2019 (9) TMI 802 - SC - Customs

Refund claims require challenging self-assessment orders through Section 128 appeals before processing under the Act

ITC LIMITED Versus COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV

The SC held that refund claims cannot be entertained without first challenging the underlying assessment order through proper appellate proceedings. The ... Maintainability of Refund claim - effect and scope of 'assessment' and 'self-assessment' - order of assessment in appeal not challenged - manufacturing activity, waste paper/ broke arises which are recycled in the manufacturing process by making pulp - effect of the provisions Section 27, prior to amendment and post-amendment under Finance Act, 2011 - whether in the absence of any challenge to the order of assessment in appeal, any refund application against the assessed duty can be entertained? Whether in the case of self-assessment without passing a speaking order, it can be termed to be an order of self-assessment? - HELD THAT:- In Escorts Ltd. v. Union of India & Ors. [1994 (2) TMI 74 - SUPREME COURT] the question arose for consideration as to the Bill of Entry classifying the imported goods under a certain tariff item and paying the duty thereon. This Court held that in such a case signing of the bill of entry itself amounted to passing an order of assessment. Hence, the application seeking a refund on the ground that imported goods fell under a different item attracting a far lower rate of duty, having been filed more than six months after the payment of duty, was rightly rejected as timebarred. What is of significance is that an entry made in the bill of entry has been held to be an order of assessment passed by the Assessing Officer. Thus, the endorsement made on the bill of entry is an order of assessment. It cannot be said that there is no order of assessment passed in such a case. When there is no lis, speaking order is not required to be passed in “across the counter affair''. Procedure of assessment of duty as prevailed before the amendment of the Act prior to the amendment made in section 17(1) by the Finance Act of 2011 - HELD THAT:- No doubt about it that the expression which was earlier used in Section 27(1)(i) that “in pursuance of an order of assessment” has been deleted from the amended provision of Section 27 due to introduction of provision as to self-assessment. However, as self-assessment is nonetheless an order of assessment, no difference is made by deletion of aforesaid expression as no separate reasoned assessment order is required to be passed in the case of self-assessment. It is apparent from provisions of refund that it is more or less in the nature of execution proceedings. It is not open to the authority which processes the refund to make a fresh assessment on merits and to correct assessment on the basis of mistake or otherwise. As the order of self-assessment is nonetheless an assessment order passed under the Act, obviously it would be appealable by any person aggrieved thereby. The expression ‘Any person' is of wider amplitude. The revenue, as well as assessee, can also prefer an appeal aggrieved by an order of assessment. It is not only the order of reassessment which is appealable but the provisions of Section 128 make appealable any decision or order under the Act including that of self-assessment. The order of self-assessment is an order of assessment as per section 2(2), as such, it is appealable in case any person is aggrieved by it. There is a specific provision made in Section 17 to pass a reasoned/speaking order in the situation in case on verification, self-assessment is not found to be satisfactory, an order of reassessment has to be passed under section 17(4). Section 128 has not provided for an appeal against a speaking order but against “any order” which is of wide amplitude. The reasoning employed by the High Court is that since there is no lis, no speaking order is passed, as such an appeal would not lie, is not sustainable in law, is contrary to what has been held by this Court in Escorts. The provisions under section 27 cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made. In other words, the order of self-assessment is required to be followed unless modified before the claim for refund is entertained under Section 27. The refund proceedings are in the nature of execution for refunding amount. It is not assessment or reassessment proceedings at all. When we consider the overall effect of the provisions prior to amendment and post-amendment under Finance Act, 2011, we are of the opinion that the claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund; and in case any person is aggrieved by any order which would include self-assessment, he has to get the order modified under Section 128 or under other relevant provisions of the Act. The applications for refund were not maintainable - Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in these appeals include:Whether, in the absence of any challenge to the order of assessment (including self-assessment) in appeal, a refund application against the assessed duty can be entertained under Section 27 of the Customs Act, 1962.The legal effect and scope of 'assessment' and 'self-assessment' under the Customs Act, especially after the amendment by the Finance Act, 2011.The interplay between the provisions of Sections 17, 27, 28, and 128 of the Customs Act concerning assessment, reassessment, refund claims, and appeals.Whether the endorsement on a bill of entry constitutes an order of assessment and whether such an order is appealable.The impact of the amendment in the definition of assessment and refund provisions on the right to claim refund without filing an appeal.The extent to which refund proceedings under Section 27 can serve as a substitute for appeal or reassessment proceedings.The applicability of the limitation period for filing refund claims and whether it can be extended or excluded in certain circumstances.The treatment of competing High Court decisions and the Tribunal's approach to refund claims in the context of self-assessment.