Shree Prakash Textiles (Guj) Ltd. Vs. the Commissioner of Central - Court Judgment

Excerpt:
2. the appellants are manufactures of cotton and man made fabrics. they were working under the compounded levy scheme since 16/12/98 and were accordingly discharging duty liability in terms of rules 96 zq of central excise rules, 1944. prior to 16/12/98, they had outstanding unutilised credit on inputs in their rg-23a part ii. they were unable to utilise such credit for payment of duty on final products under the compounded levy scheme. therefore, they filed claims for refund of the duty equivalent to the outstanding unutilised credit, under section 11b of the central excise act. there were two such claims, both pertaining to the month of december 1998. both were rejected by the original authority saying that there is no provision for sanctioning a refund of duty equivalent to modvat credit. this view of the original authority was upheld by the first appellate authority. hence the present appeal.3. the main ground of this appeal is that the refund claims were liable to be sanctioned in terms of the proviso to sub-section (2) of section 11b. the appellants have, in this connection, relied on tribunal's decision in the case of m/s. national organic chemicals industries ltd., v. cce, bombay-11 reported in 1994 (70) elt 722 (t). ld. dr however, submits that the fundamental requirement for allowing a refund claim is that the duty should have been paid by the claimant. his submission is to the effect that as the duty on the inputs was not paid by the appellants, refund thereof is not admissible to them. i am unable to accept this argument. had the law makers so intended, the proviso to sub-section 2 of section 11b would not have provided for refund of duty equivalent to modvat credit. according to clause 'c' of the said proviso, the proper officer of the central excise is liable to allow cash refund of credit of duty paid on excisable goods used as input in accordance with the rules made or any notification issued under the act. evidently this provision enables a manufacturer of final product to claim refund of the duty paid on his inputs. the provision of law is quite explicit. the decision cited by the appellants also seems to be apposite to the issue on hand. in that case the assessee, virtue of the provisions of a notification, was entitled to set-off of duty paid on certain inputs. the relevant notification happened to be rescinded and consequently it was not possible for the assessee to avail the set-off. the tribunal held that, in such a factual situation, the assessee was entitled to claim cash refund of the duty paid on the inputs. i think it is this principle which has been embodied in the proviso to section 11b(2) of the act. the ground raised in the appeal is forceful. both the authorities have apparently overlooked the relevant provision of law. in the circumstances, the matter will be sent back to the original authority to enable that authority to examine the case afresh in the light of the applicable provision of law. it is upto that authority to verify the duty-paid nature of the inputs and to ascertain whether the inputs had actually been utilised in or in relation to the manufacture of final products prior to 16/12/98.4. in the result, the orders of the authorities below are set aside and the appeal is allowed with the above direction to the original authority. needless to say that the appellants be given a reasonable opportunity of being heard.

Judgment:
2. The appellants are manufactures of cotton and man made fabrics. They were working under the compounded levy scheme since 16/12/98 and were accordingly discharging duty liability in terms of Rules 96 ZQ of Central Excise Rules, 1944. Prior to 16/12/98, they had outstanding unutilised credit on inputs in their RG-23A Part II. They were unable to utilise such credit for payment of duty on final products under the compounded levy scheme. Therefore, they filed claims for refund of the duty equivalent to the outstanding unutilised credit, under Section 11B of the Central Excise Act. There were two such claims, both pertaining to the month of December 1998. Both were rejected by the original authority saying that there is no provision for sanctioning a refund of duty equivalent to modvat credit. This view of the original authority was upheld by the first appellate authority. Hence the present appeal.

3. The main ground of this appeal is that the refund claims were liable to be sanctioned in terms of the proviso to Sub-section (2) of Section 11B. The appellants have, in this connection, relied on Tribunal's decision in the case of M/s. National Organic Chemicals Industries Ltd., v. CCE, Bombay-11 reported in 1994 (70) ELT 722 (T). Ld. DR however, submits that the fundamental requirement for allowing a refund claim is that the duty should have been paid by the claimant. His submission is to the effect that as the duty on the inputs was not paid by the appellants, refund thereof is not admissible to them. I am unable to accept this argument. Had the law makers so intended, the proviso to Sub-section 2 of Section 11B would not have provided for refund of duty equivalent to modvat credit. According to clause 'C' of the said proviso, the proper officer of the Central Excise is liable to allow cash refund of credit of duty paid on excisable goods used as input in accordance with the rules made or any notification issued under the Act. Evidently this provision enables a manufacturer of final product to claim refund of the duty paid on his inputs. The provision of law is quite explicit. The decision cited by the appellants also seems to be apposite to the issue on hand. In that case the assessee, virtue of the provisions of a notification, was entitled to set-off of duty paid on certain inputs. The relevant notification happened to be rescinded and consequently it was not possible for the assessee to avail the set-off. The Tribunal held that, in such a factual situation, the assessee was entitled to claim cash refund of the duty paid on the inputs. I think it is this principle which has been embodied in the proviso to Section 11B(2) of the Act. The ground raised in the appeal is forceful. Both the authorities have apparently overlooked the relevant provision of law. In the circumstances, the matter will be sent back to the original authority to enable that authority to examine the case afresh in the light of the applicable provision of law. It is upto that authority to verify the duty-paid nature of the inputs and to ascertain whether the inputs had actually been utilised in or in relation to the manufacture of final products prior to 16/12/98.

4. In the result, the orders of the authorities below are set aside and the appeal is allowed with the above direction to the original authority. Needless to say that the appellants be given a reasonable opportunity of being heard.