Value Of Returned Goods Is To Be Considered For Determining Value For Refund Under Section 173­L Central Excise Act: Supreme Court

CAUSE TITLE:
M/s Peacock Industries Ltd. Vs Union of India and Ors.

DATE OF ORDER:
5 September 2022

JUDGE(S):
HON’BLE JUSTICE M.R. SHAH and JUSTICE KRISHNA MURARI

PARTIES:

Appellant(s): M/S PEACOCK INDUSTRIES LTD
Respondents: UNION OF INDIA AND ORS

SUBJECT

The judgment pertains to section 173L of the Central Excise Act,1944 (hereinafter referred to as “Act”). The above-mentioned appeal was filed against the impugned judgment and order dated 06.02.2008 passed by the High Court of Rajasthan at Jodhpur in Tax Reference Civil No.26 of 2004 by the dealer-assessee. The Hon’ble court observed that for the purpose of considering the value for refund under Section (Rule) 173-L, what is required to be considered is the value of the returned goods

IMPORTANT PROVISIONS

The Central Excise Act and Rules 1944

Rule 173L

"173­L Refund of duty on goods returned to factory.

­ (I) The Collector may grant refund of the duty paid on manufactured excisable goods issued for home consumption from a factory, which are returned to the same or any other factory for being remade, refined, reconditioned or subjected to any other similar processes in the factory.

Provided that:­

XXX XXX XXX

(2) XXX XXX XXX

(3) No refund under sub­rule (1) shall be paid until the process mentioned therein have been completed and an account under subrule having been rendered to the satisfaction of the collector within six months of the return of the goods to the factory. No refund shall be admissible in respect of the duty paid:­

(v) If the value of the goods at the time of their return to the factory is, in the opinion of the collector, less than the amount of duty originally paid upon them at the time of their clearance from the factory,

Explanation ­ in this clause, "value" means the market value of the excisable goods and not the ex­duty value thereof.

BRIEF FACTS

• The appellant (a molded plastic manufacturer) is an assessee for excise duty and submitted a claim for a refund of excise duty on the account of accepting rejected goods brought back by its distributors for which it had already issued credit goods to the parties.
• The assessee argues that he is entitled to the refund to the extent of the value of the returned goods (market value of goods returned as second-hand goods) as per Rule 173L of the Act. Assessee put forth that the second-hand goods can be again reused as a raw material.
• Deputy commissioner issued a show cause notice to the assessee. The assessee was given an Ample opportunity to put forth the value of the returned goods. He produced the invoices of second-hand goods but did not produce evidence to adjudge the value of returned goods.
• Considering the market survey, the returned goods were treated as scrap by the Deputy Commissioner and were valued at Rs. 8 to 10 per kg. It was concluded that the value of the returned goods was to be less than the amount of the duty originally paid time of their clearance from the factory, the assessee shall not be entitled for the refund considering Section 173­L (v).
• An appeal was filed against Deputy Commissioner’s order before the Ld. Tribunal which was dismissed. A reference was made to the High Court. It was argued on the behalf of the assessee before the High Court that Deputy Commissioner has wrongly treated the returned goods as scrap and hence there was a serious error in the valuation of the said goods at Rs. 8 to 10 per kg thereby denying the refund to the assessee.
• The reference was rejected by the High Court on the ground that no submission alleging that the market report was not provided or that any principle of natural justice has been violated has been made before the court or before the tribunal.

ANALYSIS BY THE COURT

• The Hon’ble Court opined that no error has been committed either by the Deputy Commissioner, the tribunal or by the High Court in rejecting the refund claim of the assessee. The court further held that the value of returned goods depends on the defects in the manufactured product for which it was rejected. Therefore, the evidence has to be led with respect to each consignment of the returned goods, which the assessee failed to prove in the present case.
• The court interpreted the term “value” as per Explanation to Clause (v) as to mean the market value of the excisable goods and not the ex­duty value thereof.

CONCLUSION

The appeal was dismissed.

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