Commissioner of Central Excise vs Reliance Industries Ltd.

H.N. Devani, J.—In each of these appeals u/s 35-G of the Central Excise Act, 1944 (the Act), the Appellant-revenue has challenged common order dated 15th July, 2008 made by the Customs Excise and Service Tax Appellate Tribunal (the Tribunal) proposing following question:

Whether in the facts and circumstances of the case, the Tribunal is justified in allowing interest on delayed refund of CENVAT Credit though the provisions of Section 11BB for interest are not applicable to the claimant''s case?

The Respondent is engaged in the manufacture of Polyester Texturised Yarn and was availing CENVAT credit of the duty paid on inputs used in the manufacture of Polyester Texturised Yarn. During the period April 2003 to September 2005, the Respondent cleared various consignments of Polyester Texturised Yarn for export under bond. In view of such exports, the Respondent was neither able to utilize the CENVAT credit of duty paid on the inputs used in the manufacture of Polyester Texturised Yarn so exported, nor was able to adjust such credit towards payment of duty on the final products cleared for home consumption. The Respondent, therefore, filed various refund claims under Rule 5 of the CENVAT Credit Rules, 2002/2004 (the Rules) claiming refund of the CENVAT credit of duty paid on inputs used in the manufacture of Polyester Texturised Yarn which was exported under bond. The refund claims made by the Respondent came to be sanctioned under the provisions of Rule 5 of the Rules read with Notification No. 11/2002 C.E. (N.T.) dated 1-3-2002 as amended by Notification No. 49/2003 C.E. (N.T.), dated 17th May, 2003, vide various orders passed by the Adjudicating Authority. However, the refunds so sanctioned were paid after the expiry of a period of three months from the date of making the refund applications. The Respondent, therefore, filed applications claiming interest on delayed sanctioning of the refund in terms of Section 11BB of the Act which came to be rejected by the Adjudicating Authority. The Respondent challenged the orders made by the Adjudicating Authority by preferring appeals before the Commissioner (Appeals), who dismissed the appeals and confirmed the orders made by the Adjudicating Authority. Against the orders made by Commissioner (Appeals), the Assessee preferred second appeals before the Tribunal who vide common order dated 15th July, 2008 allowed all the appeals.

Assailing the impugned order of the Tribunal, Ms. Amee Yajnik learned Senior. Standing Counsel for the Appellant submitted that the refund claim filed by the Assessee had been sanctioned under Rule 5 of the Rules read with Notification No. 11/2002-C.E. (N.T.), dated 1-3-2002 as amended by Notification No. 49/2003-C.E. (N.T.), dated 17th May, 2003. That, under the CENVAT Credit Rules, 2002/2004 as well as the aforesaid notification, there is no provision for payment of interest on delayed sanction of refund of accumulated CENVAT Credit. That even otherwise, this is not a case where duty was deposited with the exchequer and refunded at a later stage. The refund was granted towards accumulated CENVAT Credit on account of exports and where the Assessee was not able to utilize the same for clearance of goods on payment of duty for home consumption. The credit was all along lying with the Respondent who was always free to utilize the same. Therefore, there cannot be any provision under the statute for payment of interest on the amount which was never deposited with the exchequer.

It was further submitted by the learned Counsel that the provisions contained in Section 11B and 11BB of the Act are general in nature, whereas the Scheme of CENVAT is specific being a special beneficial scheme, with self contained procedure providing for the manner and method of its implementation, hence, any refund claimed under the Rules would be governed only by the provisions of the Scheme and the general provisions of Section 11BB of the Act cannot be resorted to in relation to refund under the Rules. Hence, the Tribunal was not justified in holding that the Assessee was entitled to interest under the provisions of Section 11-BB of the Act and as such the appeal does give rise to substantial questions of law and deserves to be admitted.

As can be seen from the impugned order of the Tribunal, the Tribunal has held that in view of the provisions of Clause (c) of the proviso to Section 11-B, the provisions of Section 11B of the Act, and consequently the provisions of Section 11-BB of the Act are clearly applicable to the facts of the present case and therefore, the Assessee is entitled to interest. The Tribunal has also taken note of the fact that C.B.E. & C. Circular No. 130/41/95-CX., dated 30-5-95 included receipt of credit of duty paid on excisable goods used as input in accordance with Rule 57F also amongst the type of claims wherein interest u/s 11BB may be payable.

