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Erroneous Refund

MAY 15, 2024

By Vijay Kumar

AN assessee filed refund applications in 2013 and 2014. A Show Cause Notice was issued on 22.01.2020, as to why the refund be not rejected. Thereafter, an Order-in-Original dated 31.08.2020 was passed whereby the refund was rejected.

The assessee filed an appeal before the Commissioner (Appeals), and by order dated 19.08.2021, Commissioner (Appeals) dismissed the appeal.

They approached the Tribunal [CESTAT] and by a final order dated 07.12.2022, the Tribunal held that the refund claim of the petitioner could not have been rejected by the Commissioner (Appeals).

Thereafter, the Department filed an appeal before the High Court which was dismissed on 12.07.2023 holding that no substantial question of law arises. Thereafter, the assessee filed a Writ Petition before the Court seeking grant of interest on the delayed refund. Said petition was allowed by order dated 03.08.2023  -   2023-TIOL-967-HC-DEL-ST, directing the Revenue to process the petitioner's claim for interest. Thereafter, the interest on the delayed refund was sanctioned and payment made to the petitioner.

Assessee was refunded an amount of Rs. 8,55,34,345/- towards refund of CENVAT Credit and Rs.4,69,83,731/- towards interest on delayed refund.

Happy ending?

No, this is where the story begins. After getting the refund, the assessee received a Show Cause Notice dated 19.01.2024, to show cause as to why CENVAT Credit of Rs.8,55,34,345/- erroneously refunded along with interest of Rs.4,69,83,731/- erroneously paid be not recovered and penalty be not imposed for ineligible availment of CENVAT Credit.

The refunded amount is sought to be recovered. And the assessee is back in the High Court.

The High Court noticed that the said amount of refund and interest was paid to the petitioner pursuant to the order passed by the Tribunal holding the petitioner entitled to refund and the order passed by the High Court directing payment of interest on the delayed refund paid to the petitioner.

High Court also noted that when the Revenue sought to impugn the order of the Tribunal holding the assessee entitled for refund, the High Court dismissed the challenge.

High Court further noted that the only grounds stated in the impugned Show Cause Notice were: -

1. Department has filed SLP in the Supreme Court against the High Court Judgment/Order dated 12.07.2023.

2. Since the department has preferred SLP against the High Court Judgment, the amount disbursed as interest on delayed payment amounting   to Rs.4,69,83,731/- is also liable to be recovered from the taxpayer along with interest applicable.

It was noted that the Show Cause Notice erroneously records that a Special Leave Petition has been filed. However, Special Leave Petition is still to be filed in the Registry of the Supreme Court.

The High Court observed, [2024-TIOL-527-HC-DEL-ST]

1. It is not in dispute that petitioner has been refunded the said amount after the petitioner was found eligible by the Tribunal for refund and further by this Court towards interest for delayed refund. Accordingly, there is no ground to demand the same from the petitioner.

2. Since the Revenue is approaching the Supreme Court impugning the order of the Tribunal as well as the order in appeal passed by this Court holding petitioner entitled to refund, it would be open to the Revenue to seek interim orders of protection from the Supreme Court.

3. The Revenue cannot after being unsuccessful before this Court, on its own, declare the refund as well as interest on delayed payment to be erroneous refund.

4. Unless the Revenue is successful before the Supreme Court or the Supreme Court so warrants, there is no question of any refund of the CENVAT Credit or refund of the interest paid to the petitioner.

And so, the impugned Show Cause Notice cannot be sustained and was accordingly quashed.

Why did they issue a Show Cause Notice after refund was given based on orders from the Tribunal and High Court?

This is a peculiar situation for the Department. They must have thought it to be a protective demand to safeguard revenue in the unlikely event of winning in the Supreme Court. Suppose the Revenue wins in the Supreme Court. How will they recover this money? If they issue a Show Cause Notice after the Supreme Court judgement, it may become time barred . So, to avoid that, they must have given the notice.

But should they give a notice after the Supreme Court order?

It is Déjà vu for me.

Let me take you back a couple of decades.

