Commissioner of Customs, Custom House, New Harbour Estate, Tuticorin v. M/s. Virudhunagar Textile Mills Ltd., Sulakarai, Virudhunagar 636 003

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 25.01.2008Coram :THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANCivil Miscellaneous Appeal No.3244 of 2007 Commissioner of Customs, Custom House, New Harbour Estate, Tuticorin. Appellantv.M/s. Virudhunagar Textile Mills Ltd.,Sulakarai, Virudhunagar 636 003. RespondentCivil Miscellaneous Appeal filed under section 130 of the Customs Act, 1962 against the Final Order No.956 of 2007 dated02.08.2007 passed by the CESTAT, Chennai. For appellant: Mr.S.Udayakumar, Sr.C.G.S.C.For Respondent: Mr.Habibullah Badsha, Senior Counsel, forMr.E.S.GovindanJUDGMENT(Judgment of the Court was delivered byK.RAVIRAJA PANDIAN, J.)This appeal is filed by the Commissioner of Customs, CustomHouse, New Harbour Estate, Tuticorin against the Final Order No.956of 2007 dated 02.08.2007 passed by the CESTAT, Chennai by formulating the following questions of law : https://hcservices.ecourts.gov.in/hcservices/

Whether the Tribunal's decision that the amount erroneously refunded could not be recovered by filing an appeal under section 129D of the Customs Act, 1962 unlessa demand notice was issued under section 28(1) be correctin law, when the Supreme Court in the case of Asian Paints(India) Ltd. v. CCE, Mumbai, 2002 (142) ELT 522 had held to the effect that an order issued under section 35E of the Act would be equally sustainable in law for recovering dues of excise duty?2. Whether unjust enrichment by an individual company is permissible in law only for the reason that a demand notice under section 28(1) of the Customs Act was not issued for recovery of erroneous refund when the Department followed the appellate remedy available under section 129D of the Customs Act, 1962 for recovery of erroneous refund, without considering the settled law emerging from the apex Court's decision in the case of Mafatlal Industries Ltd. v. UOI, 1997 (5) SCC 536 and Sahakarikhand Udyog Mandai Ltd., v. CCE, 2005 (3) SCC 738?2. Mr.Udayakumar, learned Standing Counsel for the appellant contended that the order of the appellate Tribunal is erroneous inlaw and against the ratio of the Supreme Court judgment in the case of Mafatlal Industries Ltd. v. Union of India, 1997 (89) ELT 247 in which the Supreme Court has enunciated the law relating to claim of refund whether made under the provisions of the Act as contemplated in proposition (i) or in a suit or writ petition in the situation contemplated by proposition (ii) can succeed only if thepetitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person or persons. His refund claim shall be allowed or decreed only when he establishes that he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as astatutory requirement, it is neither an absolute right nor an unconditional obligation, but is subject to the above requirement, where the burden of the duty has been passed.

We heard the arguments of the counsel on either side. Weare not able to either accept the arguments of the counsel for the appellant or approve the order of the Commissioner (Appeals) which is the subject matter of order of CESTAT, the correctness of which is now assailed.

Let us state the relevant facts of the case. The facts of the case are :The respondent textile Mills filed a bill of entry No.354328dated 04.01.2005 for the import of one number of Benninger HighSpeed Warping machine, claiming concessional rate of duty underSl.No.251 of Notification No.21/2002-Cus., dated 01.03.2002, as amended. The bill of entry was assessed at basic customs duty at20%, countervailing duty at 16%, cess at 0.05%, service tax at 2%and educational cess at 2% for the total value of Rs.41,44,632/-.The respondent paid the amount under protest and cleared the goods. https://hcservices.ecourts.gov.in/hcservices/ As against the assessment, the respondent filed an appeal to the Commissioner (Appeals), who by his order dated 29.03.2005 vide Order in Appeal No.61 of 2005 found that the machinery imported by the respondent was entitled to the benefit of concessional rate of duty as per the Notification No.21/2002 and allowed the appeal with consequential relief by setting aside the assessment to the value of Rs.41,44,632/-. In pursuance of the said order, the respondent filed a refund claim in a sum of Rs.36,13,700/- for a differential excess duty paid by him, before the Assistant Commissioner (Refund)in O.I.O.No.220/2005-06, who by his order dated 08.07.2005sanctioned the said amount and the same was paid back to the respondent.

