2009 (8) TMI 919 - AT - Central Excise

Textile trader wins appeal for refund claim under CER rule. Upholding legal fictions, Tribunal grants refund rights.

The Tribunal ruled in favor of the appellant, a textile trader, in a dispute over a rejected refund claim of Rs. 21,96,532/- under Rule 12B of CER, 2002. ... - ISSUES PRESENTED AND CONSIDERED 1. Whether a trader who obtains registration under Rule 12B of the Central Excise Rules, 2002 and complies with the prescribed procedures for job-work in textiles is to be treated as a 'manufacturer' for purposes of central excise, including entitlement to file refund claims before the authority in whose jurisdiction the trader is registered (and not the jurisdiction of the job worker/factory from which goods are exported). 2. Whether the lower authority was correct in rejecting (or redirecting) the refund claim on the ground that, under the relevant notification provision, refund applications must be filed in the jurisdiction of the factory from which the goods are exported (i.e., the job worker's jurisdiction), notwithstanding the statutory fiction created by Rule 12B and the trader's registration as a manufacturer. 3. The applicability of the judicial principle that statutory fictions must be given full effect (as articulated in the cited Supreme Court authority) to the interpretation of Rule 12B and consequent allocation of jurisdiction for refund claims. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework for treating a trader as a manufacturer under Rule 12B Legal framework: Rule 12B(1) CER, 2002 treats 'every person' who gets textile goods produced on his account on job work as obliged to obtain registration, maintain accounts, pay duty and comply with rules 'as if he is an assessee' (i.e., treated as a manufacturer). Sub-rule (2) prescribes procedure for clearance from the job-worker's premises, including payment of duty and invoicing particulars. Registration under Rule 9 and Rule 2(h) definitions operate in tandem to effectuate that status. Precedent treatment: The Tribunal applied the well-established principle that where a statute creates a fiction, the fiction is to be given full effect; it expressly relied on the Supreme Court's articulation of that principle (the Jalyan Udyog authority) and followed it. Interpretation and reasoning: The Court reasoned that Rule 12B creates a statutory fiction by expressly treating the 'said person' (the trader who gets goods manufactured on job work) as a manufacturer and subjecting him to the obligations and procedures of a manufacturer. The appellants in the record had availed the benefits of that scheme: they obtained registration as manufacturers, maintained accounts, paid duty, prepared invoices and followed the statutory procedures for clearance from job-worker premises. Because the trader had chosen and complied with the statutory regime that imputes manufacturer status, the legal effect of Rule 12B must be respected for all attendant consequences, including forum/jurisdiction for refund claims. Ratio vs. Obiter: Ratio - where a trader validly elects and complies with the obligations under Rule 12B, he is to be treated as a manufacturer for purposes of central excise law and procedures; therefore, legal consequences attaching to manufacturer status (such as jurisdictional competence for refunds) follow. This is the operative holding. Conclusion: The Court concluded that the statutory fiction in Rule 12B, once availed of and complied with by the trader, converts him into a manufacturer for relevant purposes and the trader's registration as manufacturer is determinative of the appropriate authority for claims connected to the manufacturing/clearance transactions. Issue 2 - Whether the notification provision (requiring refund claims to be filed in the jurisdiction of the factory from which goods are exported) overrides the statutory fiction and justifies directing the trader to the job-worker's jurisdiction Legal framework: Notification provision (para 4 of Notification No.11/2002-CE(NT), dt.1-3-02) required that the manufacturer submit refund applications in the jurisdiction where the factory from which goods are exported is situated. The competing rule (Rule 12B) treats the trader as manufacturer where goods are produced on his account through job-work and prescribes procedures for clearance and invoicing from job-worker premises. Precedent treatment: The Tribunal reconciled the two instruments by prioritizing the statutory fiction and the contemporaneous regulatory procedure that permits clearance from job-worker premises by the person treated as manufacturer; it followed the legal maxim that fictions created by statute should be given full play and not be frustrated by literal application of other administrative directions when inconsistent. Interpretation and reasoning: The Court observed that if a trader undertakes the obligations under Rule 12B (registration, account-keeping, duty payment, invoicing), then all dealings of the trader are with the officer of the jurisdiction where the trader is registered. Directing such a trader to file refund claims only in the job-worker's jurisdiction would produce an inconsistent, piecemeal treatment whereby the trader is a manufacturer for some purposes (duty payment) but not for refund jurisdiction - an outcome contrary to the statutory scheme. The absence of any finding that the trader had not complied with procedural requirements under the rule reinforced that the trader's chosen status should determine the competent authority for refund claims. Ratio vs. Obiter: Ratio - Where Rule 12B applies and the trader has complied with its procedural and substantive requisites, the trader is entitled to prosecute refund claims before the authority in whose jurisdiction the trader (treated as manufacturer) is situated; administrative reliance on the notification's factory-jurisdiction provision cannot defeat that entitlement. Conclusion: The Court held the lower authority's reliance on the notification to direct the refund claim to the job-worker's jurisdiction was incorrect; the appellants were entitled to seek refund from the Assistant Commissioner in whose jurisdiction the trader/registered manufacturer was situated. Issue 3 - Application of the doctrine that statutory fictions must be given full effect Legal framework: The legal doctrine applied is that when a statute creates a fiction (declaring a person to be treated as another status), courts must give effect to that fiction and not allow inconsistent administrative constructions to dilute it. Precedent treatment: The Tribunal expressly invoked and applied the Supreme Court's pronouncement that statutory fictions are to be given full play, and applied that principle to the facts where the rule expressly treated a trader as a manufacturer upon compliance with specified obligations. Interpretation and reasoning: The Court emphasized that since the appellants had undertaken and performed the duties required of a manufacturer under Rule 12B (including obtaining registration under Rule 9), the fiction could not be partially applied - i.e., treated as manufacturer for some purposes and not for others such as refund jurisdiction. The Court found no contradiction between Rule 12B and the refund entitlement once the fiction was given its due effect. Ratio vs. Obiter: Ratio - The statutory fiction in Rule 12B must be given full effect; therefore, a person who, under the rule, is treated as a manufacturer will be governed in respect of claims like refunds by the jurisdiction applicable to that person as a manufacturer. Conclusion: The doctrine justified the Court's conclusion that the appellants were entitled to relief and to have their refund claims adjudicated by the authority within the jurisdiction of the registered (fictional) manufacturer. Relief and operative conclusion Having found (a) valid statutory fiction under Rule 12B treating the trader as manufacturer, (b) compliance by the trader with the attendant obligations (registration, duty payment, invoicing and records), and (c) inapplicability of the notification-based jurisdictional objection to defeat that fiction, the Court allowed the appeal and held that the trader is entitled to refund from the Assistant Commissioner in whose jurisdiction the trader/registered manufacturer is situated.