2025 (6) TMI 1807 - HC - Central Excise

Time limitation for filing revision application - Jurisdiction to file revision application - availing wrong forum to challenge the order of the Commissioner (Appeals) - Recovery of CENVAT Credit availed utilized on inputs and Education Cess - recovery of rebate claim with interest and penalty - HELD THAT - It is an admitted position that the petitioner has availed the wrong forum to challenge the order of the Commissioner (Appeals) so far as the orders for recovery of rebate already sanctioned to the petitioner instead of preferring a revision application before the Revisionary Authority. It is also apparent from the record that the time limit prescribed for filing an appeal before the CESTAT is three months whereas the petitioner has preferred the appeals within two months and twenty one days and therefore as per the provision of Section 14 of the Limitation Act the petitioner is entitled to the benefit of approaching the wrong forum and therefore the Revisional Authority was not justified in not considering the time spent by the petitioner for preferring the appeal before the CESTAT for consideration to condone the delay. The Revisional Authority ought to have considered the time of filing of revision application from the date of passing of the order by the CESTAT and it is not in dispute that the petitioner has preferred the revision application within three months from the date of passing of the order passed by the CESTAT and as such there is no delay in preferring the revision application as held by the Revisional Authority after considering the time of preferring the appeal before the CESTAT. On perusal of the order passed by the CESTAT it is clear that the classification dispute raised by the lower authority was not reflected in the show cause notice. The show cause notice issued by the respondent authorities for both the purpose i.e. for rejecting the refund claim of the rebate and recovery of the rebate. Therefore the proposal of classification has to be found in the show cause notice for both i.e. for rejection of the rebate claim as well as recovery of the rebate claim already sanctioned - in absence of any proposal to change the classification of the products of the petitioner the CESTAT has rightly held that the petitioner was entitled to a CENVAT Credit on the basis of the classification under Chapter Heading 847490 which attracts duty accordingly and the petitioners are entitled for the same and therefore the demand pertaining to the dis-allowance of CENVAT credit was rightly set aside by the Tribunal. Conclusion - The Revisional Authority ought to have followed the order passed by the CESTAT which is a judicial authority and the Revisionary Authority could not have taken a different view for recovery of the rebate on the same ground of change of classification which was never proposed in the show cause notice. Therefore the discussions of the Revisional Authority contrary to what is held by the CESTAT is against the judicial propriety and the Revisioanal Authority could not have gone into merits to decide the classification of the product of the petitioner contrary to what is held by the CESTAT on the same facts of the case. Impugned order dated 31/03/2023 passed by the Revisional Authority is quashed and set aside - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

(a) Whether the revision applications filed by the petitioners before the Revisional Authority under Section 35EE of the Central Excise Act, 1944 were time barred, considering the delay and the time spent before the CESTAT, and the applicability of Section 14 of the Limitation Act, 1963 in condoning such delay.

(b) Whether the Revisional Authority was justified in independently deciding the classification of goods for the purpose of recovery of rebate, despite the CESTAT having passed an order on classification in the appeal preferred by the petitioners.

(c) Whether the petitioners were entitled to CENVAT Credit and rebate claims based on the classification of the goods under the Central Excise Tariff headings.

(d) Whether penalty could be simultaneously imposed on the partnership firm as well as on individual partners and authorized signatories, in light of the facts and precedents.

(e) The extent of jurisdiction and binding effect of orders passed by CESTAT vis-`a-vis Revisional Authority under the Central Excise Act.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Timeliness of Revision Applications and Application of Limitation Law

Legal Framework and Precedents: Section 35EE of the Central Excise Act, 1944 prescribes the procedure and time limits for filing revision applications before the Revisional Authority. Section 14 of the Limitation Act, 1963 allows for exclusion of time spent in pursuing a wrong forum, if such approach was bona fide.

Court's Interpretation and Reasoning: The petitioners initially preferred appeals before the CESTAT against orders of the Commissioner (Appeals), instead of filing revision applications before the Revisional Authority as mandated under Section 35EE. The Revisional Authority dismissed the revision applications as time barred, not considering the time spent before the CESTAT. The Court held that since the petitioners had approached the wrong forum bona fide, the time spent before the CESTAT must be excluded under Section 14 of the Limitation Act, 1963. The Court noted that the revision applications were filed within three months from the date of the CESTAT order and thus were not barred by limitation.

