2025 (4) TMI 884 - AT - Central Excise

Rebate claim filed by the respondent on the basis of CIF (Cost Insurance and Freight) value instead of FOB (Free on Board) value was permissible under the Central Excise law and related notifications - invocation of extended period of limitation - HELD THAT - The SCN was issued on the ground that A.R.E.-1 value was higher than the FOB value due to inclusion of insurance and freight in the Transaction Value in terms of Section 4 of the Central Excise Act 1944 read with Para 4.1 of Chapter 8 of the C.B.E.C. s manual which states that the value for the purpose of central excise duty under the rebate procedure shall be the transaction value and the same may be less than equal to or more than FOB value indicated by the exporter in the corresponding Shipping Bill. The Revenue is of the view that the issue regarding transaction value may be less than equal to or more than the FOB Value is only for the purpose of taking care of the variation of exchange rate on the preparation of Shipping Bills and actual clearance of the goods for export but not for inclusion of other elements like insurance and freight. The respondent is eligible for the entire amount of duty paid on the CIF value by way of refund in cash as well as by way of re-credit of the balance amount. Extended period of limitation - HELD THAT - The SCN has been issued by invoking the extended period of limitation. In this regard it is an admitted position that the issue of payment of duty on CIF value was known to the Department as the very same issue had been adjudicated vide order dated 31.03.2014. Thus for the subsequent period the demand cannot be raised by invoking suppression clause for the extended period of limitation as has been held by the Hon ble Supreme Court in the case of Nizam Sugar Factory v. Collector of Central Excise A.P. 2006 (4) TMI 127 - SUPREME COURT . Conclusion - i) Rebate claims must be based on FOB value but excess duty paid on CIF value is refundable or re-creditable ensuring revenue neutrality. ii) Extended period of limitation under Section 11A can be invoked only in cases of wilful suppression fraud or intent to evade duty; prior adjudication and departmental knowledge negate such invocation. iii) Mere inclusion of freight and insurance in transaction value without intent to evade duty does not constitute suppression or fraud. There are no infirmity in the impugned order passed by the ld. adjudicating authority - appeal of Revenue dismissed.

Summary

The core legal questions considered in this case are:

1. Whether the rebate claim filed by the respondent on the basis of CIF (Cost, Insurance, and Freight) value instead of FOB (Free on Board) value was permissible under the Central Excise law and related notifications.

2. Whether the Department was justified in invoking the extended period of limitation under Section 11A of the Central Excise Act, 1944, alleging suppression of facts by the respondent in claiming excess rebate.

3. Whether the respondent wilfully suppressed material facts or committed fraud or misstatement warranting recovery of excess rebate and imposition of penalty.

4. The legal consequences of the respondent having paid excise duty on CIF value and subsequently claiming rebate, particularly in the context of the transition to the GST regime.

5. Whether the Department's demand for recovery of excess rebate was sustainable in light of prior adjudication and audit of rebate claims.

Issue-wise Detailed Analysis

1. Legality of Rebate Claim on CIF Value vs. FOB Value

The relevant legal framework includes Section 4 of the Central Excise Act, 1944, Notification No. 19/2004-C.E.(N.T.) dated 06.09.2004, and the Board's Circulars No. 999/6/2015-CX and 988/12/2014-CX. The Central Excise Tariff Act and related rules specify that rebate of excise duty on export goods is to be calculated on the FOB value, which excludes freight and insurance charges.

The Department alleged that the respondent included freight and insurance charges in the transaction value (CIF value) for claiming rebate, which was not permissible. The Show Cause Notice demanded recovery of Rs. 3,20,46,992/- on this basis.

However, the adjudicating authority and subsequently the Tribunal noted that while rebate is payable on FOB value, the respondent had paid excise duty on the CIF value and claimed rebate accordingly. The Department had sanctioned rebate claims after audit and scrutiny without objection, indicating knowledge of the respondent's valuation method.

The Tribunal referred to prior orders in the respondent's own case for earlier periods where similar claims were allowed and excess amounts were re-credited. It was held that the respondent is entitled to the entire amount of duty paid on CIF value, either by way of rebate or re-credit/refund, especially considering the transition to GST where re-credit is replaced by cash refund under Section 142 of the GST law.

Thus, the Tribunal applied the principle that excess duty paid on CIF value cannot be disallowed and must be refunded or re-credited, making the issue revenue neutral.

2. Invocation of Extended Period of Limitation

The Department invoked the extended period of limitation under Section 11A of the Central Excise Act, alleging suppression of material facts by the respondent in not disclosing inclusion of freight and insurance in the transaction value.

The Tribunal examined the settled legal position that extended limitation can be invoked only if there is wilful misstatement, suppression, fraud, or intent to evade duty. Reliance was placed on Supreme Court and Tribunal precedents, including Nizam Sugar Factory v. Collector of Central Excise, which held that if the Department had prior knowledge of facts and had adjudicated on similar issues, subsequent proceedings invoking extended limitation are not sustainable.

