Is Refund Permissible without Challenging Assessment including Self-Assessment in Customs/Service Tax/GST?
1. In cases of “excess payment” of Tax/Duty under Customs, Service Tax, or GST by the assessee/taxpayer—such as payment at a higher tax rate, payment on a higher value, payment without availing an exemption notification, or due to incorrect classification of goods—the question arises: can the assessee/taxpayer file and claim a refund of such “excess payment” without challenging the assessment made? This question has persisted for a long time, despite judicial pronouncements by Hon’ble Courts, including the Hon’ble Supreme Court.
2. In the case of Flock (India), the Hon’ble Supreme Court, reported in 2000 (8) TMI 88 – Supreme Court, examined the provisions of the Central Excise Act, 1944, to determine whether a refund could be claimed and granted without challenging the finalized assessment. The facts of the case are as follows:
3. The assessee, M/s Flock (India) Pvt. Ltd., is a manufacturer of Jute Hessian flocked with Nylon Flocks and had classified their product under Tariff Item 22-A. However, the Assistant Collector/Commissioner, after examination, passed an order classifying the product under Tariff Item 22-B. The assessee neither challenged this order nor paid duty under protest. Instead, they filed a refund claim asserting that their product was wrongly classified under Tariff Item 22-B and should have been classified under Tariff Item 22-A, and sought refund of the differential duty paid. The refund claim was rejected as the classification had attained finality due to non-challenge of the assessment order. The matter went up to the Supreme Court, where it was held:
“There is little scope for doubt that in a case where an adjudicating authority has passed an order which is appealable under the statute and the party aggrieved did not choose to exercise the statutory right of filing an appeal, it is not open to the party to question the correctness of the order of the adjudicating authority subsequently by filing a claim for refund on the ground that the adjudicating authority had committed an error in passing his order.”
4. Thus, the Apex Court held that when a classification is finalized in an assessment, unless such assessment is challenged and set aside or modified, a refund claim cannot be entertained.
5. This consistent view has been followed by the Hon’ble Supreme Court in various decisions, including in the Priya Blue Industries Ltd. case reported in 2004 (9) TMI 105 – Supreme Court. The Court held as follows:
6. M/s Priya Blue had imported a ship for breaking purposes and filed a Bill of Entry. The amount of duty payable was assessed, and the petitioners paid the duty under protest. They then filed a refund claim of ₹79,64,648/- on the ground that the duty had been wrongly levied. Their refund was rejected on 30th August 2000. Further appeals by Priya Blue Industries were rejected by the first appellate authority, CEGAT/CESTAT, and finally by the Hon’ble Supreme Court in civil appeal on 14.11.2003. However, when a Revision Petition was filed, contending that the provisions of the Customs Act, 1962 are not pari materia with the provisions of the Central Excise Act, and therefore the judgment of this Court in Flock (India) would not be applicable, notice was issued. Upon elaborate hearing, the Supreme Court held:
“6… Once an Order of Assessment is passed, the duty would be payable as per that order. Unless that order of assessment has been reviewed under Section 28 and/or modified in an appeal, that order stands. So long as the Order of Assessment stands, the duty would be payable as per that Order of Assessment. A refund claim is not an appeal proceeding. The officer considering a refund claim cannot sit in appeal over an assessment made by a competent officer. The officer considering the refund claim cannot also review an assessment order.”
7. This view was further fortified by the Hon’ble Supreme Court in a Larger Bench decision in the ITC Limited case, reported in 2019 (9) TMI 802 – Supreme Court (LB). This had come as fresh breeze, due to inconsistent decisions from various forums, including some Hon’ble CESTAT Benches and High Courts, which were not aligned with the law set forth by the Hon’ble Supreme Court.
8. It is to be noted that the Hon’ble Supreme Court had clubbed cases dealing with both Central Excise and Customs matters while deciding the ITC case. The facts, details, and observations of the Supreme Court in the ITC case are as follows:
The Hon’ble Supreme Court framed the following question of law in ITC case:
“2. The question involved in these appeals is whether, in the absence of any challenge to the order of assessment in appeal, any refund application against the assessed duty can be entertained?”
“3. The Tribunal, in the case of ITC Limited, opined that unless the order of assessment is appealed, no refund application against the assessed duty can be entertained. On the other hand, in the cases in which the Union of India or the Department has come up in appeal, the High Court of Delhi framed the question of law as:
‘Whether non-filing of appeal against the assessed Bill of Entry, in which there was no lis between the importer and the Revenue at the time of payment of duty, will deprive the importer of his right to file refund claim under Section 27 of the Customs Act, 1962 (for short, “the 1962 Act”)?’”
