CHAPTER 4
REBATE AND REFUND OF DUTY

4.1    Incorrect grant of refund

(i)    As per section 133 of the Finance Act, 1999, additional duty of excise at Re.one per litre is leviable with effect from 1 March 1999 on ‘High speed diesel oil’ (HSD) manufactured in India.

A test check of refund claims sanctioned by Shillong Commissionerate of Central Excise, revealed that M/s. Numaligarh Refinery, a joint sector oil refinery, was granted refund of additional duty of excise of Rs.107.13 crore which was paid on HSD oil during the period from April 2000 to April 2001. The refund was granted on the strength of a notification dated 8 July 1999 as amended on 9 February 2000 which exempted goods cleared from Numaligarh Refinery from duty of excise leviable under Central Excise Act, 1944 and additional duty of excise leviable under Additional Duty of Excise (Goods of Special Importance) Act, 1957. As the additional duty on HSD oil leviable under Finance Act, 1999, was neither covered by the said notification nor was exempted separately, refund of duty of Rs.107.13 crore was incorrect.

On being pointed out (July 2001), the Ministry of Finance, while admitting the objection, stated (January 2002) that an amount of Rs.10.75 crore had been realised and show cause notices for an amount of Rs.111.52 crore for the period from May 2000 to May 2001 had been issued in July 2001.

(ii)    M/s. I.T.I. Limited, Bangalore, in Bangalore II Commissionerate of Central Excise, engaged in the manufacture of telecommunication equipment, had cleared goods during 1997-98 on payment of duty on a provisional basis. The assessment was finalised in February 1999 and an amount of Rs.64.08 lakh was refunded as duty paid in excess.

A check of the final assessment statement disclosed that the final assessment made by the department was not correct as in the case of some invoices value of goods and rate of duty adopted was lesser. Actually duty paid provisionally was short by Rs.4.16 lakh. Therefore, duty of Rs.64.24 lakh refunded was not correct and the assessee was liable to pay duty of Rs.68.40 lakh (Rs.64.24 lakh refunded plus Rs.4.16 lakh paid short).

On being pointed out (January 2000), the Ministry of Finance admitted the objection and stated (July 2001) that the entire amount of duty had been recovered.

4.2    Loss of revenue due to delay in refund

As per section 11BB of the Central Excise Act, 1944, if any duty ordered to be refunded under sub-section (2) of section 11B to any applicant is not refunded within three months from the date of receipt of application, there shall be paid to the applicant interest at fifteen per cent per annum on such duty from the date immediately after the expiry of three months from the date of receipt of such application till the date of refund of such duty.

M/s. Hindustan Motors, Hooghly, in Calcutta IV Commissionerate of Central Excise, manufacturing motor vehicles falling under chapter 87, cleared goods on payment of full rate of duty. Later such motor vehicles were got registered as ‘taxi’ and refund claimed for differential duty. Scrutiny of the refund claims revealed that they were submitted within the stipulated period but the department sanctioned the refund claims with delays ranging from 4 to 386 days counted after expiry of three months from the date of receipt of refund applications. Accordingly, assessee filed claims demanding interest of Rs.4.16 crore on delayed payment of refund as per section 11BB of the Act. The department had paid interest amounting to Rs.69.95 lakh till date of audit. Inaction on the part of the department to sanction the refund claims within the period of three months resulted in loss of revenue.

On being pointed out (December 1999), the Ministry of Finance admitted the delay and stated (December 2001) that out of the total claims of Rs.4.16 crore, amount of Rs.0.70 crore had been paid, claims for Rs.1.91 crore had been rejected and claims for the balance amount of Rs.1.55 crore were being processed.

4.3    Incorrect availment of rebate of duty

As per notification dated 22 September 1994 issued under rule 12 of the Central Excise Rules, 1944, rebate of duty paid in excess of Rs.24.94 per kilo litre on aviation turbine fuel (ATF) exported as stores for consumption on board an aircraft on foreign run is admissible subject to fulfilment of certain conditions. The benefit of the notification is not applicable to aircraft on foreign run to Nepal.

M/s. Bharat Petroleum Corporation Limited, in Delhi I Commissionerate of Central Excise, was allowed to export aviation turbine fuel (ATF) as stores for consumption on board an aircraft 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.2.56 crore during April 1999 to March 2001 was incorrect.

On this being pointed out (November 2000 and June 2001), the department stated (March 2001) that the show cause notice for Rs.1.14 crore had been issued for recovery of duty for the year 1999-2000. Action taken for recovery of duty for the period from April 2000 had not been intimated (June 2001).

The Ministry of Finance contended (December 2001) that the facility had been extended to air flights to Nepal by notification dated 26 June 2001 and during the period prior to 26 June 2001, facility was available under executive instructions of 1949 and 1950 which had the force of law.

Reply of the Ministry is not tenable as the executive instructions of 1949 and 1950 had lost validity after issue of statutory notification dated 22 September 1994 which specifically denied the benefit to air crafts on foreign run to Nepal. Therefore, rebate availed was in contravention of the notification which was in force during the relevant period.