Arvind Ltd. vs Union of India and Others

Sonia Gokani J.

Rule. The formal service of notice of rule is waived by Shri P.S. Champaneri, learned Assistant Solicitor General of India, on behalf of respondents Nos. 1 and 2 as well as Dr. Amee Yajnik, learned Central Government standing counsel, on behalf of respondent No. 3, in both the petitions. These writ petitions preferred under article 226 of the Constitution of India arise in identical set of facts and the legal questions involved in both the petitions are identical and, therefore, they are being disposed of by this common judgment.

The brief facts of Special Civil Application No. 10887 of 2012 are reproduced for the purpose of adjudication of these matters.

The petitioner is a company engaged in manufacturing of textile products of the First Schedule to the Central Excise Tariff Act, 1985 and it has its factory located at Gandhinagar.

At the outset, it is required to be mentioned that the petitioner challenged the legality and validity of a circular being (1) Circular No. 937/27/2010 dated November 26, 2010 See [2011] 6 GSTR (St.) 15 . of the Central Board of Excise and Customs (hereinafter referred to as "the CBEC") and (2) revisional order being Order Nos. 534 to 536, dated May 4, 2012 issued by respondent No. 2-Joint Secretary, Government of India, Ministry of Finance, Department of Revenue, New Delhi. However, subsequently the challenge to the circular has been given up and, therefore, the only challenge that remains is the alleged wrongful denial of rebate of duty paid on the export of cotton fabrics and cotton knitted garments on the ground that the petitioner was not liable to pay duty on cotton fabrics and cotton garments for they being absolutely exempt from payment of duty under Notification No. 29/2004 as amended by Notification No. 58/2008. Such duty had been paid which was eventually denied to be refunded.

The petitioner during the period under dispute, i.e., February 1, 2009 to July 6, 2009, cleared cotton fabrics and cotton garments for export on payment of duty at four per cent, ad valorem under the claim for rebate under rule 18 of the Central Excise Rules, 2002 (hereinafter referred to as "the Rules"). According to the petitioner, Notification No. 29/2004, dated July 9, 2004 unconditionally exempted textile products of Chapters 50 to 62 from payment of the duty of excise payable thereon in excess of four per cent. ad valorem. And, vide Notification No. 30/2004 of the selfsame date, respondent No. 1 exempted the textile products from whole of the duty of excise on the condition that no credit of duty paid on the inputs is availed of by the manufacturer. It is also further clarified by the CBEC that the benefit of both the notifications can be availed of simultaneously by the manufacturer provided that the manufacturer maintains separate books of account for the goods in respect of which the benefit under this notification is availed of. Vide Circular No. 845/03/2006 dated February 1, 2007, the CBEC further clarified that the textile manufacturers/processors need to use common inputs, which are used in continuous manner and it may not be practical to segregate and store inputs like dyes and chemicals separately or maintain separate account for such dyes and chemicals. It further emerges from record that vide Notification No. 58/2008, dated December 7, 2008, Notification No. 28/2004 was amended, which unconditionally exempted cotton textile products from whole of duty of excise and on the very same day by a subsequent Notification No. 59/2008, respondent No. 1 exempted the cotton textile products from payment of textile duty in excess of four per cent, ad valorem. Furthermore, vide Notification No. 11/2009, dated July 7, 2009, Notification No. 29/2004 was amended, whereby the cotton textile products were exempted from excise duty leviable thereon in excess of four per cent, ad valorem. In other words, for the period during December 7, 2008 to July 6, 2009, two notifications were in operation exempting cotton textile products, viz., (1) Notification No. 29/2004 as amended vide Notification No. 58/2008, dated December 7, 2008, which exempted cotton textile products from whole of the duty of excise and (2) Notification No. 59/2008, dated December 7, 2008, which exempted cotton textile products in excess of four per cent, ad valorem.

The petitioner exported cotton fabrics and cotton garments on payment of duty of four per cent, under claim for rebate under rule 18 of the Rules. The petitioner claimed rebate as it availed of credit of duty paid on inputs used in manufacturing of exported goods, the orders-in-original dated May 31, 2010 and October 25, 2010 rejected the total amount of rebate of Rs. 3,15,63,741 paid by the petitioner for export of goods during the period from February 1, 2008 to July 6, 2009 on the ground that the petitioner was not required to pay the duty in view of both the notifications.