Since the Department had earlier adjudicated and accepted rebate claims on similar grounds, and had audited and sanctioned the respondent's claims without objection, the Tribunal concluded there was no suppression or fraud. The Department's knowledge of the modus operandi negated any allegation of concealment.

Therefore, the invocation of extended limitation was held to be legally unsustainable.

3. Allegation of Wilful Suppression and Fraudulent Claim

The Department contended that the respondent wilfully suppressed the inclusion of freight and insurance in transaction value to claim excess rebate fraudulently.

The Tribunal rejected this contention, noting that the respondent had filed ER-1 returns regularly, claims were audited and sanctioned, and no objections were raised at any stage. The Tribunal emphasized that mere inclusion of CIF value, which resulted in excess duty payment, cannot be equated with suppression or fraud.

The Tribunal also held that the absence of any mens rea or intent to evade duty was clear from the facts and records. The Department's acceptance of rebate claims without reservation further negated the allegation of fraudulent conduct.

4. Effect of Prior Adjudication and Audit on Finality of Rebate Claims

The Tribunal noted that the respondent's rebate claims for the relevant period were audited by the Department and disbursed without objection. The Department did not file any appeal against the rebate orders within the prescribed time, resulting in finality of those orders.

Reliance was placed on judicial precedents holding that once a refund or rebate order attains finality, the Department cannot recover the amount by indirect means such as invoking extended limitation or issuing show cause notices.

The Tribunal observed that "something which cannot be taken directly cannot be recovered indirectly," reinforcing the principle of finality and protection of the assessee's legitimate expectations.

5. Impact of GST Regime on Re-credit and Refund

The respondent had migrated to the GST regime, under which the CENVAT credit system was replaced by electronic credit ledger and cash refund mechanisms. The Tribunal recognized that re-credit of excess duty paid under the Central Excise law is not feasible under GST, but transitional provisions under Section 142 of the GST law provide for cash refund of such amounts.

The Tribunal held that the respondent is entitled to refund of the excess duty paid on CIF value in cash, ensuring revenue neutrality and compliance with the new tax regime.

Significant Holdings

"Allegation of suppression of facts against the appellant cannot be sustained. When the first SCN was issued all the relevant facts were in the knowledge of the authorities. Later on, while issuing the second and third show cause notices the same/similar facts could not be taken as suppression of facts on the part of the assessee as these facts were already in the knowledge of the authorities."

"The assessee filed rebate claim during the period November 2010 to November 2011 and the said claims also pre-audited before sanction / disbursement. The assessee has filed ER-1 return and there was no objection or reservation of any kind whatsoever. Everything was within the knowledge of department but the demand raised on 23.4.2015 for recovery on the ground that the amount erroneously refunded, invoking the extended period of limitation when there is no fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any provisions of the Excise Act or the rules made thereunder or intent to evade any payment of duty on the part of the assessee under the proviso to Section 11A of the Excise Act."

"Since the excess amount paid on CIF value can not be considered as duty the noticee has to be allowed to re-credit the said excess amount."

"The department was in complete knowledge of the modus followed by the Noticee while sanctioning the said rebate claims. But Show Cause Notice was issued on 23.4.2015 invoking the extended period of limitation when there is no fraud, collusion or any willful mis-statement or suppression of facts, or contravention of any provisions of the Excise Act or the rules made thereunder or intent to evade any payment of duty on the part of the assessee under the proviso to Section 11A of the Excise Act. The department has full knowledge and the show cause notice issued beyond its limitation and extended period of limitations is not sustainable in the instant case."

Core principles established include:

- Rebate claims must be based on FOB value, but excess duty paid on CIF value is refundable or re-creditable, ensuring revenue neutrality.

- Extended period of limitation under Section 11A can be invoked only in cases of wilful suppression, fraud, or intent to evade duty; prior adjudication and departmental knowledge negate such invocation.

- Finality of rebate orders attained due to absence of departmental appeal bars recovery of amounts by indirect means.

- Transition to GST regime mandates cash refund in lieu of re-credit for excess duty paid under Central Excise law.

- Mere inclusion of freight and insurance in transaction value without intent to evade duty does not constitute suppression or fraud.

Final determinations:

The Tribunal upheld the order of the adjudicating authority dropping the demand against the respondent. The Revenue's appeal was rejected on grounds that the extended period of limitation was wrongly invoked, there was no suppression or fraud by the respondent, and the respondent is entitled to refund or re-credit of excess duty paid on CIF value. The Tribunal emphasized that the Department had full knowledge of the facts and had accepted rebate claims previously, thereby precluding recovery demands raised belatedly.