SHOW CAUSE NOTICE REQUIRED TO BE ISSUED FOR RECOVERY OF ERROENOUS REFUND

[Mr. M. GOVINDARAJAN]

The indirect tax laws provide for the recovery of duty erroneously refunded. Section 73 of Finance Act, 1994 provides that where any service tax has been erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. Where any service has been erroneously refunded by reason of fraud or collusion or willful misstatement or suppression of facts or contravention of any of the provisions of Chapter V of Finance Act, 1994 or of the rules made there under with intent to evade payment of service tax then the Central Excise Officer can invoke the extended period of limitation up to five years.

Section11A of Central Excise Act, 1944 deals with recovery of duty erroneously refunded.  It provides that the duty was erroneously refunded on the basis of any approval, acceptance or assessment relating to the rate of duty on or on valuation of excisable goods under any other provisions of the Act or the rule madder there under, a Central Excise Officer may within one year from the relevant date, serve notice on the person to whom the refund has been erroneously made requiring to show cause why he should not pay the amount specified in the notice. Where any duty of excise has been erroneously refunded by reason of fraud, collusion or any willful misstatement or suppression of facts, or contravention of any of the provisions of this Act or the rules made there under with intent to evade payment of duty the Central Excise Officer can invoke the extended period of limitation period up to five years.

Section 28(1) of the Customs Act provides that when any duty has been erroneously refunded, the proper Officer may-

>>> in the case of any import made by any individual for his personal use or by Government or by any Educational, research or charitable institution or hospital within one year;

>>> in any other case within six months

from the relevant date serve notice on the person to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice. Where any duty has been erroneously refunded by reason of collusion or any willful statement or suppression of facts by the importer of exporter the show cause notice may be issued within five years.

Thus it is clear that show cause notice shall be issued for recovery of erroneous refund.  The CBEC also issued Circular No.423/56/98-CX, dated 22.09.1998 clarifying that the order passed under Section 35E (2) does not automatically result in the recovery of the refund and that this has to be followed by show cause notice under Section 11A which should be issued within six months from the date of actual refund.

In 'Panyam Cements and Mineral Industries Ltd., V. Commissioner of Central Excise, Hyderabad' - 2004 -TMI - 53335 - (CESTAT, SOUTH ZONAL BENCH, BANGALORE) the tribunal held that to recover the amount already paid to the appellant, only course open to the Department was to issue a show cause notice under Section 11A of the Central Excise Act for recovery of the amount erroneously refunded to the appellant and simultaneously filing the appeal before the Appellate Authority, challenging the order of the Assistant Commissioner sanctioning the refund claim.   Since the show cause notice for the recovery of amount already paid to the appellant has not been issued within time under Section 11A, therefore, the Department cannot recover the said amount even if they succeed on merit.

In 'Rajarathnam Matches (P) Ltd., V. Commissioner of Customs, Tuticorin' - 2009 -TMI - 34731 - (CESTAT, CHENNAI) the appellants had imported a consignment each of 'wooden match splints' in the year 2005 and paid the countervailing duty @ 16% ad valorem oblivious of the fact that the goods imported were exempt from CVD. The wooden match splints imported were captively consumed in the manufacture and clearance of final products safety matches.  Later on, they applied for and received cash refund of the excess paid CVD under separate orders passed by the original authority. The impugned order was passed in appeals filed by the Revenue against the order sanctioning refund. In the appeal the Commissioner (Appeals) found that the appellants had not proved that the excess duty paid has not been passed on to its customers. The appellants contended that no show cause notice was issued under Section 28 of Customs Act before demanding the amounts refunded to the appellants. The tribunal held that excess paid amounts of duty were refunded by the Asst. Commissioner (Refunds) after examining whether unjust enrichment was involved in granting the refunds after going through the certificates issued by Chartered Accountants which had stated that the amounts involved had been accounted in the Balance Sheets of the company as 'Duty receivable from Customs'. Section 28 of the Customs Act provides for recovery of duty erroneously refunded. In the circular No. 423/56/98-CX, dated 22.9.1998 issued by CBEC, it was clarified that an order passed under Section 35E (2) does not automatically result in the recovery of the refund. This has to be followed by Show cause notice under Section 11A, which should be issued within six months from the date of actual refund. The tribunal further held that the impugned order has been passed without appreciating the evidence on record as regard unjust enrichment of the appellants in the grant of the impugned refunds.

In 'Morarjee Goculdas Spinning & Weaving V. Commissioner of Central Excise, Mumbai - I' - [2008 -TMI - 2956 - CESTAT, MUMBAI] the issue is  whether for recovery of erroneous refund, show cause notice under Section 11A is required to be issued or whether challenge to the order of sanction of the refund under Section 35E (2) is sufficient. The tribunal found that the issue stands settled by Supreme Court in 'Commissioner of Central Excise, Bhubaneshwar V. Re-rolling Mills - 1997 -TMI - 44606 - (SUPREME COURT OF INDIA) which held that show cause notice under Section 11A was required for the purpose of recovery of erroneous refund, within the time limit. 

In 'Nestle India Ltd., V. Commissioner of Central Excise, Goa' - 2009 (240) ELT 426 (Tri. Mumbai) the appellants filed various refund claims with the adjudicating authority, which sanctioned the refunds. The Revenue filed appeal against this before the Commissioner (Appeals) who came to the conclusion that the refund orders are incorrect and liable to be set aside. The appellant, aggrieved on this, filed this present appeal. The appellants contended that the Revenue has filed only appeals against adjudication order but has not issued any show cause notice for recovery of the amount. The appellants relied on the circular No. 423/56/98-CX, dated 22.09.1998 wherein it is the direction that the department should issue timely show cause notice for demand in case of erroneous refund.  The Revenue contended that the department has got two routes to recover the amount, which is refunded to the assessee.  The Revenue further contended that recovery of excise duty can be made pursuant to an appeal filed after invoking the provisions of Section 35E of the Central Excise Act, 1944 if the time limit provided in Section 11A has expired and Section 35E and 11A operate in different fields and for different purposes. They can choose any route for recovery of erroneous refund. The tribunal held that it is very clearly mandated that a show cause notice has to be issued for recovery of erroneous refunds.

In 'TTP Technologies Pvt. Ltd., V. Commissioner of Central Excise, Bangalore - II' - 2009 -TMI - 34861 - (CESTAT, BANGALORE) the appellants obtained certain inputs took CENVAT credit and manufactured the final products which were cleared on payment of duty by utilizing the CENVAT credit and they were exported under the Duty Free Import Authorization Scheme. Later, the appellants claimed rebate of duty under Rule 18 of Central Excise Rules, 2002 and the same was sanctioned. The Revenue initiated proceedings against the appellants on the ground that the rebate sanctioned was erroneous. The appellants in addition to the arguments contended that no show cause notice has been issued by the department for erroneous refund. The tribunal held that the erroneous refund can be recovered only after issue of show cause notice.