By a judgment dated 25-10-1992, the High Court directed refund of excise duty. The Union of India went in appeal to the Supreme Court. During the pendency of the appeal, an amount of Rs. 18,49,568/- representing excise duty paid between 1-4-1972 and 3-11-1976 was refunded. The Supreme Court set aside the judgment of the High Court and allowed the appeal on 15-7-1997.

As a follow-up to the judgment of the Supreme Court, the Range Superintendent sent a letter to the assessee asking for the return of the refunded amount of Rs. 18.49 Lakhs. The assessee refused to pay up saying that the demand was time barred. The department then sent a detailed letter stating that the rejection of refund claim stood restored consequent to the Supreme Court judgement and the assessee was asked to pay up with threat of coercive action.

The assessee took the matter in writ petition to the High Court on the plea that: -

1. There is no provision under the Central Excise Act to recover the duty refunded to it in accordance with a judgement of Court of law, other than Section 11A.

2. If Section 11A is applied, the time limit of six months precludes the recovery at this distance of time under the Act.

3. Therefore, the Central Government can only have recourse to common law remedy of civil suit in which appropriate defences are open to the petitioner.

4. When the law under which the duty was collected and refunded does not specifically provide for re-restitution, it is not open to the Revenue to take the law into their own hands by resorting to coercive process of recovery.

5. During the pendency of the appeal in the Supreme Court, the petitioner not having knowledge of the appeal, passed on the benefit of refund to its dealers and therefore, there is no unjust enrichment.

6. Revenue ought to have sought specific directions of the Supreme Court for the recovery of duty instead of unilaterally starting the recovery proceedings.

The High Court was not impressed. It observed that: 2003-TIOL-113-HC-AP-CX

1. The petitioner cannot invoke the extraordinary jurisdiction of the Court under Art. 226 to circumvent and defeat the judgment of the Supreme Court, which binds one and all.

2. Any relief granted by the High Court ought not to run counter to the spirit of the judgement of Supreme Court and the effect thereof cannot be nullified by denying effective execution.

3. The question is not whether the amount should be recovered under the doctrine of restitution or on applying a specific provision contained in the Act or the Rules.

4. The real question is whether this Court should in exercise of its jurisdiction under Art. 226 lend its helping hand to a party who does not want to disgorge the unwarranted benefit which it got under the judgement of the High Court, despite the reversal of the judgment by the Apex Court.

5. The absence of specific direction by the Supreme Court authorising the respondents to recover back the money shall not make any difference.

6. The plain and logical consequence of the judgment setting aside the judgment of the High Court which ordered refund is to restore status quo ante and imposing a duty and obligation on the assessee who got the refund under the overruled judgment to pay back that amount.

7. In the absence of specific order placing restrictions or conditions on the entitlement to recover back the amount refunded during the pendency of appeal, the unsuccessful assessee cannot approach this Court to scuttle the recovery instead of discharging its obligation voluntarily.

8. The petitioner has no legal or moral right to approach this Court under Article 226 raising hyper-technical grounds to wriggle out of the situation in which it is placed in the aftermath of the judgment of the Supreme Court.

9. The argument that there is no provision in the Act to call back the amounts refunded under a superseded judgment and the reasoning that both the assessee as well as the Revenue should confine their claims for refund and restitution within the four corners of the Act, cannot be accepted.

10. The claim for refund arising in the course of proceedings under the Act stands on a different footing from the obligation to pay back the amount which the assessee is not entitled to retain as a necessary consequence of the judgment of the highest Court.

11. It is unbelievable that an ordinary prudent businessman would, during the pendency of the appeal in the Supreme Court, take the risk of refunding the excess excise duty collected from its dealers/distributors.

The party, of course, took the matter back to the Supreme Court in appeal against the High Court's order but lost there too and finally paid up after nearly twenty years. Before parting, it is worth recalling a very interesting quote from the High Court's order,

Legal ingenuity knows no bounds. It baffles an ordinary person whether the pleas such as those put forward in the present case could be available at all. The petitioners having got the refund pursuant to the judgment of this court which was later on reversed by the Supreme Court tries to resist the move of the Excise Department to recover back the amount refunded to it.

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He could have been one of the finest Finance Ministers of the Country, but alas, fate had other plans.

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Until next week


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