2025 (5) TMI 477 - AT - Central Excise

Refund of Additional duties of Customs/Countervailing Duty (CVD) Special Additional Duty of Customs (SAD) Education Cess and Secondary Higher Education Cess paid consequent to cancellation of export orders under the Advance License scheme - transition from Central Excise regime to Goods and Services Tax (GST) regime - Section 142 of the Central Goods and Services Tax 2017 read with Section 11B of the Central Excise Act 1944 - HELD THAT - The appellants had duly followed the procedure and conditions prescribed in complying with the obligations under the Foreign Trade Policy and the Customs Act 1962 inasmuch as upon identifying that they are unable to fulfill the export obligations cast upon them in importation of capital goods/machinery under Advance License scheme which had arisen consequent to cancellation of export orders they had paid the applicable duties of customs vide challans dated 29.05.2018 14.06.2018 and 04.09.2018 as authorised and certified by the Customs authorities at Nagpur. The nature of duties paid by the appellants remains as the duties of customs which otherwise would have been paid at the time of import of machines under such Advance License even though these are being paid now as duty foregone. It is not in dispute that the additional duties of customs equivalent to the duty of excise Education Cess Secondary Higher Education Cess leviable on the imported goods was available as CENVAT credit under the provisions of the CENVAT Credit Rules 2004. Post introduction of GST regime CVD on imported article is presently charged as Integrated Goods and Service Tax (IGST) which is levied under Section 5 of the IGST Act 2017 and collected in terms of Section 3(7) of the Customs Tariff Act 1975 and the same is allowed as input duty credit Section 16(1) of CGST Act 2017. The provisions of Section 11 of the Central Excise Act 1944 empowers Central Excise officers to take action for recovery of arrears and pursuing the recovery with the assessee. If dues remain unrecovered even after taking action under section 11 ibid then action is to be taken under provisions of section 142 of the Customs Act 1962 which have been made applicable in Central Excise cases vide Notification No. 68/63-Central Excise dated 04.05.1963 as amended issued under section 12 of the Central Excise Act 1944. The process of recovery of arrears starts with confirmation of demand against the defaulter assessee and includes a number of appellate forums wherein assessee as well as Department can go for appeal. In the present case the duty/cess have been paid by the appellants voluntarily along with applicable interest and hence the finding given by the learned Commissioner is contrary to the legal position and the procedures prescribed by the Government. In view of the above discussions the impugned order is not legally sustainable and the appellants are eligible for refund of excess CENVAT credit paid by them as this is specifically allowed to be refunded in terms of Section 142(3) of the CGST Act 2017. The Co-ordinate Bench of the Tribunal has held in the case of New Age Laminators Pvt. Ltd. 2022 (3) TMI 748 - CESTAT NEW DELHI that refund of CVD and SAD paid for redemption of Advance Authorisation scheme is admissible as refund under Section 142(3) and (6) of the CGST Act 2017. Further the issue of reversal of excess CENVAT credit under the transitional arrangement as provided under Section 142 of CGST Act 2017 has already been addressed by the Co-ordinate Bench of the Tribunal in various cases and it was held that cash refund of such excess CENVAT credit is permissible. When the Central Excise Act 1944 amongst other laws relating to old tax regime was repealed by Section 174 of the CGST Act 2017 and that the CCR is also being superseded vide Notification No.20/2017-C.E. (N.T.) dated 30.06.2017 by the Central Government for smooth implementation of transfer to GST regime in indirect taxation it is found that the provisions of Section 142 of the CGST Act 2017 are sufficient to provide for the tax administration for sanction of cash refund in circumstances stated therein and I find that there is no need and it is not legally feasible to make any specific provision in CENVAT statute itself for enabling cash refund of excess/eligible CENVAT credit relating to earlier regime while moving to the new GST regime. There are no merits in the impugned order passed by the learned Commissioner (Appeals) to the extent it has rejected the refund of CENVAT credit which is contrary to the legal provisions of Section 142(3) and Sections 142(6) 1428(a) of the CGST Act 2017 and thus it does not stand the scrutiny of law. Therefore by setting aside the impugned order dated 06.11.2020 the appeal is allowed in favour of the appellants. Conclusion - The appellants claim for refund cannot be denied on the ground that the duties paid are customs duties and not excise duty since the additional duties are leviable under Section 3 of the Customs Tariff Act and are recognized as CENVAT credit under the erstwhile law. Appeal allowed.

