Commissioner of Central Excise Mumbai 1 vs M/S Morarjee Gokuldas Spg.and Wvg.Co. Ltd.

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3039 OF 2011

COMMISSIONER OF CENTRAL EXCISE, MUMBAI – 1 ..APPELLANT(S)

VERSUS

M/S. MORARJEE GOKULDAS SPG. & WVG. CO.LTD. .. RESPONDENT(S)

JUDGMENT

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 24.09.2008 passed by the

High Court of Judicature at Bombay in Central Excise Signature Not Verified Digitally signed by Neetu Sachdeva Date: 2023.03.24 16:35:12 IST Reason: Appeal No.186 of 2008 by which the Division Bench of

the High Court has dismissed the said appeal preferred

1 by the Revenue and has affirmed the judgment and order

passed by the Appellate Tribunal by which the Appellate

Tribunal held that the show cause notice under Section

11A of the Central Excise Act, 1944 is required to be

issued in case of erroneous refund of the duty, the

Revenue has preferred the present appeal.

2. The short question which is posed for consideration

before this Court is whether the separate notice under

Section 11A of the Central Excise Act is necessary for the

recovery of the amount when an erroneous refund is

granted through the speaking order is reviewed under

Section 35E of the Act?

2.1 The facts leading to the present appeal in nutshell are as

under:

2.2 The respondent herein was at the relevant time a

manufacturer of cotton yarn which it consumed captively

in its composite mills for weaving of fabric. In October,

1980 vide judgment in the case of M/s. J.K. Cotton

2 Spinning & Weaving Mills Company Ltd. vs. Union of

India 1981 (8) ELT 887, the Delhi High Court held that

removal of yarn which was consumed within the factory

for production did not amount to removal within the

meaning of Rules 9 & 49 of the erstwhile Central Excise

Rules, 1944 and hence set aside the duty demand made

on such captively consumed yarn. That the respondent

company filed a revised classification list wherein, they

declared that no duty was payable on the yarn captively

consumed. By an order issued in April, 1981 the

classification list was rejected by the Department and the

respondent – company was directed to file a fresh

classification list. The respondent – company filed a writ

petition before the Delhi High Court being Writ Petition

No.1190 of 1981 inter alia challenging the levy and

collection of duty on the said yarn captively consumed by

them. By judgment and order dated 11.01.1983 the High

Court disposed of the said writ petition upholding the

validity of Rules 9 and 49 and holding that the recovery

3 could only be done as per the time limit prescribed in

Section 11A. That in the year 1983 the respondent –

company filed a civil appeal against the said judgment

before this Court being Civil Appeal No.320 of 1983. The

Company also files application for stay of the operation of

the judgment. On 15.03.1983, this Court passed an

interim order in the following terms:

"In respect of future payment of Excise Duty there will be no stay. In so for as the post dues are concerned, 50% of the past dues shall be paid to the authority concerned within a period of 3 months from today. In regard to the balance 50% the appellants shall give bank Guarantee to the satisfaction of the Registrar of this Court within the same period. If the Bank Guarantee have already been given in any case in pursuance of the directions of the Delhi High Court it will continue in operation and shall be kept alive from time to time."

2.3 In pursuance to the interim directions granted by this

Court on 15.03.1983, the bank guarantee given by the

respondent – company was kept alive from time to time.

By final judgment and order dated 17.01.1995 this Court

decided the case and inter alia directed that if notice

under Section 11A has not been served the Revenue

4 would be entitled to do so within the time limit prescribed

by Section 11A of the Act. On the basis of the judgment

and order passed by this Court, the Divisional Assistant

Commissioner issued a show cause notice on 07.04.1995

demanding a duty amounting to Rs.2,96,14,265.05.

Subsequently by passing O-I-O dated 27.03.1996, the

Assistant Commissioner confirmed the demand. Out of

the amount demanded, Rs.1,48,07,132.84 was paid on

different dates between 18.04.1983 to 28.12.1984, as per

the directions of this Court. Balance of

Rs.1,48,07,132.91 was recovered on 28.03.1996 by

encashing bank guarantees executed by the respondent –

company. Being aggrieved with the decision of the

Assistant Commissioner dated 27.03.1996, the

respondent assessee/company went in appeal before the

Commissioner (Appeals). The Commissioner (Appeals)

dismissed the said appeal and upheld the decision of the

Assistant Commissioner by order dated 13.06.1996.

