2012 (12) TMI 157 - HC - Service Tax

Court rules against respondent's rebate appropriation, orders review for procedural fairness.

M/s. Arunachala Gounder Textile Mills Private Limited, Versus Commissioner of Central Excise, Salem,

The court found that the appropriation of rebate amounts by the second respondent against alleged service tax dues was not sustainable. The court held ... Rebate claim under rule 18 - Duty paid on export of goods - Assessee is engaged in manufacturing yarns for domestic as well as export market - Assessee had filed the appeal before the Tribunal during the year 2010, no order of stay had been obtained against the respondents, with regard to the recovery of the amounts due from the petitioner. Rebate earned by the petitioner, by way of refund of excise duty paid by it, had been adjusted towards the amount of service tax due to the government, under the power conferred by Sec. 87(a) of the Finance Act, 1994, read with Sec. 11 of the Central Excise Act, 1944. Held that:- The alleged service tax dues to be payable by the petitioner, from the amount to be due to the petitioner as export duty rebate, cannot be sustained in the eye of law. The stay petition filed by the petitioner along with the appeal, in Appeal No.ST/217/2010, had been dismissed by the Tribunal, as infructuous, only due to the fact that the amount said to be due from the petitioner had been appropriated by the second respondent. Therefore it is appropriate to set aside the appropriation by the second respondent, towards the alleged liability of the petitioner, from the amount refundable to it, as export duty rebate. Appeal remand back to Tribunal Issues Involved:1. Rebate claims under Rule 18 of the Central Excise Rules, 2002.2. Adjustment of rebate amounts against alleged service tax dues.3. Procedural fairness and natural justice.4. Jurisdiction and maintainability of the writ petition.5. Pending appeals and stay petitions before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).Detailed Analysis:1. Rebate Claims under Rule 18 of the Central Excise Rules, 2002:The petitioner, a private limited company engaged in manufacturing yarns, made rebate claims under Rule 18 of the Central Excise Rules, 2002. Rule 18 provides for the grant of a rebate of duty paid on excisable goods exported and the duty paid on raw materials used in the manufacture of exported goods. The petitioner had been making such claims with the second respondent.2. Adjustment of Rebate Amounts against Alleged Service Tax Dues:The petitioner claimed that the respondents were withholding rebate amounts by adjusting them against alleged service tax dues related to business auxiliary services. The petitioner argued that this adjustment was arbitrary and contrary to the relevant provisions of law, particularly when stay applications were pending before the courts.3. Procedural Fairness and Natural Justice:The petitioner contended that no notice was given before the adjustments were made, violating the principles of natural justice. The court noted that the petitioner should have been given a reasonable opportunity of hearing before the second respondent appropriated the amount towards the alleged excise duty liability.4. Jurisdiction and Maintainability of the Writ Petition:The respondents argued that the writ petition was not maintainable as it challenged multiple orders-in-original in a single petition. The respondents also stated that the petitioner had failed to pursue the stay petition effectively before the Tribunal, which could have been transferred to another bench if necessary.5. Pending Appeals and Stay Petitions before CESTAT:The petitioner had filed appeals and stay petitions before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Tribunal had granted an interim order of stay in similar cases and waived the requirement of pre-deposit. However, the stay petition filed by the petitioner was dismissed as infructuous due to the appropriation of the rebate amounts.Judgment:The court found that the appropriation of Rs. 18,32,782/- from the export duty rebate of Rs. 47,00,094/- by the second respondent was not sustainable in law. The petitioner should have been given a reasonable opportunity of hearing before such appropriation. The court set aside the appropriation and directed the second respondent to consider and pass appropriate orders on the rebate claim without undue delay. The court also directed the Customs, Excise and Service Tax Appellate Tribunal to hear and dispose of the appeals on merits and in accordance with law as expeditiously as possible. The writ petition was ordered accordingly with no costs.