M/S CHACKOLAS SPINNING AND WEAVING MILLS LTD. v Union of India

**C.R. IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU FRIDAY ,THE 14TH DAY OF DECEMBER 2018 / 23RD AGRAHAYANA, 1940 WP(C).No. 20921 of 2018** ## **PETITIONER/S:** **==> picture [44 x 242] intentionally omitted <==** **1 M/S. CHACKOLAS SPINNING AND WEAVING MILLS LTD. PB NO.3,KALAMASSERY, KOCHI- 683 104, REPRESENTED BY ITS DIRECTORPAUL JOHN CHAKOLA 2 PAUL JOHN CHAKOLA AGED 37, S/O. JOHN.P.CHAKOLA,RESIDING AT 'PARIJATHAN',PARIJATHAM ROAD, PATHADIPALAM,CHANGAMPUZHA NAGAR.P.O.KOCHI- 682 033 BY ADVS. SRI.P.G.JAYASHANKAR SMT.LINTA VARGHESE** ## **RESPONDENT/S:** **==> picture [45 x 194] intentionally omitted <==** **1 UNION OF INDIA REPRESENTED BY ITS SECRETARY,DEPARTMENT OF REVENUE,MINISTRY OF FINANCE,CENTRAL SECRETARIAT, NEW DELHI- 110 001** **2 CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS NORTH BLOCK, CENTRAL SECRETARIAT,NEW DELHI110 001, REPRESENTED BY ITS CHAIRMAN** |**3**|**COMMISSIONER OF CENTRAL TAXES AND CENTRAL**| |---|---| ||**EXCISE**| ||**CR BUILDINGS, IS PRESS ROAD, KOCHI- 682 018**| WPC No.20921 of 2018 2 |**4**|**ASSISTANT COMMISSIONER OF CENTRAL TAXES AND**| |---|---| ||**CENTRAL EXCISE**| ||**KAKKANADU DIVISION,GST BHAVAN,**| ||**KATHRIKADAVU, KALOORKOCHI- 682 017**| |**5**|**SUPERINTENDENT OF CENTRAL TAXES**| ||**KAKKANAD RANGE-1,(FORMERLY KALAMASSERY 1**| ||**RANGE),(GST BHAVAN, KATHRIKADAVU,**| ||**KALOORKOCHI- 682 017)**| ||**BY ADVS.**| ||**SMT.PREMLATHA K. NAIR, CGC**| ||**SRI.THOMAS MATHEW NELLIMOOTTIL, SC, CENTRAL**| ||**BOARD OF EXCISE &AMP; CUSTOMS**| ||**SMT.PREMLATHA K. NAIR CGC**| ||**SRI.THOMAS MATHEW NELLIMOOTTIL SC CENTRAL**| ||**BOARD OF EXCISE AMP CUSTOMS**| ## **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 14.12.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ## **JUDGMENT** The first petitioner is a Company. The second petitioner is its Managing Director and one of the shareholders. The company once operated a Weaving Mill, manufacturing yarn, and produced fabric to be exported. It captively consumed the yarn for its fabric production. 2. Yarn the company manufactured attracted excise duty. But as it was captively consumed, its value could not be determined beforehand. So under Rule 9B of the Central Excise Rules, the Company provisionally WPC No.20921 of 2018 3 assessed its value and paid the tax. 3. Under Rule 9B, on final assessment, if it turns out that the provisionally assessed value is short, the taxpayer makes the deficit good. On the contrary, if the assessed tax turns out to be lower than the provisional assessment, the taxpayer will get refunded the excess tax it has paid. Here, on facts, admittedly, the Company had paid more provisional tax than what was finally assessed, for the assessment year 1994-1995. 4. The assessment was completed in 2000, as is evident from the Ext.P1. So the Department quantified through the Ext.P2 the amount to be refunded: Rs.4,90,838/-. Then, on 30[th] November 2000, the Company submitted the Ext.P3 refund application in the prescribed form. But the Asst. Commissioner, the 4[th] respondent, as the competent authority, issued the Ext.P4 show cause notice in the second week of December 2001. The Company was asked to show cause why its claim for refund should not be rejected. And this notice is supposedly based on the principle of unjust enrichment. 5. That is, to claim a benefit a tax payer should have borne by itself the incidence of tax, instead of having it passed on to the end consumer. Viewed conversely, if the taxpayer passed on the burden to the consumer in WPC No.20921 of 2018 4 terms of the provisional assessment, then it could not take advantage of the differential tax on the final assessment. 6. After receiving the Ext.P5 reply from the Company, the Asst. Commissioner passed the Ext.P6 order in March 2008. Then the Company filed the Ext.P7 appeal. The Appellate Authority accepted the Company’s claim for refund. Thus, in terms of the Ext.P8 appellate order, the Asst. Commissioner passed the Ext.P9 consequential order. And the Company eventually received the amount in October, 2012. 7. With the inordinate delay on the Department's part in refunding the excess tax, the Company filed the Ext.P10 representation, claiming interest on the delayed refund. The period was from 30[th] November 2002 to 4[th] October 2012. Indeed, the first date refers to the Company’s application and the next to its receiving the amount. 