2025 (3) TMI 1405 - HC - Customs

Refunds of voluntarily deposited CVD and SAD after failed export obligations governed by Section 142(3) read with 142(6)(a)

M/s Epigral LTD. & Anr. Versus Union Of India & Ors.

The HC held that refund claims for CVD and SAD voluntarily deposited after failing export obligations cannot be denied by reliance on section 142(8)(a); ... Refund of the Countervailing Duty (CVD) and Special Additional Duty (SAD) paid after failing to fulfill export obligations under the Advance Authorization and Export Promotion Capital Goods (EPCG) schemes - failure to fulfill export obligation - HELD THAT:- On perusal of Section 142, it is apparent that the respondent authorities could not have referred to and relied upon the provisions of section 142(8)(a) as the same would not be applicable to the facts of the case as the petitioners did not deposit the amount of duties in any recovery proceedings but the petitioners had voluntarily deposited the amount of duties on reconciliation of the imports made by the petitioners with the Advance Authorisation and EPCG license entitlement. Therefore, the case of the petitioners would be squarely covered by provisions of section 142(3) of the CGST Act which provides for considering the refund claim of the petitioners as per the existing law at the relevant time when import was made in the year 2016. As held by Telangana High Court in case of Principal Commissioner of Customs v. M/.s Granules India Limited [2024 (12) TMI 725 - TELANGANA HIGH COURT], the respondents were required to process the refund claim under section 142(3) read with section 142(6)(a) of the CGST Act. The Hon’ble Telangana High Court held that 'The Tribunal, by taking into account the provisions of sub sections (3), (5) and (8A) of Section 142 of the CGST Act, has held that the assessee is entitled to claim refund of CVD and SAD paid after the appointed day. Accordingly, the assessee had been held to be entitled to refund of central value added tax credit of Rs. 3,28,75,733/-.' This Court in case of Indo-Nippon Chemicals Co. Ltd. v. Union of India [2002 (2) TMI 136 - GUJARAT HIGH COURT], has also held that assessee would be entitled to the refund claim as per the proviso of section 11B of the Central Excise Act, 1944 and clause(c) of proviso could not be construed as enlarging the scope of the main provision in sub-section (1) of section 11B read with Cenvat Credit Rules,2004. Conclusion - Refund claim filed by the petitioners is required to be processed under the provisions of Central Excise Act, 1944 read with Cenvat Credit Rules, 2004 as per the provisions of section 142(3) read with 142(6)(a) of the CGST Act,2017. Therefore, without disturbing the order rejecting Form TRAN-1 passed by the respondent authorities, so far as order-in-original dated 10.10.2019 rejecting the refund claim of the petitioner for Rs. 45,84,371/- is concerned, is herby quashed and set aside and the matter is remanded back to the respondent authorities so as to decide the refund claim of the petitioners on merits as per the provisions of Central Excise Act, 1944 read with Cenvat Credit Rules, 2004 in view of provisions of section 142(3) read with section 142(6)(a) of the CGST Act, 2017 The petition is partly allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether transitional credit in Form TRAN-1 under Section 140 of the CGST Act is admissible where duties (CVD and SAD) relating to imports made prior to the appointed day were deposited voluntarily after the appointed day. 2. Whether a refund claim for CVD and SAD paid post-appointed day should be adjudicated under Section 142(3) of the CGST Act (i.e., under the pre-GST law) or can be rejected under Section 142(8)(a) as an amount recovered in recovery/arrear proceedings and thereby barred from being admissible as input tax credit. 3. Whether, if refund is admissible, the same must be processed and paid in cash under existing law (Central Excise Act and Cenvat Credit Rules) pursuant to Section 142(3) read with Section 142(6)(a) of the CGST Act, and whether the adjudicating authority erred in not doing so. 4. Whether rejection of Form TRAN-1 on the ground that no credit existed as on the appointed day is sustainable where duties were deposited after the appointed day and thus no balance could have been carried forward. ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of transitional credit in TRAN-1 when duties were deposited after the appointed day Legal framework: Section 140 governs transitional provisions for carrying forward credit to GST; Form TRAN-1 is the statutory mechanism for declaring and carrying forward Cenvat balances. The 'appointed day' is 01.07.2017. If no credit existed in the Cenvat Register as on the appointed day, there is nothing to carry forward under Section 140. Precedent treatment: Authorities and courts have held that only balances existing as on the appointed day can be carried forward via TRAN-1; payments made after the appointed day ordinarily do not create carry-forwardable credit. Interpretation and reasoning: The Court found it is undisputed that imports occurred in 2016 (pre-appointed day) but the duty (including CVD and SAD) was voluntarily paid in 2018 (post-appointed day). Consequently, there was no balance of Cenvat credit in the register on 30.06.2017 to be carried forward. The respondent's rejection of TRAN-1 on the ground that no credit existed on the appointed day is therefore factually and legally correct. Ratio vs. Obiter: Ratio - TRAN-1 cannot carry forward duties paid after the appointed day because no pre-existing credit balance existed to be transferred. Obiter - none additional on this point. Conclusions: The Court upholds rejection of TRAN-1 insofar as it seeks carry-forward of duties paid after the appointed day; such amounts were not eligible for transfer as Input Tax Credit under Section 140. Issue 2: Applicability of Section 142(3) v. Section 142(8)(a) where