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether a refund application can be entertained without challenging the order of assessment or self-assessment in appeal.Relevant legal framework and precedents: Prior to the 2011 amendment, Section 27(1)(i) required that duty be paid 'in pursuance of an order of assessment' for refund claims. The Finance Act, 2011 amended Sections 2(2), 17, and 27, introducing self-assessment and removing the conditionality that refund claims arise only from an order of assessment. The definition of assessment was expanded to explicitly include self-assessment. Section 128 provides for appeals against any order or decision under the Act.Precedents such as Escorts Ltd. v. Union of India held that the signing of the bill of entry amounts to an order of assessment. Collector of Central Excise, Kanpur v. Flock (India) Pvt. Ltd. and Priya Blue Industries Ltd. v. Commissioner of Customs established that if an order of assessment is not challenged within the prescribed period, the party cannot later seek a refund on the ground that the assessment was erroneous.Court's interpretation and reasoning: The Court noted that the endorsement on the bill of entry is an order of assessment, even if no formal speaking order is passed when there is no dispute ('no lis'). The amendment introducing self-assessment did not alter the fundamental principle that an order of assessment (including self-assessment) is appealable and must be challenged if aggrieved. The refund provisions under Section 27 are in the nature of execution proceedings and cannot be used to re-assess or re-open an assessment order.Key evidence and findings: The Court examined the legislative history and amendments, noting that self-assessment is now defined as an assessment and that appeals lie against any order, including self-assessment. The Court also referred to the factual matrix in cases such as ITC Limited and Micromax Informatics Ltd. to illustrate the practical application of these principles.Application of law to facts: The Court held that refund claims under Section 27 cannot be entertained unless the order of assessment or self-assessment is modified by the appellate authority or reassessed by the proper officer under the prescribed procedure. The refund authority cannot sit in appeal or reassess the duty while considering refund claims.Treatment of competing arguments: The Court rejected the argument that refund claims could be entertained without an appeal, as held by certain High Courts (Delhi and Madras), which had interpreted the amended Section 27 liberally to allow refund claims even in the absence of an appeal against the assessment order. The Court found such reasoning unsustainable and contrary to the statutory scheme.Conclusion: Refund applications under Section 27 cannot be entertained unless the order of assessment or self-assessment is challenged and modified in appeal or reassessment. The refund provisions cannot be used to circumvent the appeal process.Issue 2: The legal effect of self-assessment under the amended Customs Act and its appealability.Relevant legal framework and precedents: Section 2(2) of the Customs Act, as amended, includes self-assessment within the definition of assessment. Section 17 mandates self-assessment by importers/exporters, with verification and possible reassessment by the proper officer. Section 128 allows appeals against any order or decision under the Act.Court's interpretation and reasoning: The Court emphasized that self-assessment is an assessment order and is appealable under Section 128. The absence of a speaking order does not negate the existence of an order of assessment, especially where there is no dispute. The Court rejected the view that no appeal lies against self-assessment if no speaking order is passed, holding that the appeal provisions apply to any order, including self-assessment.Key evidence and findings: The Court relied on the statutory language, especially the amended definition of assessment and the broad scope of Section 128. The Court also referred to the explanation in Section 17(6) and the procedural requirements for reassessment and speaking orders.Application of law to facts: The Court found that self-assessment orders are final unless challenged in appeal or reassessed under Section 17(4). The refund claims cannot substitute for appeals against self-assessment.Treatment of competing arguments: The Court disagreed with the Department's contention that self-assessment is not appealable unless a reassessment order is passed. It also rejected the argument that the absence of a speaking order precludes appeal.Conclusion: Self-assessment constitutes an order of assessment and is appealable under Section 128. The appeal remedy must be exhausted before refund claims under Section 27 can be entertained.Issue 3: The interplay between Sections 17, 27, 28, and 128 concerning assessment, reassessment, refund claims, and appeals.Relevant legal framework and precedents: Section 17 prescribes assessment and self-assessment procedures, including reassessment and passing of speaking orders. Section 27 provides for refund claims of duty or interest paid or borne. Section 28 deals with recovery of duties not levied or erroneously refunded. Section 128 provides for appeals against any order or decision under the Act.Court's interpretation and reasoning: The Court held that refund proceedings under Section 27 are not adjudicatory or appellate in nature but are execution proceedings for refunding amounts already determined to be refundable. Reassessment and modification of assessment orders must be done under Sections 17 and 128 before refund claims can be entertained. Section 28 remedies recovery and does not affect the refund process.Key evidence and findings: The Court noted that the refund authority cannot reassess or modify the assessment order while processing refund claims. The refund