When challenged before the Commissioner of Central Excise (Appeals), the Commissioner in the order-in-appeal rejected the appeals of the petitioner.

The petitioner preferred a revision against the order of the Commissioner of Central Excise (Appeals) before respondent No. 2-Joint Secretary, who dismissed the revision application against the order-in-appeal relying upon the circular issued by the CBEC dated November 26, 2010. Such order came to be passed on May 4, 2012.

In the meantime, the proceeding initiated against the petitioner for denial of credit is pending before the Appellate Tribunal and the Tribunal granted waiver of pre-deposit and stayed recovery vide the order dated November 21, 2011 pending hearing of the appeal. The petitioner also addressed a letter dated July 31, 2012 and requested respondent No. 3-Commissioner of Central Excise (Appeals) to permit him to take credit of duty paid on the exported goods in Cenvat account on the ground that no duty was payable on the exported goods. In this background, the following reliefs have been sought for by the petitioner in the present petition:

26(a) To issue a writ of mandamus or a writ in the nature of mandamus declaring that Circular No. 937/27/2010, dated November 26, 2010, of the Central Board of Excise and Customs as ultra vires section 37B and section 5A of the Central Excise Act, 1944 for the reasons stated in the memo of petition and in the interest of justice.

(b) To issue a writ of certiorari or any other appropriate writ, order or direction under article 226 of the Constitution of India, calling for the records and after examining the legality and validity thereof be pleased to quash and set aside (i) Order Nos. 534 to 536/2013/CEX, dated May 4, 2012, passed in a revision application by respondent No. 2; (ii) Circular No. 937/27/2010, dated November 26, 20101, of the Central Board of Excise and Customs for the reasons stated in the memo of petition and in the interest of justice; and (iii) Order-in-Original No. AHM-CEX-003-COM-011-13, dated February 18, 2013 passed by respondent No. 3 rejecting the said letter/application dated July 31, 2012 of the petitioner.

(c) To issue a writ of mandamus or any other appropriate writ, order or direction under article 226 of the Constitution of India ordering and directing the respondents by themselves, their subordinate servants and agents to forthwith (i) withdraw and cancel Order Nos. 534 to 536/2012/CEX, dated May 4, 2012, passed in a revision application by respondent No. 2; (ii) Circular No. 937/27/2010, dated November 26, 2010 See [2011] 6 GSTR (St.) 15, of the Central Board of Excise and Customs; and (iii) grant the petitioners rebate of Rs. 3,15,63,741 with interest thereon u/s 11BB of the Act.

(d) Pending the hearing and final disposal of the writ petition, the respondents be directed by an interim order and injunction of this hon''ble court to forthwith deposit Rs. 3,15,63,741 in this hon''ble court with a liberty to the petitioners to withdraw the same on such conditions as this hon''ble court may deem fit and proper; or in the alternative to direct the respondents by an interim order to permit the petitioner to take credit of Rs. 3,15,63,741 in the Cenvat account.

(e) To grant ad interim relief in terms of paragraph (d) hereinabove.

At the cost of reiteration, it needs to be mentioned that the petitioner has consciously given up prayer clause 26(a) and, therefore, this petition is decided for considering the other reliefs other than prayed at paragraph 26(a).

On issuance of notice, an affidavit-in-reply has been filed by the Assistant Commissioner of Central Excise, where a stand is taken that in view of section 5A(1A) of the Central Excise Act, 1944 (hereinafter referred to as "the Act"), the whole of the duty of excise leviable in respect of excisable goods, an exemption has been granted absolutely and the manufacturer of such excisable goods is not required to pay excise duty on such goods. It is also further contended that since the final products were exempted from payment of excise duty, it is not open to the petitioner to take the Cenvat credit on inputs used in manufacturing of the said goods in terms of the provisions of rule 6(1) of the Cenvat Credit Rules, 2004. According to the respondent, a show-cause notice was issued seeking to reject the rebate claimed by the petitioner on the ground that the duty ought not to have been paid on the subject goods in view of the exemption notification. It is also further contended that all the authorities have concurrently denied the rebate claimed and, therefore, this court has no reason to interfere. It is also further contended that when the language of the statute is plain and unambiguous, it has to be read in the manner in which it has been drafted and it is not open to inquire into the intentions of the Legislature.