Thereupon, the Assistant Collector of Customs (Refund)filed an appeal against the order dated 08.07.2005 made in Order in Original No.220/2005-06 on the ground that it was not established by the importer that the duty has not been passed on to the buyers, with corroborative evidence. The Commissioner (Appeals) by hisorder dated 28.07.2006 allowed the appeal on the premise that the doctrine of unjust enrichment would apply to the case of the respondent that mere submission of the Chartered Accountant'scertificate was not sufficient. The respondent carried that order to the CESTAT.

The Tribunal, after consideration of the legal issue, accepted the submission made by the respondent and set aside the order of the Commissioner dated 28.07.2006 and remanded the case to the Commissioner (Appeals) with the direction to him to examine the legal issue raised by the respondent and thereafter proceed to dispose of the appeal taking into account the observations made by the Tribunal.

The Commissioner (Appeals) once again, on the ground that the respondent has not established with corroborative evidence that the duty element has not been passed on to others and that the Chartered Accountant's certificate could not be regarded as aconclusive evidence to establish that there was no unjust enrichment, has allowed the appeal. The respondent being aggrieved by the order of the Commissioner (Appeals) filed an appeal before the CESTAT, which by its order dated 02.08.2007 allowed the appeal by observing that the Tribunal had no option but to set aside the order of the Commissioner, which was passed without application of mind to the settled position of law.

It is apparent from the records that the Tribunal, by its remand order dated 11.01.2001 has sustained the objections raised by the respondent to the effect that when the AssistantCommissioner disposed of the refund claim of the assessee in accordance with law and effected refund, any subsequent proceedings of the department to recover the amount from the party could only be on the ground of erroneous refund under section 28(1) of the Act, it was only section 28(1) of the Act would apply and not https://hcservices.ecourts.gov.in/hcservices/ section 129D(2) of the Act. The Tribunal also observed that thoughthe said basic question had been raised by the parties before the Commissioner (appeals), but the same was not examined. TheTribunal also indicated that the appeal before the Commissioner was not against the order of the Commissioner holding that the respondent was entitled to concessional rate of duty. By observing so, the Tribunal set aside the order of the Commissioner (Appeals)and remitted the matter back to him with specific direction that the Commissioner should examine the legal issue raised by the party and thereafter proceed to dispose of the appeal taking into account the observations made by the Tribunal. But the Commissioner(Appeals), on remand, has not at all considered and carried out the directions given by the Tribunal, i.e., did not decide the legal issue in spite of the fact that such requirement was pointed out by the respondent. The Commissioner, with total disregard to the positive directions of the Tribunal, confirmed his earlier orderson the doctrine of unjust enrichment. He referred to so many case laws including the one namely, Asian Paints v. Collector of CentralExcise, (2002) 142 ELT 515 which has been differentiated by the Tribunal in its order of remand.

The Tribunal, in the impugned order, has expressed its anguish in the following manner :"Our directions to the lower appellate authority were quite categorical. In our remand order, we had taken aview on section 28 v. section 129D. After distinguishingAsian Paints (supra), we held that, where any amount of duty had already been refunded to an assessee under section 27 of the Customs Act, it was not open to therevenue on the ground of erroneous refund to proceed for recovery of the amount from them under section 129D of the Act after expiry of the period of limitation prescribed for demand notice under section 28(1) of the Act. We held that the right recourse for the revenue was to issue as how cause notice within the prescribed period. Had we found that, in the earlier round, learned Commissioner(Appeals) had at least attempted examination of the issue, we would not have remanded the matter.

Under the scheme of the Customs Act, 1962, Chapter XVprovides for appeals to the hierarchy of the authorities and the procedure to be followed by them. Section 128 of the Act provides for appeal to the Commissioner (Appeals). Section 128A of the Actprovides for the procedure to be followed while deciding the appeal. Section 129 of the Act provides for constitution of an appellate Tribunal by the Central Government. Section 129A of the Act provides for appeal to the appellate Tribunal. The other provisions in that Chapter provides for power of the Board or Commissioner of Custom to pass certain orders, powers of revision of Board or Commissioner of Customs in certain cases, Revision by Central Government, Statement of case to the High Court, Statementof case to the Supreme Court in certain cases, power of the HighCourt or Supreme Court to require statement to be amended, case before High Court to be heard by not less than two Judges, appeal to the Supreme Court, etc.