8. It is important to note that while the ITC case arose under the Central Excise Act, 1944, and involved a CESTAT order denying refund without an appeal against the assessed duty, the Department’s appeals before the Supreme Court challenged decisions of the Delhi and Madras High Courts. These High Courts had allowed refunds under the Customs Act without requiring a challenge to assessment orders.
The facts of the ITC case are as follows:
“ITC manufactured paper from both conventional and unconventional raw materials. The relevant period is from July 2001 to March 2002. The assessments for this period were provisional and were finalized on 30.01.2003. A provisional assessment order was passed on 01.03.2002. ITC claimed that at the time of final assessment on 30.01.2003, it was not aware of Notification No. 10/96-CE or the circular dated 01.03.2001 and had therefore made no claim.
On 18 July 2003, ITC filed a refund claim of ₹28,73,120/- under Section 11B of the Central Excise Act, 1944, for the duty paid on waste paper/broke during July 2001–March 2002. The claim was rejected, and successive appeals were also dismissed. Hence, the appeal before the Hon’ble Supreme Court.”
9. The facts of the Customs case, which was tagged with the ITC case and involved an appeal by the Department before the Supreme Court, are as follows:
“12. In the case of Union of India & Ors. v. Micromax Informatics Ltd., the respondents had imported mobile handsets, including cellular phones. The respondent filed a refund claim of ₹35.89 crores for duty paid under self-assessed Bills of Entry, under Section 27 of the 1962 Act, in the Air Cargo Export Commissionerate. The refund was sought on the grounds of excess payment of Additional Customs Duty (CVD) in light of Serial Number 263A and Condition No. 16 of Notification No. 12/2012-Ex. dated 17.03.2012. Under this notification, mobile handsets were chargeable to a duty of 1% if the importer did not avail CENVAT credit. Micromax claimed that it had made excess payment while complying with this condition and sought a refund of the 5% differential duty.”
10. The Assistant Commissioner (Refunds) rejected all claims, citing lack of evidence of excess payment and the finality of the Bills of Entry, which could only be reviewed or modified in appeal. He emphasized that the officer handling the refund could not sit in appeal over a valid assessment order. On further appeal, the High Court held, however, that self-assessment was not an assessment order per se and allowed the writ petition—leading to the Department’s appeal before the Supreme Court.
11. Thus, it is categorically clear that the Hon’ble Supreme Court Larger Bench in the ITC case dealt with refund provisions under the Central Excise Act, 1944 (also applicable to Service Tax via Section 83 of the Finance Act, 1994), and under the Customs Act, 1962. Nevertheless, attempts continue to distinguish ITC as applicable only to refund matters under the Customs Act and not to Central Excise or Service Tax matters.
12. The Supreme Court’s Larger Bench in ITC Limited case conclusively held that unless an assessment, including self-assessment, is challenged and set aside or modified through appropriate legal proceedings, a refund claim cannot be entertained. The Court emphasized that refund proceedings are execution proceedings—not assessment or reassessment proceedings. Thus, a refund authority, whose role is akin to executing a finalized order, cannot sit in appeal over an assessment by a competent officer. The Court also clarified that an “Assessment Order” includes “Self-Assessment.”
“46. The decision in Intex Technologies (India) Ltd. v. Union of India has followed Micromax (supra). The reasoning employed by the High Courts of Delhi and Madras does not appear to be sound. The scope of refund provisions under Section 27 cannot be expanded. It must be read in conjunction with Sections 17, 18, 28, and 128.
47. Considering the legal framework pre- and post-amendment via the Finance Act, 2011, we hold that a refund claim is not maintainable unless the assessment or self-assessment is modified by taking recourse to appropriate legal proceedings. Section 27 cannot be invoked to override a self-assessment order or reassess duty. Any aggrieved person must seek modification under Section 128 or other relevant provisions.
48. As a result, the orders passed by CESTAT are upheld, and those passed by the High Courts of Delhi and Madras to the contrary are set aside. We hold that the refund applications were not maintainable.”
12. This considered and detailed decision of the Hon’ble Supreme Court Larger Bench in the ITC Limited case should have conclusively settled the legal position regarding refund claims without a challenge to an assessment, including self-assessment. However, unfortunately, the issue continues to arise before various forums. A recurring argument is that the ITC judgment is not applicable to Service Tax matters. This argument led to conflicting decisions, including a majority ruling by the Hon’ble CESTAT Larger Bench in M/s Shree Balaji Warehouse, M/s Satya Warehouse, M/s Om Shree Sai Ram, M/s Viavi Solutions India Pvt. Ltd. v. Commissioner of Central Excise & Service Tax, Panchkula, reported in 2023 (9) TMI 1478 – CESTAT CHANDIGARH (LB).
13. The decision of the CESTAT Larger Bench in Shree Balaji Warehouse was a 2:1 majority against the Revenue. The fact that the Supreme Court’s Larger Bench in ITC had considered both Central Excise and Customs matters—and held that a refund is not maintainable without an appeal/challenge to the assessment order, including self-assessment—appears not to have been properly appreciated in this case.
