2005 (11) TMI 440 - HC - Central Excise

Notification Declared Invalid: Rebate Claims Upheld, Rules 18 & 19 Operate Independently; Judgment Stay Denied.

The HC declared Notification No.10/2004-CE (NT) dated 3.6.2004 invalid, quashing the related show cause notices. It upheld the petitioner's entitlement to ... Validity of Notification No.10/2004-CE (NT) - Prospective or retrospective amendment - Applicability of provisions of Rule 19 of the Central Excise Rules, 2002 - Seeking ex-parte ad-interim relief - HELD THAT:- On a plain reading of both the Rules i.e. Rules 18 and 19 it is apparent that the said Rules operate in separate fields. Rule 18 of the Rules comes into play only in relation to the final products or the inputs which are not only liable to duty but on which duty has been paid. The said Rule viz. Rule 18 of the Rules, cannot be invoked in case of either final products or inputs on which no duty is paid even though the goods are liable to duty. The insistence of the respondent authorities, in the circumstances, that in a case where an exporter exercises option under sub-rule (2) of Rule 19 of the Rules in relation to inputs, which may be duty free, or which are removed without payment of duty on execution of bond, when used for the purposes of manufacture or processing of final products which are exported, the exporter must export the goods only under Rule 19(1) of the Rules is not borne out by the provisions of the Rules. It is not disputed that the original notification issued by CBEC under sub-rule (3) of Rule 19 of the Rules on 26th June, 2001 and made effective from 1st July, 2001 has been operating without any difficulty and nothing has been brought on record to show why the impugned amendment became necessary. At the cost of repetition it requires to be stated that nothing has been brought on record nor has the learned counsel been in a position to point out as to how and in what circumstances an exporter can claim double benefit. The power to issue notification under Rule 18 of the Rules is available with the Central Government while power under Rule 19(3) of the Rules is available with the CBEC. The Board is a creature of the statute and cannot go beyond the powers granted under the statute. If the Central Government has, in its wisdom, provided for granting rebate upon fulfillment of certain conditions and subject to certain procedural safeguards, CBEC cannot be permitted to render the Notification issued by the Central Government redundant by issuing a notification in exercise of powers under Rule 19 of the Rules. Nor can CBEC exercise such powers so as to render Rule 18 otiose. Hence, for this reason also, the impugned Notification cannot be upheld. Thus, impugned Notification being Notification No.10/2004-CE(NT) dated 3rd June, 2004 is bad in law for the aforestated reasons, namely, it is not in consonance with the principal provisions, namely, Rules 18 and 19 of the Rules, and it is, even otherwise, Revenue neutral. The CBEC cannot exercise power under Rule 19 of the Rules to negate a notification issued by the Central Government under Rule 18 of the Rules. The same is, therefore, declared to be bad in law and is quashed and set aside. As a consequence the impugned show cause notices (Annexure-C Collectively) are also quashed and set aside. The petition is allowed, accordingly, to the aforesaid extent. Issues Involved:1. Validity of Notification No.10/2004-CE (NT) dated 3.6.2004.2. Legality of 14 show cause notices issued on 8th September 2004.3. Entitlement to rebate claims under Rule 18 of the Central Excise Rules, 2002.4. Relationship between Rules 18 and 19 of the Central Excise Rules, 2002.5. Impact of Amendment Notification on CENVAT Credit Rules, 2004.Detailed Analysis:1. Validity of Notification No.10/2004-CE (NT) dated 3.6.2004:The petitioner challenged the validity of Notification No.10/2004-CE (NT) dated 3.6.2004, arguing that it was ultra-vires the provisions of Rule 19 of the Central Excise Rules, 2002. The court analyzed Rules 18 and 19, noting that Rule 18 provides a complete code for claiming rebate on duty-paid goods or inputs used in manufacture of exported goods. The court found that the impugned notification, which mandated that exporters who procured duty-free inputs must also export final products without duty, was not supported by the provisions of Rule 19. The notification was deemed to exceed the jurisdiction granted under Rule 19 and was declared bad in law.2. Legality of 14 Show Cause Notices Issued on 8th September 2004:The petitioner sought to quash the 14 show cause notices issued on 8th September 2004, which were based on the impugned notification. Since the court found the notification to be invalid, it consequently quashed the show cause notices as well.3. Entitlement to Rebate Claims under Rule 18 of the Central Excise Rules, 2002:The petitioner argued that Rule 18 allows for a rebate of duty on final products or inputs used in their manufacture, regardless of whether duty-free inputs were used. The court agreed, stating that Rule 18 operates independently and permits rebate claims on duty-paid final products even if duty-free inputs were used. The impugned notification's requirement that duty-free inputs must result in duty-free exports was found to be inconsistent with Rule 18.4. Relationship between Rules 18 and 19 of the Central Excise Rules, 2002:The court clarified that Rules 18 and 19 operate in separate fields. Rule 18 pertains to rebate of duty on duty-paid goods or inputs, while Rule 19 allows for export without payment of duty. The court emphasized that the impugned notification improperly conflated the two rules, restricting the exporter's options and the Commissioner's discretion, which was not intended by the rules.5. Impact of Amendment Notification on CENVAT Credit Rules, 2004:The petitioner contended that the impugned notification rendered Rule 5 of the CENVAT Credit Rules, 2004 redundant. The court noted that even if the notification was upheld, exporters could still claim refunds under Rule 5 of the CENVAT Rules, making the notification revenue-neutral. This further supported the court's decision to quash the notification as it did not align with the principal provisions and was unnecessary.Conclusion:The court declared Notification No.10/2004-CE (NT) dated 3.6.2004 as invalid and quashed the related show cause notices. It upheld the petitioner's entitlement to rebate claims under Rule 18, emphasizing the independent operation of Rules 18 and 19, and noted the revenue-neutral impact of the notification on the CENVAT Credit Rules. The petition was allowed, and the rule was made absolute with no order as to costs. The request to stay the operation of the judgment was rejected.