8. But the Commissioner of Central Tax & Central Excise, the third respondent, suo motu revised the Ext.P9 consequential order and passed the Ext.P11 order. The revisional order directed the Asst. Commissioner to file an appeal against the Ext.P9 consequential order. Then the Asst. Commissioner filed the Ext.P12 appeal. 9. When the Ext.P12 appeal was pending, the Assistant Commissioner WPC No.20921 of 2018 5 issued a fresh notice asking the Company to show cause why the amount already refunded should not be treated as an erroneous refund and why, then, it should not be recovered. To this Ext.P13 notice, dt. 28.2.2013, the petitioner submitted the Ext.P15 reply. 10. On parallel lines, the Commissioner of Appeals took up the Department’s Ext.P12 appeal and rejected it, through the Ext.P16 order. Succinctly stated, the Appellate Authority’s Ext.P16 order affirmed the Company's stand. So the Company sent the Exts.P17 and P18 reminders to the Department, reiterating its claim for interest. Instead of paying interest to the Company, the Assistant Commissioner once again issued a show cause notice, dt. 14.02.2018. The notice relied on Section 11BB of the Central Excise Act. As the Department interprets, the explanation appended to Section 11BB provides for how the period of interest should be reckoned. Instead of replying to that show cause notice, the Company has filed this writ petition, for by then it has received too many show-cause notices to its comfort. Submissions: ## Petitioners’: 11. Sri Jayashankar, the learned counsel for the petitioner, addresses WPC No.20921 of 2018 6 two issues: (1) the maintainability of a writ petition on a show cause notice and (2) the Company's entitlement to refund in terms of Section 11BB of the Act. According to Sri Jayashankar, the show cause notices are repetitive, vexatious, and pre-determined. He has asserted that the Ext.P8 order in appeal stood undisturbed and the Ext.P9 consequential order stood restored. So the respondent officials, according to him, are estopped from questioning the Company's claim to interest. In this regard, he has relied on . M/s Siemens Ltd v State of Maharashtra[1] 12. About the Company's claim for interest, Sri Jayashankar draws my attention to Section 11BB. According to him, the provision is plain and unambiguous and admits of no controversy on its interpretation. In fact Sri Jayashankar has taken me through the entire timeline of the writ petition. According to him, the assessment year was 1994-1995, and the assessment proceedings were completed in 2000. Though within a month's time the Company claimed the refund, the Asst. Commissioner passed the Ext.P6 order only in 2008, after a gap of seven years. According to him, after that, too, the Department has inflicted many rounds of unwanted litigation on the Company. By then the Company had been closed because 1 AIR 2016 SCW 6380 WPC No.20921 of 2018 7 of its dire financial constraints, though. According to him, the Department's conduct is iniquitous and unjust. 13. To support his contentions that the Company has been eminently entitled to interest on delayed refund, Sri Jayashankar relies on Ranbaxy Laboratories Ltd. v Union of India[2] , Union of India v M/s Hamdard (Waqf) Laboratories[3] and Dabur India Ltd. v Union of India[4] . True, the learned counsel has also relied on a host of departmental circulars. I reckon they may not be relevant here. ## Respondents’: 14. Sri Thomas Mathew Nellimoottil, the learned Standing Counsel for the Department, strenuously contends that the Company has not been entitled to any interest on the refund. About the protracted litigation, he justifies the Department's stand. He contends that the Department has taken every measure to protect public revenue. 15. Sri Nellimoottil has straight away drawn my attention to Section 11BB, especially, the explanation appended to that provision. According to him, the explanation mandates that the Company, if at all entitled to interest on the delayed payment, must have it only from the date of the 2 AIR 2012 SC (Supp) 238 3 AIR 2016 SC 1124 4 2017 (346) ELT 75 (All.) WPC No.20921 of 2018 8 Appellate Authority’s order: 22.06.2012. He has also strenuously contended that the Company ought to have replied to the Ext.P19 show cause notice, rather than rush to the Court. 