Thereafter the respondent – assessee went in appeal

5 before the Tribunal against the order of the

Commissioner (Appeals). The Tribunal set aside the

order passed by the Commissioner (Appeals) by order

dated 15.05.2000 on the ground that there was no

demand issued by the Department under Section 11A of

the Central Excise Act. The Revenue challenged the

order passed by the Commissioner (Appeals) dated

15.05.2000 which came to be dismissed by order dated

17.02.2005. In the meantime, since the company filed a

refund claim it was found that the refund claim was not

sustainable. A show cause notice dated 19.09.2000 was

issued for deciding the issue of Section 11B of the

Central Excise Act. Notice dated 19.09.2000 came to be

adjudicated by the Deputy Commissioner of Central

Excise who vide his order dated 21.12.2000 set aside the

show cause notice and ordered refund of the entire

amount to the respondent – assessee/company. The said

order held that the amounts were paid under the protest

by the party and therefore the time limit will not apply.

6 The issue of unjust enrichment was not examined in the

order. That thereafter the Revenue in exercise of powers

conferred under Section 35E(2) of the Central Excise Act,

preferring an appeal before the Commissioner (Appeals)

prayed for setting aside the order passed by the Deputy

Commissioner dated 21.12.2000 sanctioning the refund,

on the grounds set out therein including that there was

unjust enrichment and that the refund claimed was time

barred under Section 11B of the Central Excise Act. By

order dated 13.05.2005 the Commissioner Central Excise

(Appeals), Mumbai allowed the appeal filed by the

Revenue by inter alia upholding grounds of unjust

enrichment and time bar under Section 11B of the

Central Excise Act.

2.4 Being aggrieved, the assessee filed the appeal before the

Tribunal challenging the points of the merits upheld by

the Commissioner Central Excise (Appeals) vide order in

appeal dated 13.05.2005. Pending the said appeal and

consequent to the order dated 13.05.2005, setting aside

7 the Order-in-Original sanctioning the refund claim of

Rs.2,96,14,264/- and in absence of specific stay against

the said order in appeal, the Revenue proceeded with

recovery of an amount of Rs.20,00,000/- by way of

appropriation of refund claims payable to the assessee

under O-I-O dated 04.01.2007. Therefore, in the pending

appeal on 25.01.2007, the respondent assessee filed an

application seeking directions to the Department to

refund the said sum of Rs.20,00,000/- sanctioned to it

by way of refund. That before the Tribunal, the assessee

filed an application for additional grounds seeking to

amend the appeal against the order in appeal dated

13.05.2005 on the following points of law:

“(i) No notice under Section 11A of Central Excise Act, 1944 is issued to the applicants seeking to recover the refund granted pursuant to the Order in Original dated 19.12.2000.

(ii) The order of the Commissioner of Central Excise (Appeals), impugned in the above Appeal, without issuing notice under Section l1A of the Act, is therefore not capable of being implemented and liable to be set aside on this ground alone.”

8 2.5 That the Tribunal by its Order dated 12.10.2007

considered and decided only the points of law raised vide

Misc. Application for additional grounds and vide order

dated 12.10.2007 allowed the said appeal and set aside

the order in appeal with consequential relief to the

assessee. Against the order passed by the Tribunal dated

12.10.2007, the Revenue preferred the present appeal

before the High Court. By the impugned judgment and

order the High Court has dismissed the said appeal

relying upon the decision of the Division Bench of the

High Court in the case of Bajaj Auto Ltd. vs. UOI, 2003

(151) ELT-23 (Bom). At this stage it is required to be

noted that before the High Court the Revenue strongly

relied upon the decision of this Court in the case of Asian

Paints (India) Ltd. vs. CCE, Bombay 2002 (142) ELT-

522 (SC)

2.6 Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the High Court, the

9 Revenue has preferred the present appeal.

3. Ms. Aishwarya Bhati, learned ASG and Ms.

Ameyavikrama Thanvi, learned counsel have appeared on

behalf of the appellant and Mr. V. Sridharan, learned

Senior Advocate has appeared on behalf of the

respondent.

4. Ms. Aishwarya Bhati, learned ASG appearing on behalf of

the Revenue has vehemently submitted that in the facts

and circumstances of the case the High Court has

materially erred in relying upon the judgment of the

Bombay High Court in the case of Bajaj Auto Ltd (supra)

which was delivered on 15.02.2002.

4.1 It is submitted that before the High Court the Revenue

heavily relied upon the decision of this Court in the case

of Asian Paints (India) Ltd. (supra) which was

subsequent to the decision of the Bombay High Court in

the case of Bajaj Auto Ltd (supra). It is submitted that

therefore, the decision of this Court in the case of Asian

10 Paints (India) Ltd. (supra) was binding on the High

Court. It is submitted that as such the impugned order

passed by the High Court is silent on the reasoning as to

why the reliance placed by the Revenue on the decision of

this Court in the case of Asian Paints (India) Ltd.

(supra) was misplaced.

