Union of India vs Sheetal Exports

D.Y. Chandrachud, J.—This petition by the Union of India under Article 226 of the Constitution, is to challenge an order passed by the revisional authority in exercise of jurisdiction u/s 35EE of the Central Excise Act, 1944. The Assistant Commissioner had initially rejected rebate claims preferred by the First Respondent in the amount of Rs. 13.57 lakhs. In appeal, the Commissioner remanded the proceedings back to the adjudicating authority for reconsideration, after complying with the principles of natural justice. The First Respondent challenged that order of remand before the revisional authority. By the order impugned in these proceedings, the revisional authority has come to the conclusion that the First Respondent is entitled to claim rebate. The revisional application has been allowed. The Union of India has impugned that order.

The First Respondent is a merchant exporter. The manufacturer of the goods in question was Radha Dyeing and Printing Mills. The manufacturer claimed Cenvat Credit in respect of duty paid inputs alleged to have been purchased by the manufacturer from an input supplier. The First Respondent purchased finished goods from the manufacturer which in turn were exported by the First Respondent. As against that export, the First Respondent claimed a rebate of central excise duty.

Rule 18 of the Central Excise Rules, 2002 provides that where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification. The First Respondent claimed rebate on the basis that it had exported goods and the rebate was in respect of duty alleged to have been paid by Radha Dyeing and Printing Mills.

The Assistant Commissioner while rejecting the application for the grant of rebate noted that between the period May 2003 and November 2004, Radha Dyeing and Printing Mills had wrongly availed of credit to the extent of Rs. 5.41 crores on the basis of documents issued by various bogus firms and had cleared the goods by availing of Cenvat Credit. The Assistant Commissioner held that the exported goods could not be said to be duty paid goods. The First Respondent was furnished an opportunity to put forth its explanation, but had not appeared at the personal hearing. Accordingly, the claim for the grant of rebate was disallowed.

In appeal, it was argued by the First Respondent that the claim for the grant of rebate had been wrongfully rejected without ascertaining the role that was played by the First Respondent. According to the First Respondent, its claim was rejected on the basis of an alleged fraud or misrepresentation by the manufacturer or its supplier. It was urged that action for the availment of Cenvat Credit on a wrongful basis could be taken against the manufacturer, but not against the First Respondent in the absence of material to indicate an act of abetment by the First Respondent.

The Commissioner (Appeals) noted that the manufacturer, Radha Dyeing and Printing Mills received raw materials from units which either did not exist or had issued bogus Cenvat documents. If the documents were from nonexistent firms, there could be no accumulation of credit in the account. Hence, if no credit balance was properly available to discharge the duty on finished goods, it could not be held that the goods exported were duty paid goods. However, the Commissioner (Appeals) noted that though 4 ARE forms were involved, the First Respondent had neither submitted its reply nor had it appeared before the Assistant Commissioner for a personal hearing. The First Respondent was furnished an opportunity in the interests of justice by the Commissioner (Appeals) for producing relevant evidence before the Assistant Commissioner. It was, in this view of the mater that the proceedings were remanded back to the Assistant Commissioner.

The First Respondent challenged the order of the Commissioner (Appeals) before the revisional authority. The revisional authority was of the view that if the manufacturer had obtained Cenvat Credit wrongfully, Rule 14 of the Cenvat Credit Rules, 2004 enables the Central Government to recover the amount wrongfully availed of together with interest. However, the revisional authority was of the view that the First Respondent had bona fide purchased and exported the goods after the payment of the entire amount, inclusive of duty and cannot be penalised by denying his claim for rebate when there is no evidence to show any mutuality of interest, financial control or flow back of funds. In taking this view, the revisional authority relied upon its decision in the case of Shyam International decided on 18 May 2007.

Counsel appearing on behalf of the Petitioner has taken serious exception to the manner in which the revisional authority has proceeded in the case. Before we deal with the other submissions which have been urged before the Court we are inclined to accept the submission that the entire approach of the revisional authority has been misconceived. The revisional authority has transgressed the settled limitations on the exercise of the revisional jurisdiction u/s 35EE. The First Respondent neither appeared before the Assistant Commissioner, nor had it chosen to produce any material whatsoever that would establish the bona fides nature of its transaction. The Assistant Commissioner noted that despite opportunity, the First Respondent had not appeared in the proceedings. The Assistant Commissioner found that Radha Dyeing and Printing Mills had wrongfully availed of Cenvat Credit in the amount of Rs. 5.41 crores between May 2003 and November 2004 on the basis of documents issued by bogus, firms. When the matter went in appeal to the Commissioner (Appeals), the Appellate Authority was of the view that in the interests of justice, liberty should be granted to the First Respondent to establish its case for the grant of rebate before the adjudicating authority. The proceedings were remanded back to the Assistant Commissioner. Instead of availing of this opportunity which was furnished by the Commissioner (Appeals), the First Respondent moved the revisional authority against an order of remand which was passed in order to afford an opportunity to the First Respondent to produce evidence and submissions. In such a revisional application, the revisional authority proceeded to enter a finding of fact that the First Respondent had purchased the goods bona fide and having exported the goods on the payment of the entire amount inclusive of duty, the First Respondent cannot be penalized by denying the claim for rebate. There is merit in the submission that the revisional authority ought not to have rendered such a finding of fact, for the first time, in the exercise of the revisional jurisdiction, particularly having regard to the background of the case which has already been noted earlier.