Under section 129-A of the Act, any person aggrieved by adecision or order passed by the Commissioner of Customs as an adjudicating authority or aggrieved by an order passed by the Commissioner (Appeals) under section 128A may appeal to the appellate Tribunal. Section 129-B invests power on the appellateTribunal to pass orders as it thinks fit confirming, modifying or annulling the decision or order appealed against or may refer the case back to the authority which passed such decision or order with such directions as the Appellate Tribunal may think fit, for afresh adjudication or decision, as the case may be. Thus, the appellate Tribunal is placed vertically over the Commissioner(Appeals) and conferred an appellate power. The failure on the part of the latter to carry out such direction or show disrespect to or to question the propriety of such direction would – it is obvious – be destructive of hierarchial system in the administration of justice. The seekers of remedy would lose faith in both. https://hcservices.ecourts.gov.in/hcservices/

The binding nature of the orders passed by the superior forum has been considered by the apex Court in the following cases : In the case of Union of India v. Kamalakshi FinanceCorporation Ltd., 1992 Supp (1) SCC 443, the Supreme Courtconsidered a case in which the respondent manufactured electrical insulation tapes. According to the department, the goods manufactured by the assessee fell under tariff heading 85.47 of the schedule to the Central Excise Tariff Act, 1985 and according to the assessee, the goods manufactured by it fell under the tariff heading 39.19 of the same schedule. The Assistant Collector issueda show cause notice to that effect and the assessee replied pointing out that in respect of factories at Bombay, its claim that the goods were classifiable under section 85.46 has been accepted by the Collector. The Assistant Collector did not accept theassessee's contention and confirmed the show cause notice.

In the case of Tirupati Balaji Developers (P) Ltd. v.State of Bihar reported in 2004 AIR SCW 2522 = (2004) 5 SCC 1, the Supreme Court held thus: "... 11. The very conferral of appellate jurisdiction carries with it certain consequences. Conferral of a principal substantive jurisdiction carries with it, as a necessary concomitant of that power, the power to exercise such other incidental and ancillary powers without which the conferral of the principal power shall be rendered redundant. As held by Their Lordships of the Privy Council in Nagendra NathDey v. Suresh Chandra Dey and others, AIR 1932 PrivyConcil 165 (Sir Dinshah Mulla speaking for the Bench offive), an appeal is an application by a party to an appellate court asking it to set aside or revise adecision of a subordinate court. The appeal does not cease to be an appeal though irregular or incompetent. Placing on record his opinion, Subramania Ayyar, J. as amember of the Full Bench (of five Judges) in Chappan v.Moidin Kutti, (1899) 22 ILR Mad 68 (at p.80) stated inter alia that appeal is "the removal of a cause or asuit from an inferior to a superior judge or court forre-examination or review". According to Wharton's LawLexicon such removal of a cause or suit is for the purpose of testing the soundness of the decision of the inferior court. In consonance with this particular meaning of appeal, "appellate jurisdiction" means "the power of a superior court to review the decision of an inferior court. " "Here the two things which are required to constitute appellate jurisdiction, are the existence of the relation of superior and inferior court and the power on the part of the former to review decisions of the latter. This has been well put by Story: "Theessential criterion of "appellate jurisdiction" is, that it revises and corrects the proceedings in a cause already instituted and does not create that cause. Inreference to judicial tribunals an appellate jurisdiction, therefore, necessarily implies that thesubject-matter has been already instituted and acted upon, by some other court, whose judgment or proceedings are to be revised," (Section 1761, Commentaries on the Constitution of the United States)..."

