2025 (6) TMI 865 - AT - Customs

Revenue cannot challenge refund orders without first challenging the underlying final assessment order that directed the refund

CESTAT Kolkata held that Revenue's appeal against refund orders was legally flawed as it failed to challenge the underlying final assessment order. ... Refund of excess duty paid - final assessment order passed by the assessing authority, has not been challenged by the Department before the Commissioner (Appeals) and the Revenue filed appeal before the Commissioner (Appeals) against the refund orders - reliance placed on a test report that is not on record, nor supplied to the Appellant. HELD THAT:- It is settled law and rightly canvassed by the Appellant that the appeal of the Revenue before Commissioner (Appeals) without challenging the final assessment order could not automatically lead to a challenge to the Refund Order. The law on the subject matter is laid out in a slew of cases - reliance can be placed in COLLECTOR OF CENTRAL EXCISE, KANPUR VERSUS FLOCK (INDIA) PVT. LTD. [2000 (8) TMI 88 - SUPREME COURT]. Suffice to state, that refund order is merely an order in execution of a direction, as arises out of the final assessment order. It being a downstream action and as held by the Apex Court no challenge would lie in the matter, till the cause giving rise to such action is in itself set aside in appeal. Under the circumstances, the Revenues appeal before the Commissioner (Appeals) challenging refund order and not the assessment order, in the matter was completely misplaced. It is not disputed that the duty has been paid in accordance with the provisions of the law, the transaction is between unrelated parties, there is no evidence to establish the existence of any extraneous consideration in the matter. The value of export goods is arrived and finalized in accordance with the contractual obligations. In the absence of any convincing reason to set aside the transaction value adopted while finalizing the provisional assessment the same cannot be rejected. No reasons are forthcoming to the contrary, either from the order passed by the adjudicating authority or the Commissioner (Appeal’s) impugned order in the matter - Nonetheless primarily without a challenge to the assessment, the Revenue cannot consider any question of challenge to the refund orders per se issued by the Learned Commissioner (Appeals). It thus suffers from this inherent defect. The appellant has also obliquely hinted at non-compliance with principles of natural justice, in as much as, a test report said to be issued by the Kolkata Customs House, is neither on record, nor a copy thereof given to the respondent. No conclusion can therefore, be arrived upon to the prejudice of the appellant in the matter without in effect making over to them the said piece of evidence. In this regard the revenue’s case is shrouded in complete arbitrariness and hypothetical. Conclusion - The Revenue's failure to challenge the assessment orders and reliance on undisclosed evidence rendered its appeal against the refund orders untenable, leading to the setting aside of the impugned orders and confirmation of the refunds due to the appellant. The order of Commissioner (Appeals) therefore is not maintainable in law and is required to be set aside - appeal allowed. The core legal questions considered by the Tribunal in this matter are:(i) Whether the Revenue could challenge the refund orders granted to the appellant without simultaneously challenging the final assessment orders that led to the sanction of such refunds;(ii) Whether reliance on a test report purportedly issued by the Customs House Kolkata, which was neither on record nor supplied to the appellant, could form a valid basis for disputing the refund;(iii) Whether the principles of natural justice were complied with in the proceedings leading to the impugned orders, particularly regarding the appellant's right to access evidence relied upon against them;(iv) The applicability and interpretation of relevant statutory provisions under the Customs Act, 1962, and administrative circulars concerning provisional assessments, final assessments, and refund claims.Regarding the first issue, the Tribunal examined the legal framework governing provisional and final assessments under Section 18(1) of the Customs Act, 1962. The Act permits provisional assessment of duty, which is later finalized based on conclusive evidence such as commercial invoices, test reports, and other relevant documents. The final assessment order is the foundational adjudication that determines the correct duty liability. Refund orders are consequential and downstream actions flowing from the final assessment, sanctioning repayment of any excess duty paid.The Tribunal referred to authoritative precedents from the Supreme Court, including rulings in cases analogous to the present facts, which establish the settled principle that a refund claim cannot be contested independently of the assessment order. The Court held that without a challenge to the final assessment order, the Revenue cannot validly issue show cause notices or seek recovery