What we have observed above assumes some significance having regard to the nature of the submissions which have been urged before the Court by Counsel appearing on behalf of the Union of India. Counsel has adverted to the fact that a Show Cause Notice had been issued to Radha Dyeing and Printing Mills on 24 April 2008. The show cause notice inter alia contained an allegation that the transactions which had been put into place, were made to camouflage dubious transactions undertaken in collusion with various groups of suppliers. Alert circulars were issued by the Department declaring the units from which inputs have been purchased by Radha Dyeing and Printing Mills to be dubious/fake and it is alleged that the Units were floated to cushion a chain of passing inadmissible cenvat credit with each of these entities in a synchronized manner both at the upstream and down stream stage of the cenvat chain. A thin structure of bank transactions is alleged to have been put into place to effect the ultimate design. Cenvat Credit was alleged to have been availed of for the removal of finished goods for home consumption or for export on the basis of invalid documents. The total Cenvat Credit thus availed of is alleged to be in the amount of Rs. 16.22 crores. Since the notice to show cause is pending adjudication, we must clarify that we have not made any observations on the merits of the allegations. Counsel appearing on behalf of the Petitioner has also adverted to an order passed by the Commissioner of Central Excise in certain other proceedings on 29 January 2010. Counsel has taken us through various parts of the order inter alia to highlight the submission that the role of the First Respondent in the entire chain of events has come under scrutiny.

We are not inclined in these proceedings, particularly having regard to the limitations on the exercise of the writ jurisdiction of this Court under Article 226 of the Constitution, to investigate into all the factual allegations. The exercise of judicial review must follow along the well settled principles. The Court under Article 226 would interfere where, as in this case, there has been a manifest error or misdirection on the part of a quasi judicial authority in exercising its jurisdiction. The revisional authority in the present case was called upon to exercise its jurisdiction against an order of remand passed by the Appellate Authority The order of remand was with a view to enable the First Respondent to have an adequate opportunity to substantiate its case for the grant of rebate, despite the fact that the adjudicating authority had denied the rebate on the ground that Cenvat credit had been wrongfully availed of on the basis of documents which were fraudulently obtained from Units which were found to be non-existent or bogus. Rule 18 of the Central Excise Rules, 2002 provides that when any goods are exported, the Central Government may by notification grant rebate of duty paid on such excisable goods. Whether duty on the excisable goods has, in fact, been paid to be determined. According to the Excise Department, the duty has not, in fact, been paid. The duty was sought to be paid by utilising Cenvat credit. The Cenvat credit was accumulated on the basis of duty paid documents brought up in collusion with nonexistent or bogus firms. These allegations would have to be enquired into by the adjudicating authority. We are, therefore, of the view that the proper course of action for the revisional authority would have been to allow the order of remand to stand so as to enable the First Respondent to have a full and proper opportunity of establishing its case for the grant of rebate. Instead the revisional authority has purported to make a finding of fact in the absence of virtually any material whatsoever and in the face of the case of the Department that the chain of events in the present case will show a fraudulent attempt to evade the payment of duty. Hence, we are of the view that the order passed by the revisional authority is unsustainable.

We accordingly quash and set aside the impugned order passed by the Joint Secretary in the Ministry of Finance, dated 10 July 2009. We maintain the order passed by the Commissioner (Appeals), remanding the proceedings back to the Assistant Commissioner (Rebate), Central Excise-I.

During the course of the hearing, the Court has been informed that after the revisional authority had passed the impugned order dated 10 July 2009, allowing the application of the First Respondent for the grant of rebate, a Writ Petition was filed in this Court (Writ Petition 2114 of 2010) on 17 March 2010, seeking enforcement of the order of the revisional authority and the grant of rebate in the amount of Rs. 13,57,200/-. The Department has, in the present petition as amended, averred that during the pendency of the petition, the First Respondent was paid an amount of Rs. 13,57,200/- by a cheque dated 26 March 2010, following which the Petition was withdrawn. In amended paragraph 8 in the present petition, it has been averred that when the earlier petition came up before the Court, Counsel appearing on behalf of the Union of India apprised the Court of the fact that the Department was in the process of filing a Writ Petition to challenge the impugned order dated 10 July 2009. All that remains for us to observe and direct would be that since the amount of Rs. 13,57,200/- was paid to the First Respondent in pursuance of the order of the re visional authority dated 10 July 2009, which has now been set aside, the Petitioner would be at liberty to recover the amount. The recovery if made, however, shall abide by the final result of the proceedings before the Assistant Commissioner in terms of the directions issued in the earlier part of this order. Having regard to the time that has elapsed in the meantime, we direct that the adjudicating authority shall decide upon the rebate application expeditiously and within a period of three months from the date on which a certified copy of this order is placed on the file of the adjudicating authority.

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