16. Heard Sri P.G.Jayashankar, the learned counsel for the petitioner Company and Sri Thomas Mathew Nellimoottil, the learned Standing Counsel, besides perusing the records. Discussion: ## Does a writ petition lie against a show-cause notice? 17. True, the assessment was completed in 2000; later, the Department determined the amount to be refunded to the Company. That came close to Rs.5 lakh. After a few rounds of departmental objections and appeals, the Company had the amount refunded on 4[th] October 2012. In fact, the very order of refund was passed on 25[th] March 2008. And the Company could get the refund four years thereafter. 18. So the Company submitted the Ext.P10 representation on 16.11.2012, claiming interest on the delayed payment. That was denied. As I have already narrated, the consequential order was revised. Then the Department appealed against the refund order. But, eventually, the Department failed to succeed. Though the Appellate Authority accepted the WPC No.20921 of 2018 9 Company's claim for interest on the delayed refund, the Asst. Commissioner, however, issued the Ext.P19 show cause notice. The third one in the series of show cause notices. 19. Granted, this Court would be averse to entertaining any writ petition on a show cause notice. But, indeed, in any public law dispensation, that is not an ironclad principle. Judicially, exceptions have been carved out. If the authority that issued a notice lacks the power or if the notice is premeditated—almost fait accompli—as only a pre-cursor to the inevitable outcome, this Court would interfere. The authorities could not insist on a ritual of a reply, once the official intentions are obvious and writ large in the very notice, camouflaged as a show-cause. So I hold that this writ petition is an eminent exception to the Constitutional Court's practice of not entertaining writ petitions against a show cause notice. Thus, the Department's objections stands rejected. How can the Company claim interest on the belated payment in the face of Section 11BB of the Act? 20. About the departmental resistance to the Company's claim for interest, I am afraid it is an exercise in futility and much ado about nothing. The Department has a singular defence against the Company's WPC No.20921 of 2018 10 claim, and that defence brings into focus Section 11BB of the Act— particularly, the explanation engrafted to it. So, to avoid a needless exegesis on the issue, I may straight away examine that provision. It reads: Section 11BB: Interest on delayed refunds .—If any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the date of receipt of application under sub-section (1) of that section, there shall be paid to that applicant interest at such rate, not below five per cent. and not exceeding thirty per cent. per annum as is for the time being fixed by the Central Government, by notification in the Official Gazette on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty: Provided where any duty ordered to be refunded under sub-section (2) of section 11B in respect of an application under sub-section (1) of that section made before the date on which the Finance Bill, 1995 receives the assent of the President, is not refunded within three months from such date, there shall be paid to the applicant interest under this section from the date immediately after three months from such date, till the date of refund of such duty. Explanation.—Where any order of refund is made by the Commissioner (Appeals). Appellate Tribunal, National Tax Tribunal or any Court, against an order of the Assistant Commissioner of Central Excise, under sub-section (2) of section 11B, the order passed by the Commissioner (Appeals), Appellate Tribunal or, as the case may be, by the Court shall be deemed to be an order passed under the said sub-section (2) for the purposes of this section. (italics supplied) 21. Now after many rounds of litigation, show cause notices and demands, the Department has eventually agreed that the Company is WPC No.20921 of 2018 11 entitled to interest on refund. But it disputes the period of the claim. According to the Department, it must be only from the date the Appellate authority passed the order—22.6.2012. Since the department has laid much emphasis on the explanation to Section 11BB, it needs closer scrutiny. 