Chapter 4
REBATE AND REFUND OF DUTY

Rebate of duty paid on excisable goods if exported outside India or supplied as stores for use on board a ship/aircraft meant for a foreign run is governed by rule 12 of the Central Excise Rules, 1944 whereas refund of duty of excise is permissible under section 11 B of the Central Excise Act, 1944.

Some of the illustrative cases of incorrect grant of rebate and refund of duty noticed in audit are given in the following paragraphs:

4.1 Incorrect availment of rebate at the time of clearance

According to notification dated 22 September 1994, issued under rule 12 of the Central Excise Rules, 1944, rebate of duty paid on ‘Mineral oil products’ exported as stores for consumption on board an air-craft on foreign run is admissible subject to certain conditions prescribed in the notification and observance of the procedure laid down under rule 12. The conditions and the procedure prescribed, interalia, require that (i) the proper officer of Customs shall certify the quantity of products left on board for determining the quantum of rebate; (ii) the submission of claim of rebate within six months from the date of export in the prescribed form alongwith original copy of AR 4 duly endorsed by the Customs officer for sanction of rebate by the Maritime Commissioner of Central Excise or Jurisdictional Assistant Commissioner of Central Excise; and (iii) the rebate so claimed was to be reduced by Rs 24.94 per kilo litre in respect of aviation turbine fuel. Further, the benefit of this notification was not available to aircraft on foreign run to Nepal.

(a)    Fourteen assessees, {in Bangalore (2), Calcutta III (1), Chennai (1), Cochin I and II (4), Delhi I (3) and Mumbai IV (3) Commissionerates of Central Excise}, cleared aviation turbine fuel as sale to aircrafts on international flights, on payment of duty at Rs 24.94 per kilo litre at the time of clearance. The prescribed procedure regarding submission of rebate claim in prescribed form with the proper authority alongwith the required documents and certificate of the quantity eligible for rebate was not followed. Instead of paying the duty first at 10 per cent ad valorem and then claiming the rebate, the assessees themselves availed the rebate. The rebate so claimed was in clear contravention of the provisions of the enabling notification, ibid and the rule 12. This resulted in incorrect availment of rebate of Rs 413.82 crore between April 1994 and March 1998. Further, in the absence of the claim for refunds having been filed and other procedures like certification of the quantities on board an aircraft before reversion to foreign run after completion of internal flight, the amount of incorrect availment of rebate of duty paid on ATF consumed in sectors internal to India, could not be ascertained in audit.

On being pointed out (between July 1995 and August 1998), the department in one case admitted (November 1995) the procedural deviation by the assessee and stated that there was no revenue implication. The department had, however, issued show cause notices demanding duty of Rs 171.14 crore in four cases. Reply in the remaining cases had not been received (November 1998).

The reply of the department is not tenable as the authority to grant the rebate vests with the department subject to fulfilment of specific conditions specified in the Act, Rules and the notification.

Reply of the Ministry of Finance had not been received (November 1998).

(b)    An assessee, in Delhi I Commissionerate of Central Excise, was allowed to export aviation turbine fuel (ATF) as stores for consumption on board for aircrafts on foreign run to Nepal under bond under rule 13. Duty of Rs 24.94 per kilo litre only was paid by the assessee by self availing of the rebate under notification dated 22 September 1994 issued under rule 12. Since rebate under this notification was not applicable to ATF exported to Nepal, grant of rebate of duty of Rs 3.36 crore during April 1995 to March 1998 was incorrect.

This was pointed out in July 1998; reply of the Ministry of Finance/department had not been received (November 1998).

4.2 Incorrect refund of duty without claim

Under section 11 B of the Central Excise Act, 1944, an assessee can claim refund of duty of excise by making an application for refund in the prescribed form (Form-R) to the Assistant Commissioner of Central Excise before the expiry of six months, from the relevant date. Such application has to be accompanied by documentary evidence of payment of duty for which refund is being claimed and further that the duty incidence has not been passed on by him to another person.

An assessee, in Pune I Commissionerate of Central Excise, engaged in the manufacture of ‘Polyster chips’, had paid duty of Rs 46.16 lakh through Modvat credit account on 16 February 1996 in discharge of duty liabilities on account of shortages in stock (RG1). Subsequently, the assessee voluntarily took the credit of Rs 46.16 lakh in his Modvat credit account on 20 February 1997 after more than six months of duty having been paid and intimated this to the Divisional Assistant Commissioner of Central Excise on 21 February 1997. As refund was clearly not admissible, the refund taken suo moto by the assessee, by credit to Modvat account was incorrect. Department did not take any action to recover the duty.

On being pointed out in August 1997, the department accepted the objection and stated (January 1998) that a show cause notice for recovery of duty had since been issued.

Reply of the Ministry of Finance had not been received (November 1998).

4.3 Incorrect grant of refund

An assessee, in Cochin II Commissionerate of Central Excise, claimed refund of duty of Rs 22.01 lakh and was granted the refund also by the department, notwithstanding the fact that the burden of excise duty had already been passed on to the customers. The Ministry of Finance, while accepting (November 1998) the objection, stated that an amount of Rs 13.28 lakh had since been recovered and the show cause notice for the balance amount of Rs 8.73 lakh was pending adjudication.