2025 (9) TMI 1603 - AT - Central Excise

Refund claims remanded; denial of CVD and SAD refunds under Rule 9(1)(b)/(bb) CCR 2004 and Section 142 CGST

CESTAT AHMEDABAD - AT set aside the Commissioner (Appeals) order and allowed the appeals by remand, holding that rejection of refund claims for CVD and ... Rejection of refund claims of CVD and SAD, filed by the appellant under Section 142(3) and 142(6)(a) of the CGST Act 2017 - rejection in terms of Rule 9(1)(b) of Cenvat Credit Rules, 2004 and Section 142(8)(a) of the CGST Act, 2017 - suppression of facts or not - HELD THAT:- In Rubamin Private Limited vs. Commissioner of Central Excise & Service Tax, Vadodara-II, [2024 (5) TMI 767 - CESTAT AHMEDABAD], this Tribunal has held that as regards the issue whether the appellant claim of CVD & SAD is hit by Rule 9 (1) (b) or (bb) of Cenvat Credit Rules, 2004, firstly there is no demand notice in respect of CVD and SAD which was paid by the appellants on their own and also no adjudication as regards the suppression of facts, therefore, in absence of any charge by way of Show Cause Notice or adjudication thereof, the allegation of suppression of facts only to invoke Rule 9 (1) (b) or (bb) of Cenvat Credit Rules, 2004 is on assumption and presumption which cannot be accepted. Moreover, the payment of CVD and SAD is not towards the non-payment of duty by suppression of fact in the present case. The Advance License is on record and since there was excess import as compared to the eligibility under Advance License, the appellant has discharged the duty of CVD and SAD suo-moto for which no offence was made out by the department. Therefore, in these facts, no suppression of fact is involved. Consequently, penal provision under Rule 9 (1) (b) or (bb) shall also not apply. The issuance of ‘deficiency letter’ asking for making payment of additional duties of excise on account of import of excess of eligible quantities against Advance Authorization, is nothing but mere an opportunity provided to regularize the bonafide default made by Authorization Holder. The issuance of ‘deficiency letter’ does not tantamount to initiation of assessment or adjudication proceedings unless an action is taken against Authorization Holder under the FTDR Act for any misrepresentation or misdeclaration. The learned Commissioner (Appeals) and the learned Adjudicating Authority have erred in passing the impugned order. Therefore, the impugned order dated 21.01.2020 passed by learned Commissioner (Appeals) is liable to be set-aside and the appeals are liable to be allowed. The matters are remanded back to the Adjudicating Authority to pass fresh orders on the applications filed by the appellants for refund of amount pertaining to deposits made by them in the light of these orders - appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether refund claims for CVD and SAD paid to regularize excess imports under Advance Authorisation/EPCG licences are admissible in cash under Section 142(3) read with Section 142(6)(a) of the CGST Act, 2017. 2. Whether payment of CVD and SAD made pursuant to a 'deficiency memo' issued by the Joint DGFT, without any adjudication or show cause notice alleging fraud/collusion/willful misstatement/suppression, attracts the prohibitory bar in Rule 9(1)(b) of the Cenvat Credit Rules, 2004 and/or Section 142(8)(a) of the CGST Act, 2017 to deny Cenvat credit or refund. 3. Whether issuance of a DGFT deficiency letter requesting payment to regularize Advance Authorisation constitutes initiation of assessment/adjudication proceedings under customs/excise law (and thereby permits invocation of penal/disallowance provisions) or is merely an opportunity to regularize bonafide default. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of refund in cash under Section 142(3) CGST Act, 2017 Legal framework: Section 142(3) CGST Act, 2017 provides that claims for refund of any amount of CENVAT credit, duty, tax, interest or other amount paid under the existing law shall be disposed of in accordance with existing law and any amount eventually accruing shall be paid in cash (subject to limited exceptions and provisos). Precedent treatment: The Tribunal relied upon a High Court decision recognizing that refunds accruing after appointed day are payable in cash under Section 142(3), and a Tribunal precedent holding that voluntary payments of CVD/SAD (without demand/adjudication) are not hit by disallowance provisions. Interpretation and reasoning: The Tribunal construed Section 142(3) as entitling a person who paid duties under the pre-GST law to cash refund post appointed day if a refund accrues. The provision operates notwithstanding earlier modes of refund under existing law, subject to specified provisos (e.g., carried forward balances). The factual finding was that duties were paid by the claimant to regularize excess import and to obtain DGFT NOC; therefore the claim falls within Section 142(3). Ratio vs. Obiter: Ratio - where duties were paid voluntarily to regularize an Advance Authorisation and no adjudication or demand was made, Section 142(3) mandates payment of any accruing refund in cash. Obiter - general observations on interaction with other provisions not necessary to the decision. Conclusion: Refund claims for CVD and SAD paid to regularize excess imports under Advance Authorisation are admissible in cash under Section 142(3), subject to the provisos of that provision. Issue 2 - Applicability of Rule 9(1)(b) CCR 2004 and Section 142(8)(a) CGST Act to payments made pursuant to DGFT deficiency memo absent adjudication Legal framework: Rule 9(1)(b) CCR 2004 denies Cenvat credit where additional duty became recoverable on account of non-levy or short-levy by reason of fraud, collusion, willful misstatement, suppression of facts or contravention of provisions of Excise/Customs Act with intent to evade duty; Section 142(8)(a) CGST Act bars credit where tax, interest, fine or penalty is recoverable from the person under existing law. Precedent treatment: The Tribunal followed its earlier decision which held that in absence of any demand notice or adjudication alleging suppression/fraud, invoking Rule 9(1)(b) is impermissible; mere voluntary payment to regularize excess imports does not amount to suppression or offence. Interpretation and reasoning: The Tribunal observed that Rule 9(1)(b) contemplates a factual finding of fraud/collusion/willful misstatement/suppression or a contravention requiring appropriate initiation (e.g., show cause notice under Section 11A(4) of Central Excise Act) before denying credit. Where the assessee pays duties suo moto pursuant to a DGFT deficiency memo and there is no adjudication, demand or finding of suppression/fraud, the disallowance limb of Rule 9(1)(b) cannot be invoked. Similarly, Section 142(8)(a) operates where tax, interest, fine or penalty is recoverable under existing law; voluntary payment without recoverable demand does not trigger that prohibition. Ratio vs. Obiter: Ratio - Rule 9(1)(b) cannot be applied to deny credit/refund absent initiation of proceedings or adjudication establishing fraud/suppression/contravention; voluntary payments made to regularize licences are not caught. Obiter - commentary on the standard of proof or procedural steps required before invoking penal provisions. Conclusion: Payments of CVD and SAD made pursuant to a DGFT deficiency memo, in the absence of any show cause notice, adjudication or demand alleging fraud/collusion/suppression, are not hit by Rule 9(1)(b) CCR 2004 or by Section 142(8)(a) CGST Act and cannot be denied refund on that ground. Issue 3 - Legal character of a DGFT 'deficiency letter' and jurisdictional scope of Revenue authorities in such circumstances Legal framework: DGFT deficiency letters/request for payment arise under Foreign Trade policy/regime; separate statutory procedures (including cancellation/investigation under FTDR/Customs laws) are required to impose penalties or treated as adjudicatory action under Customs/Excise law. Precedent treatment: The Tribunal relied on authority (Circular No. 334/1/2012-TRU and case law) holding that a deficiency memorandum is an opportunity to regularize and does not by itself amount to initiation of recovery/assessment unless followed by relevant statutory action. Interpretation and reasoning: The Tribunal found that issuance of a deficiency letter merely affords an opportunity to the authorization holder to regularize excess imports; it does not equate to initiation of adjudication or to a determination of fraud/suppression. Where the authorization holder voluntarily surrenders the licence after making payments and obtains NOC, there is no evidence of DGFT or Customs proceeding (no Section 28/11A/11A(4) action) that would convert the payment into a recoverable tax/fine/penalty. Ratio vs. Obiter: Ratio - a DGFT deficiency letter seeking payment for regularization is not an adjudicatory order and cannot, without further statutory action, form the basis for denying credit/refund. Obiter - remarks on administrative practice and the need for DGFT cancellation proceedings before further departmental action may be validly taken. Conclusion: The DGFT deficiency memo in the factual matrix is a regularisation mechanism and does not confer jurisdiction on Revenue to treat the voluntary payment as a recoverable tax/penalty invoking disallowance provisions; consequently, authorities erred in treating the payments as non-refundable on that premise. Remedial and procedural direction (consequential to the conclusions above) Because the Tribunal concluded that the prohibitory provisions were inapplicable on the facts and that Section 142(3) entitles claimants to cash refund, the impugned appellate and original orders were set aside and matters remanded to the Adjudicating Authority to decide the refund applications afresh in light of these legal conclusions, within a specified timeframe.