Department cannot adjust unconfirmed demand against refund payable to the Assessee

Dear Professional Colleague,

Department cannot adjust unconfirmed demand against refund payable to the Assessee

We are sharing with you an important judgement of the Hon’ble CESTAT, Delhi in the case of Bharat Sanchar Nigam Ltd. Vs. Commissioner of Central Excise, Jaipur [2014 (10) TMI 139 - CESTAT NEW DELHI]on following issue:

Issue:

Whether Department can adjust unconfirmed demand against refund payable to the Assessee?

Facts and Background:

Bharat Sanchar Nigam Ltd. (“the Appellant”) filed refund claim of ₹ 11,79,720/- for the excess amount paid. The Appellant was issued a Show Cause Notice dated January 17, 2007 (“SCN”) to show cause as to why their refund claim of ₹ 11,79,720/- should not be rejected. The Appellant submitted their reply dated May 25, 2007 and was sanctioned entire refund claim by the Assistant Commissioner vide Order-in-Original No. 44/R/2007.

However, the Assistant Commissioner later issued a corrigendum dated July 17, 2007 to the SCN stating that as the Appellant had taken Cenvat credit to the tune of ₹ 11,18,182/- on the strength of the invoices for Capital goods issued by their Head Office, the same was not admissible as their Head Office was not registered as a registered dealer and therefore asking why their refund claim should not be rejected to the extent of ₹ 11,18,182/-.

Later, the Commissioner (Appeals) also upheld the adjustment of ₹ 11,18,182/- out of the total refund of ₹ 11,79,720/-and the Appellant was refunded only the net (remaining) amount of ₹ 61,538/- in form of Cenvat credit. Being aggrieved, the Appellant preferred an appeal before the Hon’ble CESTAT, Delhi.

Held:

The Hon’ble CESTAT, Delhi observed that there has been no Show Cause Notice given to the Appellant for showing cause as to why Cenvat credit amount of ₹ 11,18,182/- (adjusted from the amount of refund sanctioned) was inadmissible to them and even if the corrigendum issued on July 17, 2007 is an attempt to be treated as a Show Cause Notice, the said corrigendum falls fatally short of the requirement of a notice under Section 73 of the Finance Act, 1994.

Accordingly, it was held by the Hon’ble Tribunal that while confirmed demand can be adjusted from the amount of refund, there is no provision to adjust unconfirmed demand from the amount of refund and in the instant case, ₹ 11,18,182/- cannot be held to be a confirmed demand.

Hence, the Department was directed to refund back ₹ 11,18,182/- to the Appellant along with applicable interest.

Hope the information will assist you in your Professional endeavors. In case of any query/ information, please do not hesitate to write back to us.

Thanks and Best Regards.

Bimal Jain

FCA, FCS, LLB, B.Com (Hons)

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