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TMI Blog2011 (5) TMI 111X X X X Extracts X X X X X X X X Extracts X X X X ..... N, D.N. PANDA, JJ. K.K. Anand, S.K. Sarkar and Mrs. Reena khair for the Appellant. Sumit Kumar and R.K. Verma for the Respondent. ORDER D.N. Panda, Judicial Member. Following question was referred to the Larger Bench finding non-existence of provisions in the Central Excise Act, 1944 (hereinafter referred to as "the Act") for refund of unutilized amount of Modvat credit in cash for the period December, 1997 to September, 1999 : "whether in cases where either on account of coercion by the Department or otherwise, the assessee pays the duty through PLA account, in spite of having sufficient balance in the modvat/cenvat credit, on the factory or unit becoming inoperative and there being no likelihood of restarting the production, can such assessee be entitled for refund of the credit amount under the provisions of law in force." [Ref: Para 30 of the referral order]. 1.1 The referring Bench was of the opinion that law does not permit cash refund of unutilized Modvat credit during the material period for which they were unable to subscribe to the view expressed by the earlier Larger Bench in Gauri Plasticulture (P.) Ltd. v. CCE 2006 (202) ELT 199 (Trib. - Mum. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in para 32 of the order that the Hon'ble High Court of Calcutta in the case of Rasoi Ltd. v. Union of India 2004 (176) ELT 101 has held that in the claim of scheme of provision of law there is no provision for refund by cash in relation to money credit scheme. The Bench was, therefore, of the view that the principle of law laid down by the Hon'ble Calcutta High Court denies refund. 2. On the aforesaid background, the referring Bench was of the honest belief that the decision of the Larger Bench in Gauri Plasticulture (P.) Ltd. (supra) was an impediment to arrive at a conclusion contrary to the decision made in that case. Thus, this reference arose for answer by the Larger Bench on the question depicted at the outset. 3. Both sides were heard. The arguments made by both sides are summarized as under: A. Arguments on behalf of assessee 3.1 It was contention on behalf of the assessee that once a decision is given by the Tribunal that should be followed as a matter of judicial discipline, in view of the Tribunal's decision in the case of Madura Coats v. Collector of Central Excise 1996 (82) ELT 512 (Trib. - Mad.). So also reliance was placed on the decision of the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC CE v. Bombay Burmah Trading Corpn. Ltd. 2005 (190) ELT 40 (Trib. - Delhi). Reliance was also placed on the decision in Rama Industries Ltd. v. CCE [2009] 20 STT 525 (Punj. Har.) to submit that when the Hon'ble High Court of Karnataka has decided to grant refund under Rule 5 of the Cenvat Credit Rules, 2002 that ends litigation of revenue. B. Arguments on behalf of revenue 4. Learned D.R. appearing on behalf of the revenue submitted that the Modvat procedure was governed by the Central Excise Rules, 1944 (hereinafter referred to as "the 1944 Rules"). Adjustment of input credit was permitted against duty liability on manufactured goods by process of law. When law grants adjustment, that should also govern refund, if any, to be made, when input credit remain unutilized. There was no compulsion to make payment of excise duty through the PLA if there was eligibility to the Modvat credit adjustment. Plea of refund does not arise without sanction of law and without mandate; refund is granted by an order for that purpose. Through prescribed procedure of law, refund whether due or not is examined and ordered accordingly. Revenue is not zealous to keep any money with it what is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vised refund in breach of law. 4.3 According to Revenue, claim of the assessees was that because Revenue's appeal was dismissed they had a right to refund and there was no warrant for present reference to the Larger Bench was inconceivable for the reason that the earlier decision was not rendered testing the law in force during the relevant period. Such reason warrants reference to resolve the controversy. Therefore, present reference is rightly made for answering the question of testing the scheme of Modvat law. According to learned D.R., revenue's pleading was based on the ratio laid down in the judgment of the Hon'ble High Court of Bombay in the case of Sandvik Asia Ltd. v. CIT [2004] 267 ITR 78/137 Taxman 167. 4.4 Learned D.R. relying upon the Apex Court's judgment in the case of Polstar Electronics (P.) Ltd. v. Additional Commissioner, Sales Tax's AIR 1998 SC 897 submitted that when the Acts and Rules do not recognize a claim and no provision gives shelter to a claim, that is not at all a legitimate claim under law. Similarly, a claim not flowing from an order passed by the Authority is not entertainable. Refund cannot be claimed as a matter of right unless recognized by l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court of Calcutta in the case of Rasoi Ltd. (supra) to argue that if an assessee is unable to utilize accumulated credit, in the absence of provision for cash refund of that credit, same cannot be granted by Court. It was further relied on the decision of the Tribunal in the case of CCE v. Rama Industries 2009 (91) RLT 241 (CESTAT - Delhi) to submit that credit in the Cenvat credit has to be generally used towards payment of duty on final product and refund in cash from the Cenvat credit account is an exception and the only exception is in respect of credit attributable to input which has gone into export product. Answer to the question referred scheme of modvat 5.1 Scheme of Modvat dealing with input credit was subject-matter of analysis in Ichalkaranji Machine Centre (P.) Ltd. v. Collector of Central Excise 2004 (174) ELT 417 (SC). It has been held that Modvat is basically a duty-collecting procedure, which aims at allowing relief to a manufacturer on the duty element borne by him in respect of the inputs used by him. It was introduced with effect from 1-3-1986. The said scheme was regulated under rules 57A to 57J of Central Excise Rules, 1944. Rule 57A, entitled a manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he statute so as to supply any assumed deficiency. [Ref: Sales Tax Commissioner v. Modi Sugar Mills Ltd. AIR 1961 SC 1047, p. 105, CIT v. Maharashtra Sugar Mills Ltd. AIR 1971 SC 2434, p. 2435]. Construction preserving workability and efficacy should be preferred 5.4 In construing provisions designed to prevent tax evasion, if the Legislature uses words of comprehensive import, the courts cannot proceed on an assumption that the words were used in a restricted sense so as to defeat the avowed object of the Legislature - Ref: C.A. Abraham v. ITO AIR 1961 SC 609, p. 612. The principle behind this rule is that an enactment designed to prevent fraud upon the revenue "is more properly a statute against fraud rather than a taxing