In Sri Rajendra Mills Limited Vs. Joint Commercial TaxOfficer, Salem, reported in (1971) 28 STC 483, a Division Bench of this Court considered the issue on the fact that certain turnover on cotton lending was regarded by the assessing officer as sale, https://hcservices.ecourts.gov.in/hcservices/ but according to the assessee, it was only lending. For the earlier assessment year, the Tribunal in assessee's own case found similar transaction as lending. But the Revenue took the matter on appeal before High Court in Tax Case. The assessing officer on the ground of pendency of Tax case expressed his view that the transaction was sale. In those circumstances, a writ petition came before the Division Bench, which ruled as follows: "... We consider that in the hierarchy of authorities set up under the Act, the Tribunal is superior to the Appellate Assistant Commissioner, who is bound by the orders of the Tribunal.

It is on record that in the cross objection dated15.07.2006 filed by the respondent their stand was that the warping https://hcservices.ecourts.gov.in/hcservices/ machine imported by them was installed in the respondent's premises for being used in relation to the manufacture of textile products. The machine was not sold nor was it imported for sale and is very much available in the textile mill of the respondent. Apart from that, the Chartered Accountant has furnished a certificate to the effect that the duty element paid for importation of the capital goods has not been passed on to any person and the balance sheet of the respondent company was also produced before the authorities in which the differential duty has been shown as duty recoverable from the Customs Department. The legal presumption (Section 28-D of the Act) relied on has thus been rebutted with the above materials which can well be regarded as corroborative evidence. Even to the worse, if the Department is not satisfied with the certificate of the Chartered Accountant and the balance sheet of the respondent company, they would have very well made a physical verification asto the availability of the capital goods with the respondent textile mills.

On the above said undisputed fact, we have come to the conclusion that there is no possibility for the respondent or thereis no material on the part of the department to contend that by refund of the differential duty, the respondent has unjustly enriched. The authorities under the Act with closed mind have mechanically applied the concept of unjust enrichment against the respondent.

The counsel for the department placed a booklet containing certain judgments. The first of one is SRF Ltd. v. AssistantCollector of Central Excise, Trichy, 2001 (134) ELT 324 (SC). Thatwas a case in which the appellant, a manufacturer of industrial fabric, manufactured RF solution and consumed captively for dipping the manufactured fibre in the solution. The appellant claimed that the RF solution were not goods and thus not liable for excise duty, however, paid the duty under protest and later obtained an order in its favour from the Tribunal. The appellant filed a refund claim under section 11B of the Central Excise Act. In this factual circumstances of the case, i.e., inspite of the fact that the solution were not goods and payment of excise duty was not attracted, in view of the fact that the fabric so manufactured had been sold to third parties and the solution was captively consumed, and there was every possibility of cascading the duty element on the goods sold by the appellant, the Court held that the appellant was obliged to prove that there was no unjust enrichment. But in the case on hand, the goods imported is a capital good, amachinery. After importation, the machinery was installed in the respondent textile mills and was very much available and being used for manufacture of goods. Hence, the SRF Ltd's case is not applicable to the present case.

Reliance was placed by the counsel for the revenue on the decision of the Supreme Court in the case of Asian Paints v.Collector of Central Excise, (2002) 142 ELT 515. We are of the https://hcservices.ecourts.gov.in/hcservices/ view that decision cannot in any way advance the case of the appellant in the facts of the present case. In that case, the Supreme Court considered two provisions, i.e., 35-E and 11-A of the Central Excise Act and held that two sections operated in different fields and are invoked for different purposes at different time limits set out therein.

The other judgments annexed in the booklet are not relevant to the facts of the case, presumably that might be the reason that the counsel for the appellant has not made any argument with reference to the judgments.

In the light of the decisions of the Supreme Court relied on supra and in view of the discussion made above on the issue, weare of the view that the Tribunal is correct in setting aside the order of the Commissioner (Appeals). Hence the appeal deserves no merit consideration and the same is dismissed. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.mfTo1. The CustomsExcise and service Tax Appellate TribunalSouth Zonal Bench, Shastri Bhavan AnnexISt Floor, 26 Haddows roadChennai- 600 006.1 cc to Mr.S. Udayakumar, Advocate, Sr. 34481 cc to Mr.E.S. Govindan, Advocate, Sr. 3352C M Appeal No.3244 of 2007MDR (CO)kk 15/2