Key Evidence and Findings: The petitioners filed revision applications within three months from the receipt of the CESTAT order dated 23/05/2019. The appeal before the CESTAT was filed within two months and twenty-one days of the Commissioner (Appeals) order, which is within the three-month limitation period for appeals. The Revisional Authority's failure to consider this was held to be erroneous.

Application of Law to Facts: The Court applied Section 14 of the Limitation Act to exclude the period during which the petitioners pursued the wrong forum (CESTAT) and held that the revision applications were timely filed.

Treatment of Competing Arguments: The respondents argued that the petitioners delayed filing revision applications and that the time spent before the CESTAT should not be excluded. The Court rejected this, emphasizing the bona fide nature of the petitioners' actions and the settled legal position on exclusion of time spent in pursuing a wrong forum.

Conclusion: The Revisional Authority erred in dismissing the revision applications as time barred, and this part of the impugned order was set aside.

(b) Jurisdiction and Binding Effect of CESTAT Order on Classification of Goods

Legal Framework and Precedents: The Central Excise Act and Rules govern classification of goods for the purpose of levy and rebate of duty. The CESTAT is a judicial authority empowered to adjudicate appeals under Section 35B of the Act. Section 35EE empowers the Revisional Authority to examine revision applications on rebate recovery matters. The proviso to Section 35B(1) restricts CESTAT's jurisdiction on certain issues.

Court's Interpretation and Reasoning: The CESTAT held that the classification dispute raised by the lower authorities was not specifically proposed in the show cause notice nor reflected in the order-in-original. Therefore, the classification claimed by the petitioners under Chapter Heading 8474.90 stood final. The CESTAT allowed the appeal on this ground, setting aside the demand for CENVAT credit recovery and corresponding penalty. However, the CESTAT held it had no jurisdiction over the rebate recovery and personal penalties, granting liberty to file revision applications.

The Revisional Authority, however, independently examined the classification issue in the revision applications and held that the petitioners had wrongly classified the goods under 8474.90 instead of 8437.9090, thus rejecting the rebate claim and confirming recovery. The Revisional Authority reasoned that deciding classification was integral to deciding admissibility of rebate.

Key Evidence and Findings: The show cause notice and order-in-original did not contain any specific proposal to change classification. The CESTAT's order was based on this absence and held classification final. The Revisional Authority's detailed examination included technical literature and tariff notes, leading it to a contrary conclusion.

Application of Law to Facts: The Court held that the Revisional Authority ought to have followed the judicial pronouncement of the CESTAT on classification, which is binding as a judicial authority. It was improper for the Revisional Authority to revisit the classification issue on the same facts and contrary to the CESTAT's findings, especially since the classification dispute was not part of the show cause notice.

Treatment of Competing Arguments: The respondents contended that the Revisional Authority had jurisdiction to examine classification as part of rebate recovery proceedings and that the CESTAT's order was not binding on the Revisional Authority. The Court rejected this, emphasizing judicial propriety and the finality of the CESTAT's decision on classification.

Conclusion: The Revisional Authority erred in independently deciding classification contrary to the CESTAT's order. The rebate recovery based on this finding could not be sustained.

(c) Entitlement to CENVAT Credit and Rebate Claims

Legal Framework and Precedents: CENVAT Credit Rules, 2002 and Central Excise Tariff Act govern eligibility for credit and rebate. Classification under correct tariff headings is essential for entitlement.

Court's Interpretation and Reasoning: The CESTAT held that the goods were correctly classifiable under Chapter Heading 8474.90, which attracts duty, entitling the petitioners to CENVAT credit and rebate. The demand for recovery of CENVAT credit and penalty was set aside accordingly. The Revisional Authority's contrary view was based on a classification not proposed in the show cause notice and hence was not sustainable.

Key Evidence and Findings: The petitioners manufactured parts of Maize Milling Machines classifiable under tariff heading 8474.90. The show cause notice did not propose classification under heading 8437.

Application of Law to Facts: Since classification under 8474.90 was not challenged in the show cause notice, the petitioners' claim for CENVAT credit and rebate was valid. The Court upheld the CESTAT's decision on this point.

Treatment of Competing Arguments: Respondents argued for recovery on the basis of classification under 8437 attracting nil duty. The Court held that without a specific proposal or order changing classification, the petitioners' classification was final.

Conclusion: Petitioners were entitled to CENVAT credit and rebate claims as per classification under 8474.90, and the demand for recovery was quashed.