Thus, the controversy in issue in the present appeal is as to whether the provisions of Section 11BB of the Act would be attracted in case of delay in sanctioning refund under Rule 5 of the CENVAT Credit Rules. In this regard it may be germane to refer to the provisions of Sections 11B and 11BB of the Act and Rule 5 of the Rules, which insofar as the same are relevant for the present purpose read thus:

11B. - Claim for refund of duty - (1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the [Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in Section 12(A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person:

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this Sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of Sub-section (2) substituted by that Act:]

[Provided further that] the limitation of [one year] shall not apply where any [duty and interest, if any, paid on such duty] has been paid under protest.

(2) If, on receipt of any such application, the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty paid by the applicant is refundable, he may make an order accordingly and the amount so determined shall be credited to the Fund:

Provided that the amount of duty of excise and interest, if any, paid on such duty as determined by the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise under the foregoing provisions of this Sub-section shall, instead of being credited to the Fund, be paid to the applicant, if such amount is relatable to -

(a) rebate of duty of excise on excisable goods exported out of India or on excisable materials used in the manufacture of goods which are exported out of India;

(b) unspent advance deposits lying in balance in the applicant''s account current maintained with the Commissioner of Central Excise;

(c) refund of credit of duty paid on excisable goods used as inputs in accordance with the rules made, or any notification issued, under this Act;

(d) the duty of excise and interest, if any, paid on such duty paid by the manufacturer, if he had not passed on the incidence of such [duty and interest, if any paid on such duty] to any other person;

(e) the duty of excise and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(f) the duty of excise and interest, if any, paid on such duty borne by any other such class of applicants as the Central Government may, by notification in the Official Gazette, specify:

xxxxxxx

11BB. Interest on delayed refunds. - If any duty ordered to be refunded under Sub-section (2) of Section 11B to any applicant is not refunded within three months from the date of receipt of application under Sub-section (1) of that section, there shall be paid to that applicant interest at such rate, [not below five per cent] and not exceeding thirty per cent per annum as is for the time being fixed by the Central Government, by Notification in the Official Gazette, on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty:

xxxxxxxx

RULE 5. Refund of CENVAT credit. - Where any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, as the case may be, or used in the intermediate product cleared for export, or used in providing output service which is exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized by the manufacturer or provider of output service towards payment of,

(i) duty of excise on any final product cleared for home consumption or for export on payment of duty; or

(ii) service tax on output service,

and where for any reason such adjustment is not possible, the manufacturer or the provider of output service shall be allowed refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification:

Provided that no refund of credit shall be allowed if the manufacturer or provider of output service avails of drawback allowed under the Customs and Central Excise Duties Drawback Rules, 1995, or claims rebate of duty under the Central Excise Rules, 2002, in respect of such duty; or claims rebate of service tax under the Export of Service Rules, 2005 in respect of such tax.

Provided further that no credit of the additional duty leviable under Sub-section (5) of Section 3 of the Customs Tariff Act shall be utilised for payment of service tax on any output Service.

Explanation: For the purposes of this rule, the words ''output service which is exported'' means the output service exported in accordance with the Export of Services Rules, 2005.

Thus, under the provisions of Rule 5 of the Rules if any input or input service is used in the manufacture of final product which is cleared for export under bond or letter of undertaking, and if for any reason it is not possible to adjust the same as provided under the rule, the manufacturer or provider of service is entitled to refund of such amount subject to such safeguards, conditions and limitations, as may be specified, by the Central Government, by notification. In exercise of powers under Rule 5 of the CENVAT Credit Rules, 2002 the Central Government has issued Notification: 11/2002-C.E. (N.T.), dated 1st March, 2002 providing for the procedure for refund of CENVAT credit under Rule 5 of the CENVAT Credit Rules and lays down the safeguards, conditions and limitations subject to which such refund may be allowed. A perusal of the said notification indicates that the safeguards, conditions and limitations are all procedural and provide for the manner in which application for refund is to be made and provides for giving an undertaking to refund the amount in case of any refund erroneously paid. Neither the CENVAT Credit Rules, 2002/2004 nor the above referred notification, provide for payment/non-payment of interest in case of delay in sanctioning the refund.

The provision for claiming refund of duty under the principal statute, viz., the Central Excise Act, 1944 is u/s 11-B of the Act. Under Sub-section (2) thereof, if the officer concerned, on receipt of any application for refund, is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty paid by the applicant is refundable, he is required to make an order accordingly and the amount so determined is required to be credited to the fund. However, the proviso to Sub-section (2) of Section 11-B provides for the categories of cases where instead of being credited to the fund, the amount is to be paid to the applicant. One of the categories provided thereunder as specified under Clause (c) to the proviso, is in case where such amount is relatable to refund of credit of duty paid on excisable goods used as inputs in accordance with rules made, or any notification issued, under the Act.

