Union of India vs Prime Exports

D.Y. Chandrachud, J.—This Petition by the Union of India under Article 226 of the Constitution is directed against an order dated 9 February 2010 passed by the Revisional Authority u/s 35EE of the Central Excise Act, 1944 by which a claim for rebate by the Respondents has been allowed. This Petition forms a part of a batch of Petitions. In the first of the Petitions (Writ Petition No. 3956 of 2010), this Court by a judgment delivered today, has remanded the proceedings back to the Revisional Authority for reconsideration.

Prime Exports, the First Respondent, is a merchant exporter and filed rebate claims in respect of duty paid on goods manufactured by Muni Trade Private Limited, Globe Traders and Mansa Traders. The goods were exported through the Port of Mumbai. A deficiency memo-cum-show cause notice was issued to the First Respondent calling upon it to submit a copy of the acknowledgment of prior intimation given to the jurisdictional Superintendent with respect to clearance of goods from the factory under the self-sealing and self-certification procedure. The First Respondent was also directed to submit a duty payment certificate from the jurisdictional Range Superintendent. The First Respondent did not appear for a personal hearing. The Assistant Commissioner (Preventive) of the Thane Commissionerate had furnished an intimation that there was a Central Excise case of the availment of fraudulent Cenvat credit and relating to fraudulent rebate claimed against Muni Trade Private Limited. Cenvat credit had been availed of, on the basis of invoices raised by non-existent companies and utilised for duty payment of goods cleared for exports. Thereafter, a rebate of duty was claimed. The Assistant Commissioner (Rebate) rejected the claim by an order dated 22 February 2006. The Commissioner (Appeals) confirmed the rejection by an order dated 3 August 2006. The First Respondent thereupon filed a Revision Application which was allowed by the Revisional Authority by the impugned order dated 9 February 2010.

Counsel appearing on behalf of the Petitioner submitted that the basic assumption which underlies the order of the Revisional Authority is erroneous. The Revisional Authority has proceeded on the basis that there was no charge or allegation that the transaction between the exporter and the manufacturers/suppliers was not an arms length transaction in the normal course of business or that it was not bona fide. Counsel submitted that this is ex-facie incorrect. In this regard, besides relying on the findings arrived at by the Authorities below, counsel sought to place reliance on an order passed by the Commissioner of Central Excise dated 29 January 2010, in which there is a detailed account of the modus-operandi which was followed in obtaining rebate on the basis of a fraud purported on the Revenue.

On the other hand, counsel appearing on behalf of the Respondent submitted that the findings which were arrived at by the Revisional Authority are justified and the order dated 29 January, 2010, was not before the Revisional Authority when it passed the impugned order.

In the impugned order, the Revisional Authority has held as follows.

In the order-in-original and order and appeal, there is no charge or allegation that the transaction between exporter and the manufacturer/supplier was not at arms length or not in the nature of transaction in the normal course of business or non-bona fide influenced by any extra commercial consideration. In fact there is nothing on record to establish, much less point out even prima facie any role direct or indirect, connivance or intention of the applicant in the act of procurement of inputs by supplier manufacturer on basis of bogus invoices.

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The only charge or allegation forming the genesis and basis for denial of rebate claim to the merchant/exporter is therefore not against him but the manufacturer supplier who availed Cenvat Credit wrongly and availed the same for duty payment of goods exported by the applicant merchant exporter.

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The applicant/exporter who has bona fidely purchased and exported the goods after payment of entire amount inclusive of duty per se, cannot be also penalized by way of denying his claim for rebate if otherwise it is in order, especially when no evidence has been laid to show any mutuality of interest financial control or any flow-back or fund flow between the applicant exporter and the manufacturer supplier of goods. This is necessary for denying him benefit of rebate on goods purchased legitimately in ordinary course of business from the supplier/manufacturer by paying him the entire amount inclusive of duty.

The basic assumption which underlies the impugned order of the Revisional Authority is that there was no allegation of a want of bona fides in so far as the transaction of the First Respondent is concerned. In this regard, we find merit in the contention of counsel appearing on behalf of the Petitioner that this is factually not correct. With the assistance of counsel, we have perused the order of the Commissioner of 29 January 2010, by which the activities of several entries involved in fraudulent claims for rebate were scrutinized. As a matter of fact in the order of the Commissioner, there is a reference to the statement of the Export Assistant of the First Respondent recorded on 4 May 2006. The brother of Shri Anuj Murarilal Agarwal stated that all the firms in question, namely Namaste Exports, Daffodils Exports and Prime Exports were functioning from the same premises and whose operations were looked after by him. The Commissioner entered several findings of fact including inter alia that no payments were made to the Muni Group and that merely for the purposes of accounts, payments were shown in the Ledger, though no payments were made. The payments which were made were found to have been received back in cash. The Commissioner noticed that the representative of the merchant exporter whose statements were recorded during the course of investigation had never seen the factory premises of Muni group at any time. A penalty of Rs. 50 lacs was imposed on Ayush Murarilal Agarwal, proprietor of Namaste Exports, authorized signatory and brother of Anuj Murarilal Agarwal, proprietor of Prime Exports and authorized signatory and son of Murarilal Agarwal, proprietor of Daffodils Exports.

At this stage, we do not consider it appropriate to enter upon the correctness of the findings which have been recorded by the Commissioner in the aforesaid order, which the Court is informed, is before the Appellate Authority. The point to be noted at this stage is that the basic premise on which the Revisional Authority proceeded is that the Excise Department has not questioned the bona fides to the transaction. This assumption is not correct. Indeed, the very basis of the action of the Excise Department is that the transactions were not arms length transactions or genuine.

In that view of the matter, we are of the view that it would be appropriate to set aside the impugned order of the Revisional Authority. The Revisional Authority has misdirected itself. The authority shall re-consider the matter afresh after taking into account all the material on the record. To facilitate this, we quash and set aside the impugned order dated 9 February 2010 and restore the Revision Application for re-consideration. We clarify that we have not expressed any view on the merits of the rival contentions which shall be decided by the Revisional Authority.

Rule is made absolute in the aforesaid terms. There shall be no order as to costs.