdiction, opposed to the Central Excise Act and Rules, and barred by limitation. They argued that the modvat credit was rightfully availed during the material time but became ineligible due to the non-excisability of the final products as determined by the Court. The Department's objection to the credit only arose after the petitioner filed a refund claim, making the demand arbitrary and untenable. The Court found the Notice to be an arbitrary exercise of power, hit by limitation, and not supported by Section 5-B of the Central Excise Act. The plea of equity by the respondents regarding limitation was deemed misplaced, and the Notice was quashed on these grounds.

Issue 2: Jurisdiction of the Court
The respondents argued that the Writ Petition was premature as statutory remedies were available, citing various legal precedents. However, the Court found that the circumstances of the present case, including the arbitrary nature of the Show Cause Notice and its limitation issues, warranted interference under Article 226. The Court held that the Show Cause Notice was an arbitrary exercise of authority, hit by the bar of limitation, and thus the statutory remedy was not efficacious. Consequently, the Court quashed the Show Cause Notice while refraining from expressing an opinion on the proceedings related to the refund claim. The Court clarified that the petitioner was not entitled to the modvat credit portion of the refund claim, which would be disposed of in accordance with the law.

In conclusion, the Writ Petition was allowed, and no costs were imposed. The connected miscellaneous petition was closed in light of the Court's decision.