Tribunal rules in favor of assessee on pre-deposit & refund adjustments

The Tribunal ruled in favor of the assessee on both issues. The appellant was only required to deposit a total of 10% for appeals before CESTAT, including the 7.5% already paid, as per Circular No. 1/5/2015. The Tribunal held that the entire 17.5% pre-deposit qualifies under Section 35F of the Central Excise Act. Regarding the authority to adjust refunds against arrears, the Tribunal found that without specific statutory authority, the Revenue cannot make such adjustments. The order for adjustment was set aside, and the appeal was allowed in favor of the assessee.

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Issues Involved:
1. Determination of the mandatory deposit amount at the time of filing an appeal before CESTAT.
2. Authority of the sanctioning authority to adjust/set off the amount of refund against the arrears towards the assessee.

Issue-wise Detailed Analysis:

Issue No.-(i): Determination of the mandatory deposit amount at the time of filing an appeal before CESTAT.

The appellant had paid a pre-deposit of 10% of duty and penalty while filing an appeal before the CESTAT, in addition to the 7.5% already paid when filing an appeal before the Commissioner (Appeals). This was done in compliance with Circular No. 984/8/2014 dated 16.09.2014. However, this circular was superseded by Circular No. 1/5/2015 dated 05.07.2018, following the decision of the Delhi High Court in Santani Sales Organization, which clarified that only a total of 10% (including the 7.5% already deposited) needs to be deposited for appeals before CESTAT. The relevant portion of the judgment reads:

"10% would not be in addition to and over and above 7.5% of pre-deposit made for the first appeal."

Thus, only an additional 2.5% should have been required for the second appeal. However, since the appeal was filed before the 2018 amendment, the appellant had to deposit 17.5%. The Tribunal held that this deposit qualifies as a pre-deposit under Section 35F of the Central Excise Act. Therefore, the refund claim should include the entire 17.5% pre-deposit, not just 10%.

Issue No.-(ii): Authority of the sanctioning authority to adjust/set off the amount of refund against the arrears towards the assessee.

The recovery of sums due to the Government is governed by Section 11 of the Central Excise Act, 1944, which was amended in 2013. The pre-amendment section allowed for the deduction of amounts payable from any money owing to the person from whom such sums were recoverable. The post-amendment section, however, does not provide specific authority for such adjustments. Instead, it outlines garnishee proceedings, requiring other persons holding money for the assessee to pay the Government directly.

The Tribunal noted that the adjudicating authority no longer has the power to adjust sanctioned refunds against other amounts due to the Revenue. This interpretation aligns with the Karnataka High Court's ruling in CCE, Bangalore vs. Stella Rubber Works (Unit-2), which held that without specific statutory authority, the Revenue cannot adjust amounts due to the assessee against amounts owed by the assessee to the Department.

The Tribunal concluded that the adjudicating authorities erred in ordering the adjustment of Rs. 2,43,608 from the sanctioned refund of Rs. 8,72,425. The amount disbursed, Rs. 6,64,357, was thus deemed a short disbursement.

Conclusion:

The Tribunal set aside the order under challenge, ruling in favor of the assessee on both issues. The appeal was allowed, and it was pronounced in open court on 16.02.2022.

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