1994 (1) TMI 99 - HC - Central Excise

Court quashes orders, upholds refund claim challenge, deems decision final. Illegal additional notice. Petition successful.

The court quashed and set aside the orders dated 28th August, 1985 and 30th August, 1985 passed by the 2nd Respondent. The challenge against the 2nd ... Appeal - Order - Res judicata - Demand 1. ISSUES PRESENTED AND CONSIDERED Whether a revenue authority may issue a subsequent show-cause notice and pass a fresh adjudicatory order in respect of refund claims already finally adjudicated on appeal where no further departmental appeal has been preferred, and if so, under which provision(s) of the Central Excise legal scheme such re-examination is permissible. Whether a show-cause issued under Section 11(A) (recovery of erroneously refunded amounts) is time-barred where the departmental notice is issued beyond six months from the date of provisional allowance, and whether a distinction exists between 'provisional' and 'final' sanctioning of refunds for the purpose of limitation under Section 11(A). Whether issuance of a subsequent show-cause notice under Section 11(B) (or otherwise) can validly revive or re-open claims or demands which have been finally adjudicated and disposed of on appeal by the departmental appellate authority, when no further appeal to the statutory tribunal has been preferred by the department. Whether a departmental order incorrectly construing a later notification with retrospective effect (instead of prospective operation) and treating provisional releases under bonds as avoiding the limitation bar can be sustained. 2. ISSUE-WISE DETAILED ANALYSIS Issue A: Validity of issuing a fresh show-cause/adjudicatory order after final departmental appellate disposal Legal framework: The statutory scheme contemplates administrative adjudication of excise demands, departmental appeals to a higher departmental authority, and then appeal to the statutory tribunal. Once an appeal is decided by the departmental appellate authority and no appeal to the statutory tribunal is preferred by the Department, the appellate order attains finality vis-à-vis departmental remedies. Precedent treatment: No prior decisions were cited in the text to govern re-opening of finally adjudicated departmental appeals; the Court considered the statutory framework and the parties' contentions only. Interpretation and reasoning: The Court held that both the original adjudicating officer and the departmental appellate authority had considered the refund claims on their merits. Because the Department did not prefer further appeal under the statutory provision conferring a right to appeal to the Customs, Excise & Gold (Control) Appellate Tribunal, the departmental appellate order became final and binding. In that factual and legal situation the issuing of a subsequent show-cause notice by the adjudicating officer attacking the same subject-matter already finally decided was impermissible. The Court treated the subsequent show-cause and resultant order as contrary to the finality of the appellate decision and therefore illegal. Ratio vs. Obiter: Ratio - where departmental appellate authority has finally adjudicated refund claims and the Department does not appeal to the statutory tribunal, the adjudicating officer cannot re-issue show-cause notices to re-open the same claims; subsequent orders doing so are invalid. Conclusion: The subsequent show-cause notice and the order passed thereon were illegal and were quashed and set aside. Issue B: Time-bar under Section 11(A) and the significance of 'provisional' versus 'final' allowance of refunds Legal framework: Section 11(A) (as framed in the judgment) provides a six-month limitation period for issuing show-cause notices for recovery of amounts erroneously refunded; the concept of provisional release against security (bank guarantee/bonds) was also in play in assessing whether limitation could be avoided. Precedent treatment: The Court did not cite external precedent but examined the content and allegations of the impugned show-cause notice and the nature of the assessments (final v. provisional) as determined on appeal. Interpretation and reasoning: The appellate authority found that the show-cause notice did not allege suppression, willful misstatement or similar matters that could sustain invoking a later period; it also held that the assessments (RT-12s) were finally assessed and not provisional. The adjudicating officer's position that refunds were provisionally allowed and therefore outside the six-month bar was rejected by the appellate authority as contrary to the record. The Court accepted that finding and concluded that the original show-cause notice issued beyond six months was bad in law. Ratio vs. Obiter: Ratio - a show-cause under Section 11(A) is subject to the six-month limitation; if refunds were finally assessed (not provisional) and no allegation of suppression exists, a notice issued beyond the statutory period is not maintainable. Conclusion: The departmental demand under Section 11(A) premised on avoidance of limitation by treating releases as provisional was unsustainable where the appellate authority found final assessment; accordingly, the demand was set aside by the appellate order upheld by the Court. Issue C: Re-interpretation and retrospective application of later notification and its effect on prior refunds Legal framework: Notifications governing rebates/exemptions define the entitlement and quantum of refund; the proper temporal operation of a notification (prospective v. retrospective) controls whether it can affect earlier refunds. Precedent treatment: No authority was cited; the Court relied upon the appellate authority's conclusion regarding the proper interpretation of the later notification. Interpretation and reasoning: The adjudicating officer was found to have misinterpreted Notification No. 99/84 by giving it retrospective effect; the appellate authority held that the notification was prospective only and so could not be applied to negate or reduce earlier refunds. The Court accepted that the adjudicating officer's retrospective construction was incorrect and noted this as one reason supporting the appellate decision in favour of the claimants. Ratio vs. Obiter: Ratio - a notification which is prospectively effective cannot be given retrospective operation so as to defeat previously accrued entitlements unless the notification expressly so provides and the statutory scheme permits. Conclusion: The adjudicating officer's retrospective application of the later notification was incorrect; the appellate finding to that effect contributed to the decision that the departmental demand was unsustainable. Issue D: Use of provisional release under bonds to evade limitation and its treatment by the authorities Legal framework: Provisional releases subject to bonds or bank guarantees may have evidentiary or contingent effect; however, whether such provisional release prevents the running of limitation for issuance of recovery notices depends on whether the release was genuinely provisional and whether final assessment occurred. Precedent treatment: The Court relied on the appellate authority's factual determination that releases were not provisional but finally assessed; no external precedent was invoked. Interpretation and reasoning: The appellate authority found an apparent attempt by the adjudicating officer to invoke provisional releases under bonds to take shelter of the longer period beyond six months; that view was accepted as a misapplication of law when the records showed final assessment. The Court treated this as an improper device to avoid statutory limitation and disapproved the same. Ratio vs. Obiter: Ratio - provisional release under bond cannot be used as a subterfuge to bypass statutory limitation where records demonstrate final assessment; factual finding of final assessment precludes treating releases as provisional for the purpose of extending limitation. Conclusion: The adjudicating officer's reliance on provisional release under bonds to justify time-bar avoidance was unsustainable in the face of findings of final assessment; consequently, the demand founded on that theory failed. Overall Disposition and Final Finding The Court concluded that the departmental appellate order which had considered and allowed the claims on merits became final in the absence of departmental appeal to the statutory tribunal; thereafter the issuing of a new show-cause notice and the order based upon it were illegal. Both impugned orders were quashed and set aside, and the petition was allowed with no order as to costs.