22. If the Commissioner (Appeals) reverses the order of the Asst.Commissioner or the Dy. Commissioner and upholds the assessee's claim, then that acceptance must relate back as if the positive orders were passed by the primary authority itself—the Asst.Commissioner or the Dy. Commissioner. In other words, the explanation statutorily affirms the Doctrine of Relation Back. To put the issue in perspective, I will take up both the Doctrine of Relation Back and its converse cousin, so to say—the Doctrine of Merger. 23. If a primary authority allows a claim and that finding finds acceptance from the Appellate Authority, the primary order merges with that of the Appellate Authority. This is based on the Doctrine of Merger. — But the verdict maintains its validity all through from the date of the primary order. The Supreme Court has admirably delineated its conceptual contours in Kunhayammed v. State of Kerala. (2000) AIR(SC) 2587). 24. On the contrary, if the primary authority negates a claim, but the WPC No.20921 of 2018 12 Appellate Authority reverses that negation—that is, accepts the claim—then the Appellate Authority's acceptance relates back to the date of dispute as if the primary authority too accepted the claim. Thus comes into play the Doctrine of Relation Back. 25. I am afraid even without reference to either principle—especially, that of the doctrine of Relation Back—the issue stands on a secure footing. Section 11BB itself demolishes the Department’s defence. The provision, as I have already noted, is unambiguous. If an assessee is entitled to duty refund under Section 11B(2) of the Act, the refund must be effected within three months after the assessee applies. If the amount is not refunded within that period, the assessee is entitled to interest on that delayed payment at the rate to be prescribed by the Central Government. And the period to be reckoned for payment of interest must be “immediately after the expiry of three months” after the claimant's application for refund. The amount carries interest till “the date of refund of such dues”. This stipulation has nothing to do with the litigation fortunes of the assessee's claim. Once a claim for refund is accepted, it hardly matters at what stage the claim is accepted. It can be at the beginning when the primary authority accepts it, or at the appellate stage, or even before any other Tribunal or Court, including the WPC No.20921 of 2018 13 Constitutional Courts. The decision at whatever stage simply relates back as if the claim had never been rejected or as if it were accepted by the primary authority. 26. Interpreted in any other manner, the provision puts premium on the Department’s dragging the matter through avoidable litigation ad nauseam. The statute never contemplates such eventuality, nor does it encourage any protracted, yet avoidable, litigation. 27. To examine the precedential position, I may refer to Ranbaxy's case. The Supreme Court has held that the Explanation appearing below Proviso to Section 11BB introduces a deeming fiction. If the order for refund of duty is not made by the Asst. Commissioner of Central Excise or Dy. Commissioner of Central Excise, but by an Appellate Authority or the Court, then the order made by such higher Appellate Authority or by the Court shall be deemed to be an order made under sub-section (2) of Section 11 BB of the Act. It is clear, Ranbaxy holds, that the Explanation has nothing to do with the postponement of the date from which interest becomes payable under Section 11BB of the Act. Manifestly, interest under Section 11BB of the Act becomes payable, if the amount claimed is still not refunded even after three months from the date the authorities received the WPC No.20921 of 2018 14 application for refund. It emphasises that the Explanation has no bearing or connection with the date from which interest under Section 11 BB of the Act becomes payable. 