North East Exemption - The 1999 notification and 2003 Retro Amendment - Issue with Commissioner (A) via Supreme Court
WITH a view to provide necessary impetus to the development of industries in the north-eastern region, a new Industrial Policy Resolution was notified by the Government of India on 24.12.1997. In pursuance of the said policy, the Finance Ministry issued two notifications 32/99-CE and 33/99-CE both dated 08.07.1999 exempting goods manufactured in the North Eastern States. The exemption worked by a system of refund of the duty paid from PLA (Cash - not including the CENVAT Credit availed).
Government realised that this scheme was being misused. CBEC in its Budget Circular gave an example of misuse:
Suppose duty payable on the goods was Rs. 100/- and the duty paid on inputs for the manufacture of said goods is Rs. 20/-. What the Notification 32/99-C.E. and 33/99-C.E. envisage is that the manufacturer will utilize the full credit in respect of inputs and pay only Rs. 80/- in cash, which would be subsequently refunded to him. However, there are cases where a manufacturer did not utilize the input credit and paid the entire duty of Rs. 100/- in cash. The credit of Rs. 20/- was being kept by him in reserve to be utilized on some other goods not covered under the exemption notifications. There were also situations when the assessee was manufacturing two goods, one covered under the above notifications, and the other outside. What they were doing was to utilize the entire input tax credit for payment of duty on the product not covered under the exemption notification, and paying full duty on the exempted goods and getting back full refund .
As usual, the notifications did not translate the thoughts of the Board into written language. And whenever the Board makes a mistake, they go to Parliament and get a retrospective amendment.
So they amended the notifications by Notification No. 61/2002-C.E., dated 23-12-2002 to provide that the refund allowable under these notifications shall not exceed the amount of duty paid less the amount of the CENVAT credit availed of, in respect of the duty paid on the inputs used in or in relation to the manufacture of goods cleared under the corresponding exemption notification.
After some time in Budget 2003, the Government amended these notifications to make the 2002 amendment retrospectively valid from the original date of the notifications that is 08.07.1999. The Finance Act 2003 also had a provision that the excess refund or unpaid duty has to be recovered within thirty days from the enactment of the Finance Bill.
Naturally disputes arose. In one such dispute an Assistant Commissioner issued an order directing an assessee to pay an amount of Rs. 2.2 crore consequent to this retrospective amendment.
This order was challenged in the High Court on the ground that the Assistant Commissioner's order without a notice and hearing was not valid. The High Court decided the issue on merits without considering the question of natural justice. And the matter reached the Supreme Court. The Attorney General argued that as recovery was to be done within thirty days, notice and hearing were not required. He consented to consider a hearing after the assessee paid up the demand!
The Supreme Court did not decide this issue but as the appeal against the Assistant Commissioner's order lies with the Commissioner (A), the Supreme Court directed the assessee to deposit an amount of Rs. 2.5 crore and file an appeal with the Commissioner (A).
This is what the Apex Court mentioned while directing the assessee to make the deposit -
"It is borne out from the record that the assessee-appellant had furnished a bank guarantee amounting to Rs.2,20,18,124/- for obtaining an order of stay. In our considered opinion it would not be appropriate to give an opportunity to the appellant to prefer statutory appeals and allow it to enjoy the benefit of stay of recovery on the basis of a bank guarantee. Therefore, we would direct the assessee to deposit Rs.2.5crores before the adjudicating authority within six weeks and after the said deposit is made and the receipt obtained, the appeal would be entertained within the said period. On an appeal being filed, the Commissioner (Appeals) shall deal with the matter on merits."
The case has come full circle. And the trudge begins all the way to the Supreme Court…once again!
We bring you this Supreme Court Order.