statute, and for this reason properly subject to liberal construction in the Government favour "- Ref: Crawford, Statutory Construction, p. 508.So in interpreting a provision to plug leakage and prevent tax evasion; a construction which would defeat its purpose should be eschewed and a construction which preserves its workability and efficacy should be preferred - Ref: CST v. Sri Krishna Engg. Co. [2005] 2 SCC 692, p. 703. Non-filing of appeal by revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder 47 Rule 1 of the C.P.C act as guidelines) are not necessarily the same on which this court exercises discretion to grant or not to grant special leave to appeal while disposing of a petition for the purpose. Mere rejection of special leave petition does not take away the jurisdiction of the court, tribunal or forum whose order forms the subject matter of petition for special leave to review its won order if grounds for exercise of review jurisdiction are shown to exist. Where the order rejecting an SLP is a speaking order, that is, where reasons have been assigned by this Court for rejecting the petition for special leave and are stated in the order still the order remains the one rejecting prayer for the grant of leave to appeal. The petitioner has been turned away at the threshold without having been allowed to enter in the appellate jurisdiction of this Court. Here also the doctrine of merger would not apply. But the law stated or declared by this Court in its order shall attract applicability of Article 141 of the constitution. The reasons assigned by this Court in its order expressing its adjudication (expressly or by necessary implication) on point of fact or law shall t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SLP stage obviously that order cannot also be affirmed at the SLP stage. 44. To sum up our conclusion are (i) Where an appeal or revision is provided against an order passed by a court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. (ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage is up to the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and special leave petition is converted into an appeal. (iii) Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject-matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not go into merits of the issues but had dismissed the appeal only on the ground that there was no appeal by revenue previously on similar cases. But it has been held by Apex Court in the case of CCE v. Hira Cement 2006 (194) ELT 257 that non-filing of an appeal against an order in any event would not be a ground for refusing to consider the matter on its own merit. Merely because in some cases revenue has not preferred an appeal an that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts as has been held in the case of C.K. Gangadharan v. CIT 2008 (228) ELT 497/172 Taxman 87 (SC). In Gauri Plasticulture (P.) Ltd. (supra) except the claim being permitted under equitable considerations the controversy remained unanswered on the point of law while grant of refund of the nature claimed was not mandate of the Act or the 1994 Rules. The issue, therefore, rightly called for consideration in the present reference on the point of law. Policy of refund of input credit is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -compliance of directory requirements. In cases where substantial compliance has been found, there has been actual compliance with the statute, albeit procedurally faulty. The doctrine of substantial compliance seeks to preserve the need to comply strictly with the conditions or requirements that are important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements or requirements that are so confusingly or incorrectly written that an earnest effort at compliance should be accepted. Substance and essence of statute are paramount considerations 5.9 The test for determining the applicability of the substantial compliance doctrine has been the subject of a myriad number of cases and quite often, the critical question to be examined is whether the requirements relate to the "substance" or "essence" of the statute/if so, strict adherence to those requirements is a precondition to give effect to that doctrine. On the other hand, if the requirements are procedural or directory in that they are not the "essence" of the thing to be done but are given with a view to the orderly conduct of business, they may be fulfilled by substa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 The question before the Larger Bench in Gauri Plasticulture (P.) Ltd's case (supra) was whether duty debited in RG 23 A part II can be refunded in cash when the refund becomes otherwise due. The Larger Bench without recording the submissions of either side merely discussed outcome of various decisions beginning from Paras 3 to 7 of the order and came to the conclusion in Para 10 of the reported order that if denial of credit has compelled an assessee to pay duty out of PLA, the refund of the same would be in cash to the extent of payment of duty in cash during that period. It was further held that if no cash payment towards duty was made through PLA and credit would have remained unutilized in the account books, such credit cannot be allowed by way of cash. 5.13 While arriving at the aforesaid conclusion, the Larger Bench in Para 11 of the order recorded the fact that in the case before them debit entry in credit account was made by the Appellants on 23-11-2000, while central excise registration was surrendered by the assessee in September 2000 i.e., before making the debit entry in RG - 23 account. Further observation of the Bench was that even if the amounts towards duty woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable to him, they would have been in a position to use the same towards payment of duty on their final product, which obligation they had to discharge from their PLA account. As such, on the success of their claim subsequently, if the assessee is maintaining Modvat credit and is in a position to use the same for future clearances, it should be normally be credited back in the same account from where it was debited i.e., RG-23A Part II account. However, if an assessee is not able to use the credit on account of any reasons, whatsoever (which may be closure of his factory or final products being exempted, etc.) the refund becomes admissible in cash or by way of credit entry in PLA to the extent duty paid in cash or out of PLA during the relevant period." 5.15 The decision made in Gauri Plasticulture (P.) Ltd. (supra) was called for on the question before the Larger Bench as framed in Para 1 thereof. At the cost of repetition it may be stated that the question before the Larger Bench in that case was "whether duty debited in RG - 23 A Part II can be refunded in cash, when the refund becomes otherwise due". But the conclusion in that case as per Para 10 was that if denial of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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