2009 (6) TMI 971 - HC - Central Excise

Court Upholds Refund Limitation Rule Under Notification No. 33/99-CE

The Court upheld the interpretation of the proviso to Clause 2(b) of Notification No. 33/99-CE, stating that the refund amount should not exceed the duty ... - Issues Involved:1. Exemption and refund under Notification No. 33/99-CE dated 8.7.99.2. Amendments to Notification No. 33/99-CE and their retrospective application.3. Interpretation of 'CENVAT credit availed of' under the proviso to Clause 2(b) of the Notification.4. Authority and scope of Section 153 of the Finance Act, 2003.5. Recovery of duty not collected or wrongly refunded.6. Concept of unjust enrichment of the State.Issue-Wise Detailed Analysis:1. Exemption and Refund under Notification No. 33/99-CE dated 8.7.99:The Notification initially provided for exemption from payment of central excise duty on goods cleared from units in the north-eastern region. This exemption was equivalent to the amount of duty paid by the manufacturer from the account current maintained under Rule 9 read with Rule 173G of the Central Excise Rules, 1944. The refund was to be granted monthly upon proper verification.2. Amendments to Notification No. 33/99-CE and Their Retrospective Application:Notification No. 33/99-CE was amended by Notification No. 35/01-CE effective from 1.7.2001, which excluded the amount of duty paid by utilization of CENVAT credit from the exemption. Further amendments were made by Notification No. 61/02-CE effective from 23.12.2002, introducing a proviso that the refund shall not exceed the amount of duty paid less the amount of CENVAT credit availed of. The Finance Act, 2003, retrospectively applied these provisions from 8.7.99 to 22.12.2002.3. Interpretation of 'CENVAT Credit Availed Of' Under the Proviso to Clause 2(b) of the Notification:The proviso to Clause 2(b) of the Notification No. 33/99-CE dated 8.7.99 was interpreted to mean that the refund amount shall not exceed the amount of duty paid minus the total CENVAT credit available to a manufacturer, regardless of whether such credit was utilized for payment of duty or not. This interpretation was supported by the clear language of the proviso and the understanding of the petitioners, who had started utilizing available CENVAT credit by bringing the account to nil as on 31.3.2003.4. Authority and Scope of Section 153 of the Finance Act, 2003:Section 153 of the Finance Act, 2003, retrospectively amended Notification No. 33/99-CE and contemplated recovery of duty not collected or wrongly refunded during the period 8.7.99 to 22.12.2002. The scope of this power was to recover any refund that included the component of unutilized CENVAT credit, which was deemed unauthorized under the amended provisions.5. Recovery of Duty Not Collected or Wrongly Refunded:The jurisdictional Deputy/Assistant Commissioners issued orders directing manufacturers to return amounts equivalent to unutilized CENVAT credit available in their accounts from the refund sanctioned. This recovery was justified under Section 153(4) of the Finance Act, 2003, as the refund granted during the period 8.7.99 to 22.12.2002 included the component of unutilized CENVAT credit, which was not permissible.6. Concept of Unjust Enrichment of the State:The argument that recovery of such refund would result in unjust enrichment of the State was considered. However, it was concluded that debiting the CENVAT credit account of the manufacturer at the stage when the Finance Act, 2003, came into force was not possible and legally impermissible. Retention of the refunded amount equivalent to the unutilized CENVAT credit became unlawful and unauthorized under the Notification No. 33/99-CE dated 8.7.99, and recovery of such unauthorized refund was contemplated by Section 153(4) of the Finance Act, 2003.Conclusion:The Court held that the impugned orders were legally sustainable and dismissed the appeals. The interpretation of the proviso to Clause 2(b) of the Notification No. 33/99-CE dated 8.7.99 was upheld, and the scope of recovery under Section 153(4) of the Finance Act, 2003, was clarified. The Court did not address the validity of Section 153 of the Finance Act, as the challenge to its validity was not urged during the hearing. The order did not preclude the petitioners from seeking remedies under Section 11B of the Central Excise Act, 1944.