duties were voluntarily deposited after appointed day Legal framework: Section 142(3) provides that claims for refund of any amount of Cenvat credit, duty, tax, interest or any other amount paid under the existing law shall be disposed of in accordance with the provisions of the existing law and amounts accruing shall be paid in cash; Section 142(6)(a) and (6)(b) concern disposal of proceedings and refunds/recoveries under existing law; Section 142(8)(a) excludes amounts recoverable in assessment/adjudication proceedings from being admissible as input tax credit, treating them as arrears to be recovered under GST Act. Precedent treatment: The Court relied on prior High Court and Tribunal decisions holding that where duties were voluntarily deposited to regularise shortfall under pre-GST authorisations, refund claims fall to be adjudicated under pre-GST law via Section 142(3) and not treated as recovery/arrear under Section 142(8)(a). Decisions cited treat voluntary regularisations distinctly from adjudicated recovery orders. Interpretation and reasoning: The Court analysed facts showing voluntary payment on reconciliation (no adjudication/recovery proceedings). Consequently, Section 142(8)(a) - which governs amounts becoming recoverable as a result of assessment or adjudication proceedings - is inapplicable. The petitioners' case is governed by Section 142(3) and Section 142(6)(a), requiring disposal under the existing law (Central Excise Act and Cenvat Credit Rules) with any accruing amount to be paid in cash. The respondents erred by invoking Section 142(8)(a) to reject the refund claim. Ratio vs. Obiter: Ratio - where duties were voluntarily deposited and not paid pursuant to assessment/recovery proceedings, Section 142(3) (and related provisions) govern refund adjudication, and Section 142(8)(a) cannot be invoked to deny relief. Obiter - reliance on analogous decisions to support the statutory construction. Conclusions: The refund claim must be considered under Section 142(3) read with Section 142(6)(a), not under Section 142(8)(a); rejection based on Section 142(8)(a) is legally unsustainable in these factual circumstances. Issue 3: Entitlement to refund in cash under existing law and direction for adjudication on merits Legal framework: Section 142(3) mandates disposal of refund claims of amounts paid under existing law in accordance with the existing law, and any amount eventually accruing shall be paid in cash; provisos bar refund where amounts have been carried forward under the new Act. Central Excise Act and Cenvat Credit Rules govern refund and credit under the prior regime, including permissibility of Cenvat credit for CVD and SAD in certain situations. Precedent treatment: Prior High Court and Tribunal rulings (including those considered by the Court) have held that where refund under pre-GST law is allowable, it should be paid in cash notwithstanding the GST framework; authorities have remanded matters for refund adjudication under the old law in analogous circumstances. Interpretation and reasoning: Because the petitioners voluntarily paid duties post-appointed day, their refund claim falls to be processed under the Central Excise Act and Cenvat Credit Rules as per Section 142(3). If found eligible under those laws, refund must be paid in cash; the Court directed remand for de novo adjudication on merits and specified that, if eligible, refund should be paid in cash within a stipulated timeframe after opportunity of hearing. Ratio vs. Obiter: Ratio - refund claims of Cenvat components voluntarily paid after appointed day must be processed under existing law and, if allowed, paid in cash pursuant to Section 142(3). Obiter - procedural timelines and references to particular past decisions used to guide implementation. Conclusions: The order rejecting the refund claim under Section 142(8)(a) is quashed; the matter is remitted for fresh adjudication under the Central Excise Act and Cenvat Credit Rules read with Section 142(3) and Section 142(6)(a), and any admissible refund is to be paid in cash after hearing within the period directed by the Court. Issue 4: Relationship between refund adjudication and TRAN-1 filing - procedural outcome Legal framework: Section 140 (TRAN-1) deals with transitional carry-forward; Section 142 deals with miscellaneous transitional provisions including refunds under existing law. A refund claim and a TRAN-1 carry-forward are distinct remedies governed by different provisions; the provisos prevent double relief (carry-forward precludes refund of same amount). Precedent treatment: Courts have recognised that voluntary deposits post-appointed day preclude carry-forward but may permit refund under pre-GST law if eligible. Authorities must avoid permitting both cash refund and carrying forward of the same amount. Interpretation and reasoning: The Court separated the two avenues: TRAN-1 was rightly rejected because no balance existed on appointed day; the rejected refund order was set aside because the refund route remained open under Section 142(3). The petitioners' prior undertaking to withdraw refund claims when opting to pursue TRAN-1 electronically was noted, but the Court's direction concerns only the refund order being remitted for reconsideration; the TRAN-1 rejection stands unaffected by the remand on refund claim. Ratio vs. Obiter: Ratio - TRAN-1 and refund are separate remedies; absence of pre-existing credit defeats TRAN-1 carry-forward but does not per se bar adjudication of a refund under Section 142(3) where duties were voluntarily deposited post-appointed day. Obiter - procedural observations on the petitioners' prior conduct and undertakings. Conclusions: The TRAN-1 rejection is sustained on merits; the refund order is quashed and remitted for fresh adjudication under existing law. Authorities must ensure no duplicative relief and apply statutory provisos accordingly when deciding refunds and carry-forwards.