Summary

The core legal questions considered in this appeal revolve around the eligibility and entitlement of the appellants to claim refund of Additional duties of Customs/Countervailing Duty (CVD), Special Additional Duty of Customs (SAD), Education Cess, and Secondary & Higher Education Cess paid consequent to cancellation of export orders under the Advance License scheme, in the backdrop of transition from Central Excise regime to Goods and Services Tax (GST) regime. Specifically, the issues presented are:

1. Whether the Additional duties of Customs/CVD, SAD, Education Cess, and Secondary & Higher Education Cess paid by the appellants as duty foregone on imported capital goods under Advance License are eligible for refund under Section 142 of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Section 11B of the Central Excise Act, 1944.

2. Whether the appellants can claim refund of such duties paid in cash, given that these credits could not be transitioned as input credit under the GST regime.

3. The jurisdictional competence of the Customs, Excise & Service Tax Appellate Tribunal (Tribunal) to entertain appeals against orders passed under Section 142 of the CGST Act, 2017.

4. The applicability and interpretation of relevant provisions of the CGST Act, Central Excise Act, and CENVAT Credit Rules, 2004, including the impact of repeal of earlier laws and the transition to GST regime on the rights to credit and refund.

5. The legal effect of Section 142(8a) of the CGST Act, 2017, which treats amounts recovered as arrears of tax and their inadmissibility as input tax credit under GST.

Issue-wise detailed analysis:

Issue 1: Eligibility of refund claim for Additional duties of Customs/CVD, SAD, Education Cess, and Secondary & Higher Education Cess paid under Advance License redemption

The appellants, engaged in manufacture of excisable goods, had imported capital goods under Advance License, which allowed duty-free imports subject to fulfillment of export obligations. Due to cancellation of export orders, they paid the applicable customs duties, including CVD, SAD, and education cesses, as duty foregone to redeem the export obligation. These payments were made post-GST implementation and could not be utilized as input credit under GST.

The appellants filed refund claims under Section 11B of the Central Excise Act read with Section 142 of the CGST Act. The original authority and Commissioner (Appeals) rejected the claims primarily on the ground that these payments were customs duties, not excise duties or CENVAT credit under the existing law, and thus not refundable under Section 142(3) of the CGST Act. They also held that the payments were arrears of tax and hence not admissible as input tax credit under GST.

The Tribunal examined the relevant legal provisions, including Section 142 of the CGST Act which provides transitional provisions for refund of CENVAT credit, duty, tax, or interest paid under the existing law. Section 142(3) mandates disposal of refund claims according to existing law and payment of any amount due in cash, except as excluded under Section 11B(2) of the Central Excise Act. Section 142(6)(a) further provides for disposal of appeals related to CENVAT credit claims initiated before or after the appointed day, with refund payable in cash.

The Tribunal noted that the duties paid by the appellants, including additional duty of excise under Section 3 of the Customs Tariff Act and education cesses, were recognized as CENVAT credit eligible under Rule 3 of the CENVAT Credit Rules, 2004. The appellants had complied with the Foreign Trade Policy and Customs Act provisions for redemption of export obligation, and the payments were duly verified by Customs authorities.

The Tribunal rejected the authorities' finding that the payments were arrears of tax, clarifying that the payments were voluntary and in accordance with law, and that the appellants were entitled to CENVAT credit on such duties. The Tribunal held that the refund claims fall squarely within the transitional provisions of Section 142(3) and (6) of the CGST Act, entitling the appellants to refund in cash.

Issue 2: Entitlement to cash refund of CENVAT credit not transitioned under GST

The appellants contended that the credit of duties paid under the earlier regime is a vested right and cannot be lost due to change in law. They relied on Supreme Court precedents holding input duty credit as a vested right. They further cited various Tribunal decisions where refunds of CENVAT credit paid post-GST implementation were allowed in cash under Section 142 of the CGST Act.

The Revenue argued that refund of CENVAT credit in cash is not permissible under Section 11B of the Central Excise Act, which provides for refund of excise duty but not customs duties, and that the appellants' claim is barred under Section 142(8a) of the CGST Act treating such payments as arrears of tax.

The Tribunal analyzed the legislative intent and the interplay of provisions. It observed that Section 142(3) clearly mandates refund in cash of amounts payable under existing law, including CENVAT credit, notwithstanding anything to the contrary except Section 11B(2) of Central Excise Act. Since the appellants had not carried forward the credit under GST, they were entitled to cash refund. The Tribunal distinguished the cases cited by Revenue where rights were extinguished or not exercised, emphasizing that the appellants had validly paid duties and claimed refund in accordance with law.

