M/S Ozone Ayurvedics vs. The Union Of INDIA And 3 Ors.

Held

The Court held that the respondent authorities were obligated to first 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 any recovery action. The Court noted that similar issues had been dealt with by co-ordinate benches, which directed the department to first consider special rate applications pending before the authorities and then re-decide the matter afresh, keeping demand notices in abeyance. The Court found that the petitioner in the present case was similarly placed. Therefore, the Court made the interim order absolute, directing the respondent No. 2 to expeditiously consider and dispose of the petitioner's special rate application on its merits, affording the petitioner an opportunity of hearing. The impugned notice dated March 26, 2021, was to be kept in abeyance until a decision was passed on the special rate application. The question of the legality of the impugned notice was left undecided.

Facts

The petitioner, M/s Ozone Ayurvedics, challenged a notice dated March 26, 2021, issued by the Assistant Commissioner, Central Goods and Service Tax, Guwahati, for recovery of Central Excise duty. This recovery was purportedly based on a Supreme Court judgment. 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 dated June 29, 2001. Subsequently, under Notification No. 20/2008-CE dated March 27, 2008, an option was provided to manufacturers to apply for a special rate representing actual value addition. The petitioner applied for such a special rate. The impugned notice was issued before the petitioner's special rate application was decided, and sought recovery of Central Excise duty refunded pursuant to an interim order of the Supreme Court.

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 the impugned demand-cum-show cause notice for recovery of Central Excise duty? Petitioner's arguments: The petitioner contended 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 argued that if the special rate application 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 impugned notice was bad in law as it bypassed the mandatory procedure of deciding the special rate application first. Revenue's arguments: The judgment records no specific arguments made by the revenue or State regarding this issue.