M/S Sri Bhawani Plyboard Industry (Earlier Shree Bhawani Plywood Industry) vs. The Union Of INDIA And 3 Ors

Held

The Court held that the respondent authorities were obligated to consider the petitioner's application for a special rate under Clause 3(1) of Notification No. 20/2008-CE dated March 27, 2008, before proceeding with the recovery of Central Excise duty. The Court noted that similar issues had been dealt with by co-ordinate benches, which had directed the department to first consider pending special rate applications and then re-decide the matter, keeping the demand notices in abeyance. The Court found no reason to deviate from this established practice, especially since the department had accepted these directions in prior cases. The Court made the interim order dated May 27, 2021, absolute, directing the Commissioner, GST, to expeditiously consider and dispose of the petitioner's special rate application after affording the petitioner an opportunity of hearing. The impugned demand notices were ordered to be kept in abeyance until a decision on the special rate application was passed. The Court clarified that the application should be decided on merits and not rejected on technical grounds like limitation. The legality of the impugned notices was expressly left undecided.

Facts

The petitioner, M/s Sri Bhawani Plyboard Industry, challenged demand-cum-show cause notices dated March 29, 2017, June 19, 2018, and January 1, 2021, issued by the Assistant Commissioner, Central GST, Guwahati. These notices sought recovery of Central Excise duty. The petitioner had availed area-based exemption under Notification No. 32/99-CE dated July 8, 1999, and later under Notification No. 35/2001-CE, which provided for refund of duty paid in cash after exhausting CENVAT credit. Subsequently, Notification No. 20/2008-CE dated March 27, 2008, introduced a provision for a special rate of excise duty based on value addition. The petitioner applied for this special rate. The Supreme Court, in Union of India vs. VVF Limited, restored Notification No. 20/2008-CE, setting aside earlier High Court judgments that had curtailed the exemption. The petitioner contends that their application for a special rate was not decided before the demand notices were issued.

Key Issues

1. Whether the respondent authorities were required to decide the petitioner's application for a special rate under Clause 3(1) of Notification No. 20/2008-CE dated March 27, 2008, before issuing demand-cum-show cause notices for recovery of Central Excise duty? Petitioner's arguments: 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. They contended that if the special rate were accepted, it might lead to a re-evaluation of the refund amount, potentially negating the need for recovery or even entitling them to a higher refund. They relied on orders from co-ordinate benches that had remanded similar matters for the decision on special rate applications. Revenue's arguments: The judgment records no specific arguments made by the revenue or State in opposition to the petitioner's contention regarding the necessity of deciding the special rate application first.