28. In Hamdard Laboratories, the Supreme Court has reiterated its holding in Ranbaxy. Recently, a Division Bench of the Allahabad High Court in Dabur India Ltd. has followed both Ranbaxy and Hamdard and eventually, allowed the writ petition on cost. It has held that under Section 11 BB, if the authority is satisfied that an amount is to be refunded to Assessee but it has not been refunded within three months from the date of application, the Assessee is entitled for interest. Put it differently, once refund is found admissible, yet if the Assessee has not been refunded within three months after his applying under sub Section (1), he shall be paid interest. That is, it has no time limit prescribed for the authorities to take a decision about refund. But the law clarifies that if the amount is not refunded within three months, interest shall be payable. Of particular importance is the observation that even if an order has been passed much later on, as to interest; it will relate back, and the assessee would be entitled for interest. 29. Under these circumstances, I allow the writ petition. The WPC No.20921 of 2018 15 Department shall pay interest to the Company as mandated under Section 11BB of the Act. And that interest must be calculated till it is actually paid. If the respondents fail to pay interest in one month after receiving a copy of this judgment, the amount will carry additional interest @ 9%. This interest, to stress the obvious, is besides the statutory interest. The Company seems to have claimed interest from two months after the company's application, but it must be reckoned after three months. No order on costs. **==> picture [208 x 86] intentionally omitted <==** ## **Sd/-** **DAMA SESHADRI NAIDU JUDGE** das/css ## **APPENDIX** ## **PETITIONER'S/S EXHIBITS:** |**EXHIBIT P1**|**A TRUE COPY OF HE ORDER IN ORIGINAL**| |---|---| ||**NO 140/2000 DATED 14.9.2000**| |**EXHIBIT P2**|**TRUE COPY OF THE LETTER BEARING OC**| ||**NO 788/2000 DATED 24.10.2000 ISSUED BY THE**| ||**5TH RESPONDENT**| |**EXHIBIT P3**|**TRUE COPY OF THE REFUND APPLICATION**| ||**IN FORM -R DATED 30.11.2000 PREFERRED BY**| ||**THE 1ST PETITIONER BEFORE THE 4TH**| ||**RESPONDENT**| WPC No.20921 of 2018 16 |**EXHIBIT P4**|**TRUE COPY OF THE SHOW CAUSE NOTICE**| |---|---| ||**DATED 13.12.2001 ISSUED BY THE DEPUTY**| ||**COMMISSIONER OF CENTRAL EXCISE,**| ||**ERNAKULAM 1 DIVISION**| |**EXHIBIT P5**|**TRUE COPY OF THE REPLY DATED 5.1.2002**| ||**ISSUED BY THE 1ST PETITIONER**| |**EXHIBIT P6**|**TRUE COPY OF THE ORDER IN ORIGINAL NO**| ||**08/2008(R) DATED 25.3.2008, ISSUED BY THE**| ||**4TH RESPONDENT**| |**EXHIBIT P7**|**TRUE COPY OF THE APPEAL PREFERRED BY**| ||**THE 1ST PETITIONER BEFORE THE**| ||**COMMISSIONER OF CENTRAL EXCISE**| ||**(APPEALS), KOCHI AGAINST EXT P6 ORDER**| |**EXHIBIT P8**|**TRUE COPY OF THE ORDER IN APPEAL NO**| ||**42/2012-CENTRAL EXCISE DATED 17.4.2012**| |**EXHIBIT P9**|**TRUE COPY OF THE ORDER IN ORIGINAL NO**| ||**47/2012/CE(R) DATED 21.9.2012 ISSUED BY THE**| ||**4TH RESPONDENT**| |**EXHIBIT P10**|**TRUE COPY OF THE REPRESENTATION**| ||**DATED 16.11.2012 PREFERRED BY THE 1ST**| ||**PETITIONER BEFORE THE 4TH**| ||**RESPONDENT ALONG WITH THE**| ||**STATEMENT OF CLAIM**| |**EXHIBIT P11**|**TRUE COPY OF REVIEW ORDER NO. 1/2013-**| ||**CE DATED 2.1.2013 ISSUED BY THE 3RD**| ||**RESPONDENT**| |**EXHIBIT P12**|**TRUE COPY OF THE APPEAL BARING NO**| ||**4/CE/CHN/2013 (D) PREFERRED BY THE 4TH**| ||**RESPONDENT UNDER S.35E(4) OF THE**| ||**CENTRAL EXCISE ACT, 1944**| |**EXHIBIT P13**|**TRUE COPY OF THE SHOW CAUSE NOTICE**| ||**NO.5/2013/CE DATED 28.2.2013 ISSUED BY THE**| ||**4TH RESPONDENT**| WPC No.20921 of 2018 17 |**EXHIBIT P14**|**TRUE COPY OF THE LETTER DATED 4.3.2013**| |---|---| ||**ISSUED BY THE 4TH RESPONDENT**| |**EXHIBIT P15**|**TRUE COPY OF THE REPLY DATED 8.5.2013**| ||**PREFERRED BY THE 1ST PETITIONER**| ||**AGAINST EXT P13 NOTICE**| |**EXHIBIT P16**|**TRUE COPY OF THE ORDER IN APPEAL NO**| ||**COC EXCUS- 000-APP-169-2017 DATED**| ||**27.7.2017 ISSUED BY THE COMMISSIONER OF**| ||**CENTRAL EXCISE (APPEALS), KOCHI.**| |**EXHIBIT P17**|**TRUE COPY OF THE LETTER DATED 9.10.2017**| ||**PREFERRED BY THE 1ST PETITIONER**| ||**BEFORE THE 4TH RESPONDENT**| |**EXHIBIT P18**|**TRUE COPY OF THE REMINDER LETTER**| ||**DATED 15.2.2018 ISSUED BY THE 1ST**| ||**PETITIONER TO THE 4TH RESPONDENT**| |**EXHIBIT P19**|**TRUE COPY OF THE SHOW CAUSE NOTICE**| ||**NO 03/2018 DATED 14.2.2018 PASSED BY THE**| ||**4TH RESPONDENT**| |**EXHIBIT P20**|**TRUE COPY OF THE HEARING NOTICE**| ||**DATED 7.6.2018 ISSUED BY THE 4TH**| ||**RESPONDENT.**| |Das/Css/||