Choice Laboratories Ltd. and Another vs Union of India and Others

Akil Kureshi, J.—Heard counsel for the parties for final disposal of the petition. The petitioners have challenged an order dated June 7, 2012, at annexure F, to the petition, passed by the revisional authority in the following factual background.

Petitioner No. 1 is a company, registered under the Companies Act and is engaged in manufacture of goods like tooth paste/powder, shaving cream, etc. During the period between the year 1997-98 to October 2001, petitioner No. 1 exported various goods valued at Rs. 9.44 crores (rounded off) on which the petitioner-company had paid excise duty of Rs. 81.31 lakhs (rounded off). As per the scheme of the Government of India, the petitioner-company claimed rebate on such excise duty by raising claims with the Department from time to time. The exports were made by the petitioner-company through its merchant-exporters. It is not in dispute that from the merchant-exporters, the petitioner-company recovered a total price of Rs. 7.50 crores (rounded off) for such goods. The difference between the price realised by the petitioner-company and of the total value of exports made could be attributed to the merchant-exporter''s commission/profit. On July 14, 2002, the respondents issued show-cause notice pointing out to the petitioner-company that though the price charged by the merchant-exporters to the overseas buyers of the goods exported was Rs. 9.44 crores, the petitioner-company had received only Rs. 7.50 crores from the merchant-exporters. On such amount, the petitioner had to pay excise duty of Rs. 64.53 lakhs against the higher duty of Rs. 81.31 crores paid by the petitioner-company which amount the petitioners claimed as rebate. The petitioner had thus, claimed higher rebate of Rs. 16.78 lakhs (rounded off) and recovered the same from the respondents. On such allegations, the show-cause notice proposed to recover the excess rebate of Rs. 16.78 lakhs.

The petitioner-company opposed the show-cause notice and also appeared before the authority during the hearings. Replies were also filed. Statements of the authorised representatives of the company were recorded.

The adjudicating authority under its order dated March 29, 2004, ordered recovery of excess rebate of Rs. 16.78 lakhs and also imposed penalties on the company as well as its managing director.

The petitioners appeal before the Commissioner was dismissed on March 7, 2005. The revision was also dismissed by the Government of India by the impugned order dated June 6, 2002. However, the managing director''s appeal against the penalty was allowed. Hence, this petition.

Before us, the learned counsel for both the sides raised detailed contentions.

However, in view of certain peculiar facts of the case, we do not propose to deal with such contentions at a greater length.

Briefly, the case of the petitioner-company is that in actual terms, the exports were made worth Rs. 9.44 crores and Rs. 81.31 lakhs excise duty was actually paid on such valuation. The fact that a portion of the total export value of Rs. 9.44 crores comprised of profit/commission of the merchant-exporter would not change the position. The, rebate claim of the petitioners, therefore, had to be calculated on the basis of such valuation. The counsel for the petitioners pointed out that the invoices were raised in tune with such valuation. The Department''s stand that export invoices, which indicated the total valuation of Rs. 7.50 crores, would not be determinative of the petitioners'' rebate claim.

The second contention of the petitioners was that the show-cause notice was barred by limitation. Under the provisions which were applicable at the relevant time, limitation of six months was available with the Department unless the incidence of excise duty not levied, or paid or short-levied or short-paid or erroneously refunded was on account of reason of fraud or collusion or any wilful misstatement or suppression of facts or contravention of any of the provisions of the Act or the Rules with intent to evade the payment of duty. The counsel submitted that in the facts of the case, the extended period of limitation was not available to the Department.

The last contention of the petitioners was that it is a case of revenue neutrality. At the very worst, only that the petitioners could achieve under the circumstances was to encash the Cenvat credit to the extent of Rs. 16.70 lakhs. Therefore, even if the rebate to the extent of such amount is to be reversed, the petitioners cannot be denied the benefit of matching amount of Cenvat credit in its account.

On the other hand, the counsel Mr. Parikh for respondent No. 2 submitted that this is a case of over invoicing for the purpose of encashing higher amount of Cenvat credit. The petitioners had to pay excise duty only on the value of goods realised by it, i.e., Rs. 7.50 crores and could have claimed rebate of such excise duty and no more. He submitted that the details of the goods being sold by the petitioners to the merchant-exporters and the value being realised by the petitioners were not available to the Department at the time of processing excess rebate claims, and therefore, larger period of limitation should be applied.

The counsel, however, was not in a position to demolish the contention of the petitioners that in any case in the worst possible scenario, even if the rebate of Rs. 16.70 lakhs is to be reversed, matching Cenvat credit must be allowed to be claimed to the petitioners.

So far as the question of limitation is concerned, we are of the opinion that necessary details were placed before the Department at the time of sanction of rebate claim. It is not a case as if the petitioners did not disclose that the goods were exported through the merchant-exporters and that the total value of such exporters came to be Rs. 9.44 crores. It may be noted that out of such total, export proceeds of Rs. 9.44 crores, what exact amount was retained by the petitioners and what portion of such sale proceeds came into the hands of the merchant-exporters by way of commission/profit was not readily available on the record. However, when involvement of merchant-exporters was revealed to the Department and was part of the record, if the Department was of the opinion that the valuation of the goods for the purpose of collection of excise and rebate thereon should be minus merchant-exporter''s profit/commission, the Department could have easily called for the details in this respect. Therefore, this is not a case where: any rebate was granted for reason of any excess fraud, collusion, misstatement, suppression of facts or contravention of the provisions of the Act or the Rules by the petitioners. Longer period of limitation, therefore, would not be available to the Department.

We are informed that the majority of the rebate claims barring a few fall outside the limitation of six months provided u/s 11A of the Act, as it stood at the relevant time. Additionally, we also notice that the petitioners did pay the total excise duty of Rs. 81.31 lakhs, which is not in dispute at all. It is this duty which the petitioners claimed by way of rebate. Therefore, even if the case of the Department was that the petitioners had to pay excise duty only of Rs. 64.53 lakhs on the petitioners'' export valuation of Rs. 7.50 crores, essentially what the petitioners achieved in the process was to pay higher excise duty to Rs. 16.78 lakhs and received rebate thereof from the Department. If as suggested by the Department, that the petitioners had not paid excess duty of Rs. 16.53 lakhs and received rebate thereof, the resultant effect would be of Cenvat credit of Rs. 16.78 lakhs being retained in the petitioners'' account. In view of the above matter, we are in the facts of the present case prepared to accept the suggestion of the counsel for the petitioners that this case is one of revenue neutrality. After more than a decade of the entire event, we would not be inclined to direct the petitioners to pay the differential duty of Rs. 16.78 lakhs to the Department and then claim Cenvat credit of matching amount from its Cenvat account. There was nothing on record to point that had such Cenvat credit remained in the account of the petitioners, the same petitioners were not in a position to utilise or encash as per the scheme of the Government. It is not the suggestion of the Department that to utilise unused Cenvat credit, the petitioners had been deprived of this method of paying higher excise duty and claiming higher rebate. Under these circumstances, without going into the larger questions raised by both the sides, the petition is allowed. The impugned order of the Government dated August 6, 2008 is quashed. Resultantly, the orders passed by the excise authority also stands nullified. The petition is disposed of accordingly.