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July 31, 2020

HC slaps Rs1 Lakh Penalty on Assistant Commissioner for not issuing Refund of Rs 3.6 Cr for 1 year even after order passed

HC slaps Rs1 Lakh Penalty on Assistant Commissioner for not issuing Refund of Rs 3.6 Cr for 1 year even after order passed

HC slaps Penalty of Rs 1 lakh on the Assistant Commissioner for passing an order on ‘Extra Legal Reasons’

The Gujarat high court on 27th July, 2020 ordered a penalty of Rs 1 lakh on the Assistant Commissioner, for he had passed an order on ‘extra legal reasons’.  Since a decision of the court is considered the final word on the matter, settling a dispute between the parties, what goes into that decision is therefore of utmost importance. At times however, a court may justify a move into a new direction or the creation of a doctrine based on reasons that are neither strictly legal nor originating from the consent of Parliament. These reasons have been described as extra or non-legal reasons.

A similar thing happened in the case of M/S Century Copper Rod Pvt. Ltd. vs The Assistant Commissioner, where even after the Tribunal had ordered the Central Excise and Service Tax Division II in Surat to issue refund of Rs 3.6 crore to the company in May 2019, the same was not paid to them for almost a year. 

Facts of the Case

  • Appellant was engaged in manufacture of Copper Rods falling under Chapter 74 of the Central Excise Act, 1985 and was availing cenvat credit on inputs, capital goods and input services which were utilized for payment of duty on the clearance of finished goods.
  • The appellant factory closed down their manufacturing activity, the Appellant filed application for refund of such cenvat credit balance in cash since they were not in a position to utilize the said credit due to closure of the factory.
  • Their claim was rejected on the ground that the claim was not admissible in terms of Section 11B of Central Excise Act, 1944 read with rule 5 of Cenvat Credit Rules, 2004 as the refund is available only in case of export of final products or intermediates without payment of duty under bond or letter of undertaking.
  • Aggrieved, the appellant filed an appeal before the Commissioner (Appeals), who rejected the appeal on the ground that since the party has sold capital goods on payment of duty through cenvat credit, therefore, it can be concluded that the factory is not yet closed. They have, therefore, not come out of the modvat / cenvat scheme. Aggrieved, the appellants filed an appeal before Custom, Excise & Service Tax Appellate Tribunal (CESTAT).

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Findings of CESTAT (Customs Excise and Service Tax Appellate Tribunal)

  • CESTAT found as also certified by the jurisdictional Superintendent that the appellant factory had closed down its production activity since October 2015 and they were filing NIL return.
  • According to CESTAT, the Appellate Commissioner should have considered the above facts and should have applied the reasoning that when there was no production and the Appellant has sold/ cleared the machinery and capital goods itself that means that they had closed down their production and the factory was lying closed.
  • The Appellant was considered eligible for refund of the accumulated cenvat credit as once the factory was closed there was no place for utilizing accumulated cenvat credit.
  • The tribunal had ordered the Central Excise and Service Tax Division II in Surat to issue refund of Rs 3.6 crore to the company. 

Were they paid the refund after the order of the Tribunal?

  • Even after the tribunal’s order, the assistant commissioner in August 2019 said that though the company was entitled to the refund, the amount was deposited with the Consumer Welfare Fund and not given to the Company.
  • The company and its director appealed against this order before the commissioner and the order was quashed.
  • The assistant commissioner was asked to process the refund, but the company did not get its money till July 2020.
  • The company moved the High Court and complained about the department’s behaviour.
  • Upon inquiry, the government admitted that the refund was not paid to the company. However, it was contended that the department had challenged the May 2019 order for refund before the high court in February.

Order of the High Court

  • The authorities’ attitude annoyed the high court.
  • The bench of Chief Justice Vikram Nath and Justice J B Pardiwala asked how the officer could withhold the amount on an assumption that there could be any legal development in future in this case. They said, “In fact, we are convinced that the amount has been withheld by the assistant commissioner for extra legal reasons.” 
  • The High Court ordered 18% interest p.a to be paid for the delay in issuing refund of Rs 3.6 crore and the extra amount to be recovered from the responsible officer.
  • Gujarat High Court also ordered the department to issue full refund with 6% interest to the company within 24 hours.
  • The High Court ordered authorities to hold an inquiry to pin responsibility on the concerned officer and recover the extra amount as well as Rs 1 lakh litigation cost from the officer and pay the sum to the litigant company. 

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