Section 37 the Act empowers the Central Government to frame rules to carry into effect the purposes of the Act. The CENVAT Credit Rules, 2002/2004 have been framed in exercise of powers u/s 37 of the Act and make provision for refund of credit of duty paid on excisable goods used as inputs. Thus, under Clause (c) of the proviso to Sub-section (2) of Section 11B of the Act, in case an application is made for refund relatable to refund of credit of duty paid on excisable goods used as inputs in accordance with the CENVAT Credit Rules, 2002/2004, and the concerned officer is satisfied that the whole or any part of the duty of excise and interest, if any, paid on such duty paid by the applicant is refundable, he is required to pay the same to the applicant instead of crediting such amount to the Fund. Any refund ordered under Rule 5 of the Rules would therefore, be a refund made under Sub-section (2) of Section 11B of the Act.

Section 11-BBof the Act makes provision for payment of interest from the date immediately after expiry of three months from the date of receipt of the application under Sub-section (1) of that section, till the date of refund of such duty at such rate as may be fixed by the Central Government by notification in the Official Gazette subject to the minimum and maximum limits specified thereunder, if any duty ordered to be refunded under Sub-section (2) of Section 11-B to any applicant is not refunded within three months from the date of receipt of such application. Thus, Section 11BB of the Act would be attracted in case where there is delay in refunding the amount of duty ordered to be refunded under Sub-section (2) of Section 11B of the Act. Refund under Rule 5 of the Rules also being a refund under Sub-section (2) of Section 11B of the Act would therefore, squarely fall within the ambit of Section 11BB of the Act and interest would be payable u/s 11BB of the Act in case of delay in sanctioning refund under Rule 5 of the Rules.

There is a basic fallacy in the premise on which the contention of Revenue is based. CENVAT credit is nothing else but credit for duty paid by the supplier of inputs, which are dutiable goods manufactured by the supplier or dutiable services rendered by the service provider. In principle such goods/services when utilised for further manufacture or providing service which are dutiable already carry the duty paid component as a part of its price/value, and hence the duty payable on the ultimately manufactured goods/services rendered stands reduced to the extent of duty already paid on the inputs. Thus the duty paid on inputs by the supplier has already been actually received by the exchequer. Therefore, this contention is, to say the least, misconceived.

On the facts and in the circumstances of the present case, admittedly the refund has been ordered under Rule 5 of the Rules and there was a delay in sanctioning the refund, in the circumstances, the provisions of Section 11BB of the Act would clearly be attracted and as such the Tribunal was justified in holding that the provisions of Clause (c) of the proviso to Sub-section (2) of Section 11B and consequently Section 11BB of the Act are clearly applicable to the facts of the present case and as such the Respondent is entitled to interest on delayed refund of CENVAT Credit as claimed by it.

Another aspect of the matter is that when Section 11BB of the Act had newly been inserted by the Finance Act, 1995, the Government of India, Ministry of Finance (Department of Revenue) has issued Circular: 130/41/95-CX., dated 30th May, 1995 (which finds reference in the impugned order of the Tribunal) issuing instructions regarding refunds claimed u/s 11BB of the Act. The Annexure thereto provides for the checklist of documents which are required to be filed with refund claims. Item No. 3 thereunder relates to "Refund of credit of duty paid on excisable goods used as input in accordance with Rule 57FD". Thus, as per the instructions issued by the Central Government refunds under Rule 57F of the erstwhile Central Excise Rules, 1944 would be governed by the provisions of Section 11BB of the Act. Rule 57F of the said Rules made provision for the manner of utilisation of inputs and credit allowed in respect of duty paid thereon. Sub-rule (13) of Rule 57F made provision for refund of accumulated credit in case where for any reason it was not possible to adjust the same in the manner provided under the said sub-rule. Sub-rule (13) of Rule 57F of the said Rules is more or less in pari materia to the provisions of Rule 5 of the CENVAT Credit Rules, 2002/2004. Thus, the instructions issued by the Central Government under the aforesaid Circular would also be applicable to refunds under Rule 5 of the Rules, which instructions are binding on the revenue.

In light of the aforesaid, it is not possible to state that the Tribunal has committed any legal error so as to warrant interference. In the absence of any question of law, much less, a substantial question of law, the appeals are dismissed.