The Tribunal also relied on a recent judgment of the Bombay High Court which held that Section 142(3) of the CGST Act mandates cash refund of any amount eventually accruing, including CENVAT credit or any other amount paid, and that credit in CENVAT account post-GST would be meaningless. The Court directed refund in cash with interest.

The Tribunal further noted that the repeal of Central Excise Act and supersession of CENVAT Credit Rules by GST law does not preclude refund under transitional provisions, which are sufficient to provide for cash refund of excess CENVAT credit. Therefore, the appellants are entitled to refund of the amount paid in cash.

Issue 3: Jurisdiction of the Tribunal to entertain appeals under Section 142 of the CGST Act

The Tribunal referred to the Larger Bench decision in Bosch Electrical Drive India Pvt. Ltd., which clarified that appeals against orders passed under Section 142 of the CGST Act lie before the Customs, Excise & Service Tax Appellate Tribunal. This settled the jurisdictional issue, confirming the Tribunal's competence to hear the present appeal.

Issue 4: Interpretation of relevant provisions and impact of repeal of earlier laws

The Tribunal examined the provisions of the CGST Act, Central Excise Act, and CENVAT Credit Rules. It noted that Section 174 of the CGST Act repealed the Central Excise Act and related statutes from the appointed day, except for goods under entry 84 of the Union List. The CENVAT Credit Rules were also superseded by GST notifications.

Despite repeal, Section 142 of the CGST Act provides transitional provisions for disposal of claims and proceedings initiated under existing laws, including refund claims for CENVAT credit and duty paid. The Tribunal held that these provisions preserve the rights of claimants to refund under the existing law and mandate payment in cash where credit cannot be carried forward.

The Tribunal emphasized that the appellants had followed due procedure for payment of duties and filing refund claims. The payments were not penalty or fine but legitimate redemption of export obligation. The Tribunal rejected the Revenue's contention that the payments were arrears of tax or penalty, clarifying that recovery of arrears follows a distinct procedure under Section 11 of the Central Excise Act and Section 142 of the Customs Act, and the appellants had voluntarily paid the duties with interest.

Issue 5: Applicability of Section 142(8a) of the CGST Act and treatment of payments as arrears

The Revenue relied on Section 142(8a) which treats amounts recoverable under assessment or adjudication as arrears of tax under GST and bars input tax credit on such amounts. The authorities held that the appellants' payments were arrears and hence not refundable.

The Tribunal distinguished the present case, noting that the payments were voluntary and made in compliance with Foreign Trade Policy and Customs law for redemption of export obligation, not recovery of arrears following adjudication. The appellants had paid the duties with interest and sought refund of eligible CENVAT credit. Therefore, Section 142(8a) was not applicable to bar refund in this case.

Significant holdings:

"The appellants are eligible for refund of excess CENVAT credit paid by them, as this is specifically allowed to be refunded in terms of Section 142(3) of the CGST Act, 2017."

"Section 142(3) of the CGST Act very clearly states that any amount eventually accruing shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B of the Central Excise Act, 1944."

"The duties paid by the appellants, including additional duty of excise leviable under Section 3 of the Customs Tariff Act along with Education cess and Secondary and Higher Education Cess, are eligible for CENVAT credit under Rule 3 of the CENVAT Credit Rules, 2004."

"The payments made by the appellants are not arrears of tax or penalty but voluntary payments for redemption of export obligation under Advance License scheme, duly authorized and certified by Customs authorities."

"The Customs, Excise & Service Tax Appellate Tribunal is the appropriate forum for appeal against orders passed under Section 142 of the CGST Act, 2017."

"The repeal of the Central Excise Act and supersession of CENVAT Credit Rules by GST law does not extinguish the rights to refund under transitional provisions; Section 142 of the CGST Act provides sufficient legal framework for refund of eligible CENVAT credit in cash."

"The appellants' claim for refund cannot be denied on the ground that the duties paid are customs duties and not excise duty, since the additional duties are leviable under Section 3 of the Customs Tariff Act and are recognized as CENVAT credit under the erstwhile law."

"The appellants have complied with the procedure and conditions prescribed under Foreign Trade Policy and Customs law, and the refund claim is admissible as per the existing law read with transitional provisions of the CGST Act."

"The impugned order rejecting the refund claim is set aside and the appeal is allowed with consequential relief for refund of Rs. 9,96,439/- payable to the appellants."