claim is maintainable only if the assessment order has been modified or set aside by competent authority.Application of law to facts: The Court found that in the absence of reassessment or appeal modifying the assessment order, refund claims under Section 27 are not maintainable. The procedural safeguards and limitation periods prescribed under these sections must be adhered to.Treatment of competing arguments: The Court rejected the argument that refund claims could be entertained independently of appeal or reassessment proceedings, emphasizing the statutory scheme's requirement for finality and procedural regularity.Conclusion: Sections 17, 27, 28, and 128 operate in tandem, ensuring that assessment orders are final unless modified by appeal or reassessment, and refund claims under Section 27 are contingent on such modification.Issue 4: The effect of the amendment by Finance Act, 2011 on the refund claim procedure and limitation period.Relevant legal framework and precedents: The amendment deleted the phrase 'in pursuance of an order of assessment' from Section 27(1)(i), expanded the definition of assessment to include self-assessment, and standardized the limitation period for refund claims to one year from the date of payment.Court's interpretation and reasoning: The Court observed that the amendment reflects the legislative intent to simplify procedures by introducing self-assessment and removing the necessity of an order of assessment for refund claims. However, the fundamental principle that refund claims cannot be entertained without modification of the assessment order remains intact. The limitation period is strictly construed and applies uniformly.Key evidence and findings: The Court relied on the amended statutory text and legislative history, noting the deletion of conditionality but emphasizing that self-assessment is an order of assessment and thus subject to appeal and reassessment provisions.Application of law to facts: The amendment does not confer an unfettered right to claim refund without appeal or reassessment. The refund claim procedure is to be read in conjunction with the provisions governing assessment and appeals.Treatment of competing arguments: The Court rejected the High Courts' liberal interpretation allowing refund claims without appeals, holding it inconsistent with the statutory scheme.Conclusion: The amendment does not dispense with the requirement of challenging or modifying the assessment order before refund claims can be entertained, and the limitation period applies strictly.Issue 5: Whether the refund authority can reassess or review the assessment order while considering refund claims.Relevant legal framework and precedents: Sections 17 and 27, along with judicial precedents such as Flock (India) Pvt. Ltd. and Priya Blue Industries Ltd., establish that reassessment is a distinct procedure and refund proceedings are not meant for reassessment or review of the assessment order.Court's interpretation and reasoning: The Court emphasized that refund claims are execution proceedings and the refund authority cannot sit in appeal or reassess the duty. Reassessment can only be done under the procedure prescribed in Section 17, with speaking orders and appeal remedies available.Key evidence and findings: The Court noted that allowing refund authorities to reassess would undermine the statutory appeal mechanism and introduce uncertainty.Application of law to facts: The refund claims in the instant appeals were rejected by the Tribunal and upheld by the Court on the ground that no reassessment or appeal modifying the assessment order had taken place.Treatment of competing arguments: The Court rejected the Department's contention that refund claims could be rejected solely because no appeal was filed, but agreed that reassessment or appeal is a prerequisite for refund claims.Conclusion: Refund authorities cannot reassess or review assessment orders during refund proceedings; such functions are reserved for the proper officers under Sections 17 and 128.3. SIGNIFICANT HOLDINGS'The endorsement made on the bill of entry is an order of assessment. It cannot be said that there is no order of assessment passed in such a case. When there is no lis, speaking order is not required to be passed in 'across the counter affair'.''Self-assessment is an assessment as per the amended definition of section 2(2). It is further provided that proper officer may verify the self-assessment of such goods, and for this purpose, examine or test any imported goods or exported goods or such part thereof as may be necessary.''The appeal provisions apply to any order or decision under the Act including that of self-assessment. The order of self-assessment is an order of assessment as per section 2(2), as such, it is appealable in case any person is aggrieved by it.''Refund proceedings under Section 27 are in the nature of execution proceedings and cannot be used to re-assess or re-open an assessment order. The refund authority cannot sit in appeal or reassess the duty while considering refund claims.''If an order of assessment is not challenged within the prescribed period, the party cannot later seek a refund on the ground that the assessment was erroneous. The provisions of adjudication, appeal and reassessment must be respected to maintain finality and certainty in levy and collection of duty.''The claim for refund cannot be entertained unless the order of assessment or self-assessment is modified in accordance with law by taking recourse to the appropriate proceedings and it would not be within the ken of Section 27 to set aside the order of self-assessment and reassess the duty for making refund.''The provisions under section 27 cannot be invoked in the absence of amendment or modification having been made in the bill of entry on the basis of which self-assessment has been made.''The applications for refund were not maintainable in the absence of challenge to the order of assessment or self-assessment by way of appeal or reassessment.'