4.2 It is submitted by Ms. Bhati, learned ASG that in the

case of Asian Paints (India) Ltd. (supra), this Court has

specifically observed and held that Sections 35E and 11A

of the Central Excise Act operate in different fields and

are invoked for different purposes. It is submitted that it

is observed that different time limits are, therefore, set

out therein. It is submitted that in the said decision this

Court has not accepted the submission on behalf of the

assessee that the recovery of the excise duty cannot be

made pursuant to an appeal filed after invoking the

provisions of Section 35E if the time limit provided in

Section 11A has expired. It is observed to so read the

provisions would be to render Section 35E virtually

11 ineffective, which would be impermissible. It is

submitted that therefore the present case as such is

clearly covered by the decision of this Court in the case of

Asian Paints (India) Ltd. (supra).

4.3 It is further submitted by Ms. Bhati, learned ASG that

even otherwise from the Scheme of the Central Excise

Act, 1944, it is quite apparent that where the proceedings

under Section 35E are initiated and the appeal is filed

against the order sanctioning refund, there is no need to

issue any notice under Section 11A. It is submitted that

a notice under Section 11A would be meaningless with a

review under Section 35E, of the order sanctioning the

refund. It is submitted by the interpretation given by the

Revenue affirmed by the High Court that without notice

under Section 11A, amount becoming due to proceeding

under Section 35E cannot be recovered, renders Section

35E ineffective and redundant. It is submitted that

therefore, the correct position of law has been laid down

by this Court in the case of Asian Paints (India) Ltd. 12 (supra) which has been subsequently followed by the

Chennai Bench of the Tribunal in the case of CCE,

Chennai vs. Sha Harakchand Samanthmal, 2004 (177)

ELT 990 (T).

4.4 It is further submitted by Ms. Bhati, learned ASG that as

such the Tribunal has not at all considered the grounds

on merits against the order passed by the O-I-O that the

assessee shall be entitled to refund or not. It is

submitted that as such number of grounds were raised

before the Tribunal on the ground that the refund was

not payable to the assessee including the unjust

enrichment as envisaged in Section 11B of the Central

Excise Act. It is submitted that question of unjust

enrichment has not at all been examined by the Tribunal

and the Tribunal only considered the grounds set out in

the additional grounds which was by way of

amendment/raising the additional grounds.

4.5 It is further submitted that neither the Tribunal nor even

the High Court has considered the fact that while

13 claiming the refund the assessee had claimed that the

initial payment was under protest or while contesting the

demand that the assessee took the stand that

assessment was final and without notice under Section

11A amount cannot be recovered. It is submitted that

however while claiming the refund the assessee claimed

that payment was under protest so that the refund claim

was not time barred. It is therefore submitted that the

assessee is approbating and reprobating the issue

whether the initial payment of duty was final or not.

4.6 It is submitted that in any case when the Department

preferred an appeal under Section 35E against the order

in original sanctioning the refund and when the said

proceedings under Section 35E terminated in favour of

the Revenue thereafter the necessary consequences shall

follow and for recovery of any amount pursuant to the

order passed under Section 35E of the Act there shall not

be any separate notice issued under Section 11A of the

14 Act as observed and held by the High Court as well as the

Tribunal.

Making above submissions it is prayed to allow the

appeal.

5. While opposing the present appeal learned Senior

Counsel appearing on behalf of the assessee has

vehemently submitted that as such the Tribunal heavily

relied upon the earlier decision in the case of Collector

of Central Excise, Bhubaneshwar vs. Re-Rolling Mills,

reported in 1997 (94) ELT 8. It is submitted that in the

case of Re-Rolling Mills (supra) the Tribunal specifically

observed and held that the time limit of Section 11A

governs the issue of the demand under that Section and

that Section alone and therefore if no demand in

accordance with Section 11A is issued, nothing else can

take its place. It is submitted that therefore the

Tribunal took the view that the demand has to be issued

for the erroneously refunded money within the time limit

15 prescribed by Section 11A.

5.1 It is submitted that subsequently the same question

arose before the Bombay High Court in Bajaj Auto Ltd.

(supra) and after referring to the Board’s Circular No.

423/56/98-CX, dated 22-9-1998 and the case of Re-

Rolling Mills (supra) it was held that the erroneous

refund cannot be recovered by mere filing an application

under Section 35E(2) of the Central Excise Act, unless

the notice under Section 11A is issued within the

stipulated time.

5.2 It is submitted that therefore in absence of any notice

under Section 11A of the Central Excise Act which was

required to be issued within six months from the date of

actual refund, the Tribunal as well as the High Court has

rightly set aside the demand and passed an order of

refund. It is submitted that since the time limit for filing

the appeal under Section 35E(2) is longer than the time

limit prescribed under Section 11A, the show cause

notice should precede the proceedings under Section 16 35E(2).

5.3 It is submitted that therefore the issue of show cause

notice under Section 11A of the Central Excise Act is a

condition precedent for recovery of the alleged erroneous

refund within the normal period of limitation prescribed

under Section 11A of the Act notwithstanding

proceedings under Section 35E being initiated by the

Revenue against the order granting refund.

