2018 (10) TMI 1568 - HC - Customs

Challenge of Rejected Show Cause Notices: Court Quashes Orders, Refunds Deposited Amount

The petitioners challenged the rejection of their request to drop show cause notices for confirmation of demand and refund of a deposited amount. The ... Reimbursement of central sales tax on purchases by an EOU - inadmissibility of CST refund on supplies from EOU to EOU - deposit under protest does not close show cause proceedings - Foreign Trade Policy overrides contrary procedural conditions in Handbook of Procedures - refund of amounts deposited under protest with interest under section 75A of the Customs ActReimbursement of central sales tax on purchases by an EOU - inadmissibility of CST refund on supplies from EOU to EOU - Foreign Trade Policy overrides contrary procedural conditions in Handbook of Procedures - Validity of demands seeking recovery of CST reimbursement in respect of purchases made from other EOU units - HELD THAT: - The Development Commissioner sought recovery of amounts reimbursed as CST in respect of purchases made by the petitioner from other EOU units. This Court found the facts and legal matrix identical to those in Asahi Songwon Colors Ltd., where it was held that the Foreign Trade Policy did not contain any condition disallowing reimbursement for purchases from EOUs and that such a condition could not be imported by the Handbook of Procedures. Applying that precedent, the Court held that the demands raised in the show cause notices are not sustainable and must be quashed. [Paras 5, 6]Demands in the show cause notices seeking recovery of CST reimbursement in respect of purchases from EOUs are quashed.Deposit under protest does not close show cause proceedings - Whether deposit of the disputed amount under protest justified dropping the show cause proceedings - HELD THAT: - The authority's concluding reason for dropping proceedings was that the unit had paid the total demand. The Court observed that the petitioners had deposited the amounts under protest only to obtain debonding and continued to contest the demands; payment under protest is distinct from an unqualified payment and does not entitle the authority to terminate adjudication without deciding the legal issues on merits. Therefore the Development Commissioner erred in treating the deposit as a basis for dropping the proceedings. [Paras 3, 4]Deposit of disputed amounts under protest does not justify dismissal of show cause notices; the authority is obliged to decide the issues on merits.Refund of amounts deposited under protest with interest under section 75A of the Customs Act - Relief in respect of amounts deposited under protest - HELD THAT: - Having quashed the demands as unsustainable, the Court directed that the amount deposited by the petitioners under protest be refunded. The Court prescribed a timeline for refund and provided that, if the refund is not made within the specified period, interest shall be payable at the rate specified under section 75A of the Customs Act from that date. [Paras 6]The deposited amount is to be refunded by the specified date; failing which interest as prescribed under section 75A of the Customs Act will be payable.Final Conclusion: The impugned orders rejecting the petitioners' challenge to the show cause notices are quashed; demands shall not be enforced, the amounts deposited under protest shall be refunded by the date directed, and interest will follow if the refund is delayed. Issues:Challenge to rejection of request for dropping show cause notices for confirmation of demand and refund of deposited amount.Analysis:The petitioners challenged three orders rejecting their request to drop show cause notices for confirmation of demand, seeking a refund of Rs. 45,74,285. The petitioners, engaged in manufacturing dyes, had an Export Oriented Unit (EOU) in Bharuch. They received benefits including reimbursement of central sales tax (CST) on goods purchased and used for manufacturing. The department issued show cause notices for recovery of part of the reimbursement related to purchases from other EOUs. The petitioners wanted to exit the EOU but were not allowed until all dues were cleared. They deposited the amount under protest while contesting the notices. The authority rejected the petitioners' request based on audit findings and EOU regulations.The Development Commissioner's order was questioned for two reasons. Firstly, dropping the show cause notices due to payment contradicted the ongoing contestation by the petitioners. Secondly, the authority's observation on the inadmissible portion of reimbursement was deemed questionable based on a previous court judgment. The respondents did not contest that the deposit was a condition for debonding, but the act of depositing under protest did not resolve the legal issues. The authority should have provided a legal opinion on the matters raised.Although the matter could have been remanded for further consideration, the issues raised in the show cause notices were found to be covered by a previous court judgment. This judgment established that the conditions imposed by the Hand Book of Procedures could not override the Foreign Trade Policy provisions. As the facts in this case were similar, the impugned orders were quashed, and the demand raised in the show cause notices was not enforced. The deposited amount was ordered to be refunded by a specified date to avoid interest liability.In conclusion, all three impugned orders were quashed, and the demand was not enforced against the petitioners. The deposited amount was to be refunded by a set date to prevent interest liability. The petition was disposed of accordingly.