Refund claim denial for duty exemption on diesel upheld due to lack of evidence and strict interpretation

Hindustan Petroleum Corporation Ltd Versus Commissioner of Central Tax – Visakhapatnam - GST

Hindustan Petroleum Corporation Ltd Versus Commissioner of Central Tax – Visakhapatnam - GST - TMI Issues:
Refund claim rejection based on accounting error and lack of substantiating documents.

Analysis:
The appeal was filed against the rejection of a refund claim by the Appellant, a Government of India undertaking involved in refining crude oil and marketing petroleum products. The Appellant stored products in a bonded tank, mixing those produced at their refinery with products purchased from other manufacturers. Despite maintaining separate accounts in their ERP system for manufactured and bought products, physical separation was lacking. The Appellant sought a refund of basic duty paid on High Speed Diesel (HSD) supplied to a customer eligible for partial duty exemption. The original authority rejected the refund claim due to insufficient evidence of duty payment on the supplied HSD, as per ER-1 returns and invoices. The first appellate authority upheld the rejection, leading to this appeal.

The Appellant argued an accounting error led to confusion, claiming they mistakenly debited the supplied HSD from bought products in their ERP system instead of the refinery-produced quantity. They contended this error should not negate their exemption eligibility, emphasizing the buyer's exemption eligibility and non-payment of basic excise duty. The Appellant further argued that regardless of the supplier, if the user meets exemption conditions, basic excise duty exemption applies, citing relevant case laws.

The departmental representative reiterated the rejection based on lack of evidence supporting the refund claim. They emphasized that ER-1 returns did not show HSD supply to the eligible customer, questioning the Appellant's entitlement to exemption and refund. The representative argued that the exemption notification did not extend to traders supplying goods to eligible parties, relying on a Supreme Court case for strict construction of exemption notifications.

The Tribunal considered both arguments and upheld the rejection of the refund claim. The Tribunal noted the impossibility of physical separation in the single tank storing HSD, with only notional separation in the ERP system. As the supplied HSD was not reflected in ER-1 returns and not manufactured by the Appellant, the refund claim was rightly rejected. The Tribunal agreed with the departmental representative that the exemption notification did not cover goods bought from other manufacturers and supplied to eligible parties. The Tribunal also supported the representative's argument that challenging the assessment of duty by the original manufacturer was necessary before refund sanctioning, following a Supreme Court precedent.

In conclusion, the Tribunal upheld the impugned order, rejecting the appeal based on the lack of substantiating evidence for the refund claim and the strict interpretation of exemption provisions.