By TIOL News Service

CHENNAI, NOV 11, 2014 : AGAINST Show Cause Notice issued by the department, the assessee filed this Writ Petition before the High Court challenging the notice. The assessee is engaged in manufacture of Poly Iso Butylene. The main input for the product is Poly Butylene Feed Stock (PBFS), which is manufactured and supplied to the petitioner by Chennai Petroleum Corporation Ltd. After extraction of Poly Iso Butylene, 83% of the feedstock is sent back to the supplier refinery. As per Notification No 157/89 CE, later continued vide Notification No 4/2006 CE and 12/2012 CE, duty leviable as is in excess of the duty on gas consumed in the manufacture of Poly Iso Butylene is exempted. The gas consumed is computed by subtracting the quantity of gas received back by the refinery from the gas supplied.

It is the case of the department that the assessee is manufacturing both dutiable and exempted goods, (goods which are returned to the refinery) in terms of Rule 6 of the CENVAT Credit Rules, they are liable to pay 10% amount as they failed to maintain separate accounts for CENVAT Credit.

On the question of maintainability of a Writ Petition against Show Cause Notice in view of the alternate remedy, the High Court held that where the Show Cause Notice is issued without jurisdiction or where there is an abuse in process of law, the Petition would be maintainable and proceeded to examine the issue on merits.

After hearing rival contentions, the High Court held:

The Notifications for exemption issued in the years 1989, 2006 and 2012, make it very clear that petroleum gases and other gaseous hydrocarbons received from the refinery and returned after extraction of Polyisobutylene are exempted.

The impugned show cause notice actually has the effect of destroying the very exemption notification. The petitioner extracts Polyisobutylene and returns the remnant after subjecting it to a process. The exemption Notification as originally issued on 17.07.1989, was actually rescinded by another Notification dated 01.03.1994, when Modvat was extended to petroleum products including LPG. Therefore, when companies like the petitioner made representations, the Government of India decided to restore the exemption by issuing a Notification No.116/94-CE dated 24.06.1994. But during the period from the date of withdrawal of exemption and the date of restoration of exemption, the petitioner was made to pay the full incidence of Excise Duty. Therefore, the Government of India passed an order dated 24.03.1995, directing refund of the Duty paid during the said period.

Therefore, it is clear that the Government of India was fully aware of the nature of the exemption Notification, the nature of the manufacturing process carried on by the petitioner and the entitlement of the petitioner to the benefit. Being an authority functioning under the Government of India, the second Respondent is bound by the exemption Notification as well as the decision taken by the Government of India way back in 1995.

The recourse to Section 11A is not permissible unless the petitioner is found to be ineligible for exemption. The Government found even at the time when the exemption Notification was withdrawn that the petitioner was entitled to exemption. Therefore, the impugned notice is wholly without jurisdiction and nothing but an abuse of the process of law, enabling this Court to interfere with the same under Article 226.

The impugned show cause notice is nothing but an attempt to unsettle what was settled for nearly 24 years. What was settled for 24 years was not merely at the level of the Commissioner of Central Excise but at the level of the Government of India as seen from the ad hoc Notification issued in 1995 directing refund. Therefore, the impugned show cause notice is wholly without jurisdiction and nothing but an abuse of the process of law. Hence, the writ petition is allowed and the impugned show cause notice is set aside.

(See 2014-TIOL-1923-HC-MAD-CX)