An additional affidavit on behalf of respondent No. 3 has also been filed as particular queries were raised to the Department by the court during the course of hearing, they have been answered in the following manner:

1(i) The petitioner was not liable to pay duty in the light of the absolute exemption granted under Notification No. 29/2004, as amended by Notification No. 58/2008 read with the provisions of section 5A(1A) of the Central Excise Act, 1944.

The petitioner would not have got any other Central excise benefit in, this case other than the export promotion benefits granted under the appropriate provisions of the Customs Act and the Rules and notification issued thereunder.

We have heard the learned senior counsel Shri Prakash Shah along with the learned counsel Shri B.T. Rao for the petitioner who has fervently submitted that on availability of benefits of both the notifications, the petitioner was not liable to pay any duty. However, mistakenly when the petitioner has paid such duty, the respondents ought not to have denied its claim for rebate. He also further urged that no other benefits have been availed of by paying such excise duty. He urged that the stand taken by the Department is contrary to law. Once not having availed of any other benefits when the rebate has been claimed, it ought to have been granted.

Per contra, the learned Central Government standing counsel, Dr. Amee Yajnik, appearing for respondent No. 3, has submitted on the line of affidavit-in-reply that the petitioner was not liable to pay any amount of duty in view of the exemption in respect of the excisable goods and thus, from the whole of the duty of excise leviable on the exported goods, the exemption was available to the petitioner absolutely and the petitioner was not required to pay any amount of duty of excise on the goods exported by him. She further admitted that no benefits have been availed of by the petitioner after having paid the excise duty on the exempted goods. She has fairly admitted that the Department is unable to sustain the defence of denying the rebate claims by all the three Revenue authorities in view of the additional affidavit filed for and on behalf of the Department.

On, thus, having heard both the sides and on examination of the material on record, the question that involves in these petitions is the wrong availment of the benefit of concessional rate of duty vide Notification No. 59/2008, dated December 7, 2008. Admittedly, the final products were exempted from payment of duty by original Notification No. 29/2004, dated July 9, 2004 as further amended vide Notification No. 59/2008, dated December 7, 2008. The fact is not being disputed by the respondents that the petitioner availed of Notification No. 59/2008 for clearance made to export and thereafter filed various rebate claims. It is, thus, an undisputed fact that the petitioner on final products discharged the duty liability by availing of the benefit of Notification No. 59/2008 and as has already been noted in the record, it has reversed the amount of Cenvat credit taken by it on the inputs used for manufacturing of such products. Thus, when the petitioner is not liable to pay duty in the light of the absolute exemption granted under Notification No. 29/2004 as amended by Notification No. 59/2008 read with the provisions of section 5A(1A) of the Act and when it has not got any other benefit in this case, other than the export promotion benefits granted under the appropriate provisions of the Customs Act and the Rules (which even otherwise he was entitled to without having made such payment of duty), we are of the firm opinion that all the authorities have committed serious error in denying the rebate claims filed by the petitioner u/s 11B of the Act read with rule 18 of the Rules. The treatment to the entire issue, according to us, is more technical rather than in substance and that too is based on no rationale at all.

We also cannot be oblivious of the fact that in various other cases, the other assessees have been given refund/rebate of the duty paid on inputs used in exported goods. The stand of the Revenue is also not sustainable that the payment of duty on final products exported at the will of the asses-see cannot be compared with other type of cases of refund/rebate of duty. Admittedly, when the petitioner was given exemption from payment of whole of the duty and the petitioner if had paid duty at the time of exporting the goods, there is no reason why it should be denied the rebate claimed which otherwise the petitioner is found entitled to. We are not going into the larger issues initially argued before us as subsequently the Revenue has substantially admitted the claim of rebate of excise duty and has not resisted in substance such claim of rebate.

Resultantly, both the petitions are allowed quashing and setting aside the orders impugned in both the petitions by further directing the respondents to grant the petitioner of Special Civil Application No. 10887 of 2012 rebate of Rs. 3,15,63,741 (rupees three crore fifteen lakhs sixty three thousand seven hundred forty one only) and Rs. 39,59,750 (rupees thirty nine lakhs fifty nine thousand seven hundred fifty only) to the petitioner of Special Civil Application No. 10891 of 2012, by calculating interest thereon u/s 11BB of the Central Excise Act, 1944, within a period of eight weeks from the date of receipt of a copy of this judgment. Rule is made absolute in each petition to the aforesaid extent. There shall be, however, no order as to costs.