2026 (4) TMI 145 - AT - Central Excise

Bona fide wrong payment of duty: refund not barred by limitation where excess tax was paid under mistake of law.

Refund of duty paid twice through Cenvat credit and later in cash was held not to be barred by limitation under Section 11B read with Section 142(3), ... Refund of claim - barred by limitation under Section 11B - Mistake of law - payment through Cenvat credit - Double payment of duty - contravention of Rule 3(4) of the Cenvat Credit Rules, 2004 Or was a bona fide wrong payment of duty. Refund of duty paid under mistake of law - Limitation under Section 11B - HELD THAT:- The Tribunal found that the appellant had first discharged duty through Cenvat credit and, after audit pointed out that such mode was impermissible for clearances under the relevant exemption notification, paid the same duty again in cash along with interest and penalty, resulting in double payment. Applying 3E Infotech Ltd vs. CESTAT Chennai [2018 (7) TMI 276 - MADRAS HIGH COURT], the Tribunal held that where tax or duty is paid under mistake of law, the limitation prescribed under Section 11B does not govern the claim for refund. On that reasoning, the Commissioner (Appeals) erred in treating the claim as time-barred merely because it was not made within the statutory period and was not shown as paid under protest. [Paras 4] The finding that the refund claim was hit by limitation was set aside. Bona fide wrong utilisation of Cenvat credit - Contravention of Rule 3(4) of the Cenvat Credit Rules - HELD THAT: - The Tribunal held that the record did not show any deliberate attempt by the appellant to avoid payment in cash. Once audit pointed out that Cenvat credit could not be used for payment of duty on goods cleared under Notification No. 1/2011-CE, the appellant paid the duty in cash. In these circumstances, the matter was regarded as a case of wrong payment through an impermissible mode leading to duplicate payment, and not as a substantive contravention warranting denial of refund on that basis. [Paras 2, 4] The Commissioner's view that the case was one of contravention rather than a bona fide mistake was rejected. Final Conclusion: The Tribunal held that the appellant's refund claim for the duplicate duty payment could not be rejected as time-barred, since the payment had arisen from a mistake of law. The impugned appellate order was therefore set aside and the appeal was allowed with consequential reliefs. Issues: (i) Whether the refund claim was barred by limitation under Section 11B of the Central Excise Act, 1944 read with Section 142(3) of the CGST Act, 2017; (ii) Whether the appellant's payment through Cenvat credit amounted to contravention of Rule 3(4) of the Cenvat Credit Rules, 2004 or was a bona fide wrong payment of duty.Issue (i): Whether the refund claim was barred by limitation under Section 11B of the Central Excise Act, 1944 read with Section 142(3) of the CGST Act, 2017.Analysis: The refund arose from duty paid twice, once through Cenvat credit and again in cash after audit pointed out the mistake. The claim was rejected below as time-barred, but the governing principle applied was that tax paid under a mistake of law is not to be denied merely because the period under Section 11B has expired. The decision relied on the view that limitation under Section 11B does not defeat refund of duty paid by mistake, and that retention of such excess tax would be inconsistent with Article 265 of the Constitution of India.Conclusion: The refund claim was not barred by limitation and was admissible.Issue (ii): Whether the appellant's payment through Cenvat credit amounted to contravention of Rule 3(4) of the Cenvat Credit Rules, 2004 or was a bona fide wrong payment of duty.Analysis: The record showed that the appellant had availed the benefit of Notification No. 01/2011-CE dated 1st March, 2011 and, by mistake, paid duty from the Cenvat account instead of cash. The mistake was corrected after audit by cash payment, resulting in double payment. No material showed a deliberate or wilful misuse of credit; the payment from credit account was treated as an inadvertent error rather than a contravention attracting adverse consequences.Conclusion: The payment from Cenvat credit was a bona fide mistake and not a contravention of Rule 3(4) of the Cenvat Credit Rules, 2004.Final Conclusion: The impugned rejection of refund was set aside and the refund claim was allowed with consequential reliefs.Ratio Decidendi: Refund of duty paid under a bona fide mistake cannot be denied on the ground of limitation under Section 11B when the excess payment is shown to be inadvertent and its retention would amount to collection without authority of law.