of refunds already sanctioned. The Tribunal underscored that the Revenue's appeal before the Commissioner (Appeals) was directed solely against the refund orders, without any challenge to the final assessment orders themselves, rendering the Revenue's challenge legally untenable.The Tribunal further noted the Revenue's reliance on Circular No. 24/2004/Cus, which explicitly states that refund claims cannot be entertained without an appeal against the assessment order. This administrative instruction reinforces the legal position that the assessment order is the primary cause giving rise to any refund entitlement.On the second issue, the Tribunal scrutinized the Revenue's reliance on a test report allegedly issued by the Customs House Kolkata, which was neither placed on record nor furnished to the appellant. The appellant contended that such omission violated the principles of natural justice, as they were deprived of the opportunity to examine or rebut this purported evidence. The Tribunal agreed, observing that no adverse conclusion could be drawn against the appellant on the basis of evidence not disclosed to them. The Revenue's case was thus characterized as arbitrary and hypothetical, lacking a firm evidentiary foundation.Regarding the third issue, the Tribunal emphasized the fundamental requirement of natural justice in adjudicatory proceedings. The failure to provide the appellant with a copy of the test report relied upon by the Revenue constituted a breach of procedural fairness. This procedural lapse further undermined the validity of the Revenue's challenge to the refund orders.On the application of law to facts, the Tribunal noted that the provisional assessments were undertaken in accordance with the statutory provisions, based on pre-shipment test analysis reports and other documents. The final assessments were duly finalized considering the load-port analysis report from an independent agency, which was accepted by the Department at the time. The contract between the exporter and the foreign buyer stipulated that the final price would be determined based on the load-port analysis report, which was consistent with the valuation principles and commercial realities.The Tribunal rejected the Revenue's attempt to invoke Circular No. 12/2014-Cus, which pertained to iron ore export contracts with price determination based on discharge port test reports, as inapplicable to the present case. Here, the contract and valuation were based on load-port survey reports, which had been accepted and formed the basis of final assessment and refund sanction.In addressing competing arguments, the Tribunal found the Revenue's approach flawed both legally and factually. The Revenue's failure to challenge the assessment orders and reliance on undisclosed evidence undermined the legitimacy of its appeal against the refund orders. The appellant's contention that the refund was rightly sanctioned in accordance with the contractual terms, independent survey reports, and finalized assessments was accepted. The Tribunal also noted the absence of any evidence suggesting extraneous considerations or manipulation in the valuation or refund claims.Consequently, the Tribunal concluded that the Commissioner (Appeals) erred in setting aside the refund orders without proper legal basis or substantive reasoning. The impugned orders were cryptic and devoid of detailed findings to justify the rejection of the refunds. The Tribunal held that the Revenue's appeal before the Commissioner (Appeals) was misconceived and lacked jurisdiction in the absence of challenge to the foundational assessment orders.In its final determination, the Tribunal allowed the appeal filed by the appellant, setting aside the order of the Commissioner (Appeals) and restoring the refund orders sanctioned by the Assistant Commissioner, Paradeep Customs.Significant holdings include the following verbatim excerpt encapsulating the core legal principle:'It is settled law and rightly canvassed by the Appellant that the appeal of the Revenue before Commissioner (Appeals) without challenging the final assessment order could not automatically lead to a challenge to the Refund Order. The law on the subject matter is laid out in a slew of cases... refund order is merely an order in execution of a direction, as arises out of the final assessment order. It being a downstream action and as held by the Apex Court no challenge would lie in the matter, till the cause giving rise to such action is in itself set aside in appeal.'Further, the Tribunal established the principle that reliance on evidence not disclosed to the affected party violates natural justice and cannot sustain adverse findings.In summary, the Tribunal reaffirmed the primacy of the final assessment order as the cause of action for any refund claims and emphasized procedural fairness in adjudicatory processes. The Revenue's failure to challenge the assessment orders and reliance on undisclosed evidence rendered its appeal against the refund orders untenable, leading to the setting aside of the impugned orders and confirmation of the refunds due to the appellant.