Making above submissions it is prayed to dismiss the

present appeal.

6. We have heard learned counsel appearing on behalf of

the respective parties at length.

7. The short question which is posed for consideration

before this Court is whether Notice under Section 11A of

the Central Excise Act is necessary for the recovery of the

amount when the refund granted is reviewed under

Section 35E of the Act and whether a separate notice

under Section 11A of the Act to be issued within the time

17 limit prescribed under Section 11A and before the

proceedings under Section 35E of the Act are initiated

and/or the notice under Section 11A of the Act shall

precede the proceedings under Section 35E of the Act?

7.1 While considering the aforesaid issue it is required to be

noted that as such in the present case the original

authority while passing the O-I-O allowed the refund.

That the order-in-original sanctioning the refund was the

subject matter of review under Section 35E of the Act.

On merits the Reviewing Authority set aside the order-in-

original sanctioning the refund. Therefore, as such

stricto sensu it can be said to be giving effect to the order

passed under Section 35E of the Act. As such the

assessee is claiming the refund on the basis of O-I-O

sanctioning the refund which as such has been set aside

in the proceedings under Section 35E of the Central

Excise Act.

7.2 Now so far as the submissions made on behalf of the

Assessee relying upon the decisions of the Tribunal in the 18 case of Re-Rolling Mills (supra) and Bajaj Auto Ltd

(supra) that for refund of the duty a separate show cause

notice under Section 11A of the Act is reviewed and that

too within the time limit prescribed under Section 11A

and that as such notice under Section 11A must precede

within the time limit prescribed under Section 11A before

the notice under Section 35E of the Act is concerned, as

such the aforesaid issue is now not res integra in view of

the direct decision of this Court in the case of Asian

Paints (India) Ltd. (supra).

7.3 In the case of Asian Paints (India) Ltd. (supra), the

decision which has been rendered subsequent to the

decision of the High Court in the case of Bajaj Auto Ltd

(supra) it is observed and held as under:

"We have read the judgments of the larger Bench of the Customs, Excise and Gold (Control) Appellate Tribunal, which are impugned in these appeals. We are of the view that the judgments viewed Section 35-E and 11-A of the Central Excise Act in the proper perspective. The two sections operate in different fields and are invoked for different purposes. Different time-limits are, therefore, set out therein. We do not accept the

19 contention that recovery of excise duty cannot be made pursuant to an appeal filed after invoking the provisions of Section 35-E, if the timelimit provided in Section 11-A has expired. To so read the provisions, would be to render Section 35-E virtually ineffective, which would be impermissible.”

7.4 Before this Court in the case of Asian Paints (India) Ltd.

(supra) the judgments of the larger Bench of the Tribunal

were under challenge. The Special Bench of the Tribunal

took the view that Section 35E and Section 11A operate

in different fields and are invoked for different purposes

and different time limits are therefore set out therein.

This Court in the case of Asian Paints (India) Ltd.

(supra) specifically negated and/or did not accept the

submission on behalf of the assessee that the recovery of

excise duty cannot be made pursuant to an appeal filed

invoking the provisions of Section 35E if the time limit

under Section 11A has expired.

7.5 The law laid down by this Court in the case of Asian

Paints (India) Ltd. (supra) as such was binding on the

High Court and despite the same was pointed out and

20 pressed into service by the Revenue before the High

Court, the High Court has without giving any reasons

how the same is misplaced has ignored to follow the

decision of this Court in the case of Asian Paints (India)

Ltd. (supra) and rather has followed its earlier decision

in the case of Bajaj Auto Ltd (supra) which admittedly

was prior to the decision of this Court in the case of

Asian Paints (India) Ltd. (supra).

8. As observed hereinabove, once the order in original

sanctioning the refund came to be set aside in a

proceeding under Section 35E of the Act and the

proceedings under Section 35E was initiated within the

time prescribed under Section 35E of the Act, thereafter

there is no question of any further notice under Section

11A of the Central Excise Act as observed by the Tribunal

affirmed by the High Court on quashing and setting aside

the order in original sanctioning the refund in exercise of

powers under Section 35E of the Act which otherwise is

prescribed under the Act within the time stipulated

21 under Section 35E of the Act, thereafter necessary

consequence shall follow and thereafter there is no

question of any refund pursuant to order in original.

9. In view of the above and for the reasons stated above,

present appeal succeeds. The impugned judgment and

order passed by the High Court and that of the Tribunal

are hereby quashed and set aside and the order passed

by the Commissioner (Appeals), Mumbai dated

13.05.2005 is hereby restored.

However, in the facts and circumstances of the case there

is no order as to costs.

…………………………………J. (M. R. SHAH)

…………………………………J. (KRISHNA MURARI) New Delhi, March 24, 2023

22