(d) Imposition of Penalty on Partnership Firm and Individual Partners

Legal Framework and Precedents: Penalty provisions under the Central Excise Act allow imposition on firms and individuals responsible. The Madras High Court has held that penalty can be simultaneously imposed on a partnership firm and its partners depending on facts.

Court's Interpretation and Reasoning: The adjudicating and appellate authorities found that the partners and authorized signatories were aware of the misclassification and suppression of facts with intent to claim undue benefit. The penalty on individuals and the firm was thus justified.

Key Evidence and Findings: The roles of the partners and authorized signatories were elaborated, showing active participation and knowledge.

Application of Law to Facts: Based on the factual findings and precedents, simultaneous penalties were lawfully imposed.

Treatment of Competing Arguments: Petitioners contended penalty on individuals was not sustainable. The Court relied on binding precedents to uphold the penalty.

Conclusion: Penalties on the partnership firm and individual partners were valid and sustainable.

(e) Jurisdictional Distinction Between CESTAT and Revisional Authority

Legal Framework and Precedents: CESTAT exercises appellate jurisdiction under Section 35B of the Act, but its jurisdiction is limited by proviso to Section 35B(1). Revisional Authority exercises revisional jurisdiction under Section 35EE.

Court's Interpretation and Reasoning: The CESTAT's order on CENVAT credit was binding, but it declined jurisdiction on rebate recovery and penalties, which fall within Revisional Authority's domain. The Revisional Authority's jurisdiction includes examination of rebate claims and related classification issues necessary for deciding such claims.

Key Evidence and Findings: The CESTAT's order explicitly stated lack of jurisdiction over rebate recovery and penalties, granting liberty to file revision applications.

Application of Law to Facts: The Court recognized the separate proceedings and jurisdictional boundaries but emphasized that the Revisional Authority must respect the CESTAT's judicial findings on classification where applicable.

Treatment of Competing Arguments: Respondents argued independence of Revisional Authority's jurisdiction. The Court balanced this with the principle of judicial propriety and finality of CESTAT's findings.

Conclusion: While jurisdiction is distinct, the Revisional Authority should not contradict the CESTAT's judicial findings on classification without fresh basis.

3. SIGNIFICANT HOLDINGS

"It is an admitted position that the petitioner has availed the wrong forum to challenge the order of the Commissioner (Appeals) so far as the orders for recovery of rebate already sanctioned to the petitioner instead of preferring a revision application before the Revisionary Authority. It is also apparent from the record that the time limit prescribed for filing an appeal before the CESTAT is three months whereas the petitioner has preferred the appeals within two months and twenty one days and therefore as per the provision of Section 14 of the Limitation Act, the petitioner is entitled to the benefit of approaching the wrong forum and therefore the Revisional Authority was not justified in not considering the time spent by the petitioner for preferring the appeal before the CESTAT for consideration to condone the delay."

"The CESTAT while disposing of the appeal preferred by the petitioners has held that the entire basis for recovery of the cenvat credit as well as the recovery of rebate is the classification dispute by the lower authority. However, we observed from the proposal in the SCN as well as in the order in original that the proposal for change in classification was not made nor any order was passed, therefore, merely, by discussing the classification in the body of Show Cause as well as the order will not legally alter the classification. There should be a specific proposal in the SCN as well as clear order in order in original. Therefore, the classification claimed by the appellant attained finality."

"Therefore, the Revisional Authority ought to have followed the order passed by the CESTAT which is a judicial authority and the Revisionary Authority could not have taken a different view for recovery of the rebate on the same ground of change of classification which was never proposed in the show cause notice."

"Penalty on the partner as well as the partnership Firm can be simultaneously imposed and of course, imposition of penalty both on the Firm and its partners, depends upon the facts of each case."

Final determination on issues:

(i) Revision applications filed by the petitioners were not time barred; the Revisional Authority erred in dismissing them on limitation grounds.

(ii) The CESTAT's order on classification was binding and final; the Revisional Authority could not revisit classification contrary to CESTAT's findings.

(iii) Petitioners were entitled to CENVAT credit and rebate claims based on classification under Chapter Heading 8474.90.

(iv) Penalties imposed on the partnership firm and individual partners were valid and sustainable.

(v) The Revisional Authority's impugned order was quashed and set aside to the extent it held revision applications time barred and contrary to CESTAT's classification findings.