However, the dissenting member of the Larger Bench offered a detailed and persuasive analysis:
“73. The concept of ‘self-assessment’ exists in all three spheres of indirect taxation: Central Excise, Service Tax, and Customs. The provisions governing self-assessment are similarly structured. In Central Excise and Service Tax, assessment begins with the filing of returns, while under Customs, it begins with filing the Bill of Entry. According to the Manual, the return filed by the assessee is an electronic integrated declaration, acknowledged with a unique document reference number. The definition of ‘Bill of Entry’ in Regulation 2(c) of the Bill of Entry (Electronic Integrated Declaration) Regulations, 2011, indicates it has the same legal standing as a return under Central Excise and Service Tax.”
“Therefore, the self-assessed return and the self-assessed Bill of Entry are on equal footing. Additionally, the refund of Service Tax is claimed under Section 11B of the Central Excise Act, 1944, via Section 83 of the Finance Act, 1994. I also refer to the decision in CCE v. Flock (India) Pvt. Ltd., 2000 (6) SCC 650, which involved a refund claim under Section 11B.”
“74. After considering the relevant provisions under the Customs Act, 1962, the Finance Act, 1994, and the Supreme Court’s decision in ITC Limited, I find that the concept, procedure, and scope of ‘assessment’ and ‘appeal’ are identical across statutes. The only distinction is that, under the Customs Act, an additional step involves the customs officer granting clearance for home consumption under Section 47, after the Bill of Entry is finally assessed under Section 17 and duty is paid.”
14. The issue of the applicability of the Hon’ble Supreme Court’s ITC Larger Bench decision to Service Tax matters reached the Hon’ble Delhi High Court in the case of BT (India) Pvt. Ltd., reported in 2023 (11) TMI 478 – Delhi High Court. The High Court held that the ITC decision does indeed apply to Service Tax matters. The Court observed:
“66. In our considered view, unless the self-assessed return, as submitted, had been questioned, re-opened, or re-assessed, and the assertion of the petitioner that the services rendered qualified as ‘export of service’ had been examined or negated under the procedure prescribed by the Act, its refund claim could not have been denied. As observed by the Supreme Court in ITC Limited, a self-assessed return also amounts to an ‘assessment.’ Unless it is modified or varied according to the prescribed statutory procedure, it cannot be questioned in refund proceedings. As the Supreme Court held, the authority considering a refund application does not sit in appeal, nor can it review an assessment deemed to have been made. In fact, the Supreme Court described refund proceedings as akin to execution proceedings.”
15. The applicability of the ITC decision to Service Tax matters was conclusively affirmed by the Hon’ble Supreme Court in the case of UOI v. BT (India) Pvt. Ltd., reported in 2024 (12) TMI 1578 – SC, where it was held:
“2. Heard the learned counsel appearing for the petitioners.
3.The Special Leave Petition is disposed of in terms of the decision in ITC Ltd. v. Commissioner of Central Excise, Kolkata IV [(2019) 17 SCC 46].”
16. This legal position was also recognized by the Hon’ble CESTAT, Delhi in M/s Kalyan Toll Infrastructure Ltd. v. Commissioner of Central Excise and CGST, Indore, reported in 2024 (5) TMI 369 – CESTAT NEW DELHI. The Tribunal held that the CESTAT Larger Bench decision in Shree Balaji Warehouse stood overturned, stating:
“18. Thus, the legal position is loud and clear. Refund proceedings are in the nature of execution proceedings and cannot modify an assessment, including self-assessment. A refund can only be sanctioned or denied as per the assessment—be it self-assessment by the assessee or a best judgment assessment by the officer. Accordingly, the Larger Bench ruling in Balaji Warehouse, interpreting the applicability of ITC Ltd. to Service Tax matters and relied upon by the appellant, stands overturned by the Delhi High Court in BT (India) Pvt. Ltd.. Clearly, ITC Ltd. applies to Service Tax matters also.”
17. Thus, it is hoped that the legal proposition laid down in Flock (India) (2000) and reaffirmed in subsequent judgments has now attained finality: a claim for refund cannot be entertained unless the order of assessment, including self-assessment, is modified through appropriate legal proceedings.
18. Further, this legal position appears equally applicable to refund claims under the GST regime in identical circumstances. This is because the assessment and refund provisions under GST are substantially similar to those under the Central Excise Act, the Finance Act (Service Tax), and the Customs Act—unless specific contrary provisions exist or are introduced.
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Author: V.R. Pavan Kumar, LLM, Assistant Commissioner (In-Situ) (AR), CESTAT, Hyderabad.
The views expressed in this article are personal.
