The Hon’ble Madras High Court in REIL Electricals India Ltd. Vs Joint Secretary and ors. [W.P No. 13597 decided on June 11, 2021] held that, owing to the squaring up of liability by Assessee along with interest to regularize its mistake of fraudulent entry made in CENVAT account, permits to grant rebate claim together with interest thereon is in accordance with law.
Facts
REIL Electricals India Ltd (“the Petitioner”) had made fraudulent credit of Rs. 86,73,376/- in its CENVAT account and thereby debited the aforesaid sum as excise duty on the goods exported during the aforesaid period and thereafter filed rebate claim.
This mistake was detected by the Superintendent of Central Excise and hence rejected the rebate claim.
With a view to settle the dispute with the revenue (“the Respondent”), the Petitioner squared up the liability and paid the interest on fraudulent entry made in the CENVAT account. Thereafter, the Petitioner approached the Settlement Commission and the Settlement Commission settled the case of the Petitioner by its order dated Sep 27, 2010 by accepting the case of the Petitioner that the credit was wrongly taken.
Issues
Whether rebate on exports where fraudulent credit entry regularized by squaring up duty liability should be allowed?
Held
The Hon’ble Madras High Court in [W.P No. 13597 decided on June 11, 2021] held as under:
- Observed that, before the refund claims were made, the Petitioner has paid the fraudulent CENVAT credit amount together with interest. There is also no dispute that the Petitioner had exported the goods.
- Further observed that, the Petitioner unnecessarily made it seems as if the exports were against payment of duty by debiting CENVAT credit Account.
- Stated that, even if the Petitioner was not entitled to rebate, the Petitioner would have been entitled to export such goods under bond under Rule 19 of the Central Excise Rules, 2002. The issue is Revenue Neutral. Though, the conduct of the Petitioner was no forthright and was intended to defraud the revenue, fact remains that the Petitioner has paid back and compensated the revenue by paying the amount to the credit of the Central Government together with interest.
- Stated that, the exports should not be burdened with tax liability. The Petitioner was not entitled for rebate, but the alternative benefit of export under bond without payment of duty under Rule 19 of the Central Excise Rules, 2002 cannot be denied to the Petitioner.
- Further stated that, considering the fact that the Petitioner has squared up the liability and exported the goods and also has received exports proceeds, the impugned orders rejecting the rebate claims cannot be sustained. Penalty for the wrongdoing was the subject matter of the order of the Settlement Commission. It brings curtain down, as far as the wrongdoing is concerned. The settlement commission has not only accepted the case of the Petitioner but also awarded a minor penalty of Rs. 10,000/.
- Held that, there is no scope for denying the refund of the amount which was wrongly debited in advance and paid by the Petitioner as was pointed out by the Superintendent of Central Excise.
- Moreover, HC further held that being the case of irregularities committed by the Petitioner stands wiped out and it had to be assumed that the goods were exported under Rule 18 of Central Excise Rules, 2004 in the light of the subsequent payment of duty and interest. There is no loss to the revenue as exports are always revenue neutral.
- Directed that, the Respondent to refund the balance rebate claim together with interest thereon in accordance with law within a period of three months from date of receipt of this order.
- The present writ petition is thus allowed.
Relevant provisions:
Rule 18 of Central Excise Rules, 2002:
“Rebate of duty.
Where any goods are exported, the Central Government may, by notification, grant rebate of duty paid on such excisable goods or duty paid on materials used in the manufacture or processing of such goods and the rebate shall be subject to such conditions or limitations, if any, and fulfillment of such procedure, as may be specified in the notification.
Explanation. – “Export” includes goods shipped as provision or stores for use on board a ship proceeding to a foreign port or supplied to a foreign going aircraft.”
Rule 19 of Central Excise Rules, 2002:
“Export without payment of duty.
(1) Any excisable goods may be exported without payment of duty from a factory of the producer or the manufacturer or the warehouse or any other premises, as may be approved by the Commissioner.
(2) Any material may be removed without payment of duty from a factory of the producer or the manufacturer or the warehouse or any other premises, for use in the manufacture or processing of goods which are exported, as may be approved by the Commissioner.
(3) The export under sub-rule (1) or sub-rule (2) shall be subject to such conditions, safeguards and procedure as may be specified by notification by the Board.”
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