M/S Keshari Industries vs. The Union Of INDIA And 4 Ors

Facts

The petitioner, M/s Keshari Industries, challenged a notice dated 01.01.2021 issued by the Assistant Commissioner, Central Goods and Service Tax, for recovery of Central Excise duty. This demand was purportedly based on a Supreme Court judgment in Union of India –Vs- M/s V.V.F Limited. The petitioner also challenged a subsequent notice dated 02.02.2021 by which CGST authorities blocked the petitioner's bank account with ICICI Bank. The petitioner had availed area-based exemption under Notification No. 32/99-CE dated 08.07.1999, which was later modified by Notification No. 20/2008-CE dated 27.03.2008. This latter notification provided an option for manufacturers to apply for a special rate of excise duty based on value addition. The petitioner had applied for such a special rate, but the authorities issued the demand notice and blocked the bank account without deciding this application.

Held

The Court held that the respondent authorities ought to have first considered the petitioner's application for a special rate under Clause 3(1) of Notification No. 20/2008-CE dated 27.03.2008 before proceeding with any recovery measures. The Court noted that similar issues had been dealt with by co-ordinate benches, which had directed the department to decide on pending special rate applications before re-deciding the matter. The Court found that the petitioner in this case was similarly placed. Consequently, the Court made the interim order dated 30.03.2021 absolute. The Court directed the respondent No. 2 to expeditiously consider and dispose of the special rate application, affording the petitioner an opportunity of hearing. The impugned demand notice dated 01.01.2021 and the bank account blocking notice dated 02.02.2021 were ordered to be kept in abeyance until a decision was passed on the special rate application. The Court clarified that the application should be decided on merit and not rejected on technical grounds. The question of the legality of the impugned notice was left undecided.

Key Issues

1. Whether the respondent authorities were justified in issuing a demand-cum-show cause notice for recovery of Central Excise duty and blocking the petitioner's bank account without first deciding the petitioner's pending application for fixation of a special rate under Clause 3(1) of Notification No. 20/2008-CE dated 27.03.2008? The petitioner argued that Clause 3(1) of Notification No. 20/2008-CE provided a legal right to manufacturers to apply for a special rate, and the authorities were duty-bound to consider such applications before initiating recovery proceedings. The petitioner contended that if the special rate were accepted, it might lead to a re-evaluation of the refund amount, potentially entitling them to a higher refund or negating the need for recovery. Therefore, the demand notice was bad in law and contrary to the notification's terms. The revenue or State did not record any specific arguments against the petitioner's contention regarding the pending special rate application.