Appellate authority cannot reject refund on a ground not indicated in SCN

Hindustan Motors Limited Vs Commissioner of Customs And Central Goods And Service Tax (CESTAT Delhi)

In a recent case involving Hindustan Motors Ltd and the Commissioner of Customs and Central Goods and Service Tax (CESTAT Delhi), the issue of whether an appellate authority can reject a refund claim on grounds not specified in the show cause notice (SCN) came under scrutiny. The case revolves around the rejection of a refund claim of Rs. 43,46,830/- by the Commissioner (Appeals), Indore.

Detailed Analysis:

1. Background: Hindustan Motors Ltd had imported component parts of engines during a specific period. Due to a classification dispute on the imported goods, they paid the differential customs duty under protest. Subsequently, they filed a refund claim for the amount paid, along with the necessary documents.
2. Refund Claim Delay: The refund claim was initially put on hold as the appellant had another refund claim for a different period in dispute. Once the earlier claim was resolved and sanctioned, the appellant approached the authorities again for the refund of the pending amount.
3. Rejection Ground: The Commissioner (Appeals) rejected the refund claim on the ground that the Bills of Entry submitted by the appellant indicated provisional assessment of import goods. They cited guidelines stating that provisional assessment is subject to final assessment under the Customs Act.
4. Appellant’s Argument: The appellant contended that the rejection was based on a ground that was not part of the original show cause notice. They argued that the appellate authority had no jurisdiction to introduce a new ground for rejection.
5. Legal Precedents: The appellant relied on several legal precedents to support their argument. These cases emphasized that an adjudicating authority cannot introduce new grounds for rejection that were not specified in the show cause notice.
6. Scope of Show Cause Notice: The central issue in this case was whether the rejection of the refund claim was justified when the ground for rejection was not mentioned in the show cause notice.
7. Violation of Natural Justice: The Tribunal referred to a case where the adjudicating authority’s reliance on undisclosed verification reports was considered a violation of the principles of natural justice. They emphasized that authorities must not go beyond the scope of the show cause notice.
8. Apex Court’s Stance: The Tribunal also cited a Supreme Court decision that upheld the principle that the Department cannot introduce new submissions or grounds that were not raised at the lower levels.
9. Setting Aside the Order: In light of the above legal principles, the Tribunal set aside the Commissioner (Appeals)’s order and remanded the matter to the original authority for a fresh examination of the refund claim.

Conclusion: The Hindustan Motors Ltd vs. Commissioner of Customs and CESTAT Delhi case highlights the importance of adhering to the scope of show cause notices in adjudicating matters. An appellate authority cannot reject a refund claim on grounds not indicated in the show cause notice, as doing so would violate the principles of natural justice. In this case, the rejection was set aside, and the matter was remanded for a fresh examination in accordance with the law and relevant documents submitted by the appellant.

FULL TEXT OF THE CESTAT DELHI ORDER

This appeal has been filed by M/s. Hindustan Motors Ltd (hereinafter referred to as the Appellant) to assail the Order-in- Appeal dated 13.12.2022 passed by the Commissioner (Appeals), Indore wherein the refund claim of Rs 43,46,830/- has been
rejected.

2. The brief facts of the present case are that the appellant had imported component and parts of engine during the impugned period 20.09.2000 to 29.12.2001. They paid the differential customs duty “Under Protest” owing to classification dispute on the imported goods. Subsequently on 23.08.2004, they filed a refund claim for refund of differential custom duty of Rs. 43,46,830/-along with Bills of Entry, TR-6 Challan, C.A Certificate and other relevant documents in original. The Appellants were informed that as their refund claim of Rs.3,00,78,856/- for the earlier period was in dispute, hence this refund claim would be kept in abeyance till the earlier claim is finally disposed. The refund amount for the earlier period was sanctioned on the basis of CESTAT Final Order No. 55734/2017 dated 01.08.2017. Thereafter, the appellant approached the Assistant Commissioner, Central Excise, Division II, Indore again vide letter dated 14.07.2020 for refund of impugned amount of Rs. 43,46,830/- on 15.11.2018. The Appellant also enclosed the copy of refund application filed by them on 23.08.2004 for Rs. 43,46,830/- along with copies of Bill of Entry and copies of TR-6 Challans, Cenvat account etc. The refund of Rs. 43,46,830/- sought vide letter dated 14.07.2020 was rejected. Being aggrieved the appellant is before this Tribunal.

3. Shri Ankur Upadhyay, learned counsel for the appellant submits that the Commissioner (Appeals) has erred in rejecting the appeal on the ground of Bills of Entry were provisionally assessed. It is submitted that the Appellate Authority has rejected the appeal on the ground which was out of the scope of the show cause notice and the Order-in-Original. The Commissioner (Appeals) should have restricted his order only to the issue involved and did not have the authority to reject the appeal by raising new ground which was not raised in the show cause notice. Thus, the Order-in-appeal is liable to be set aside on this ground alone. In support of his contention, he placed reliance on the following case laws:

1. JEEVAN DIESELS & ELECTRICALS LTD. VS C.C.E., CUS. & S.T., BENGALURU-III [2017 (353) E.L.T. 78 (KAR.)]

2. S.E.L. SECURITIES LTD. VS. COMMISSIONER OF C.EX & ST, JAIPUR-I – [2017 (4) GSTL 8 (TRI-DEL)]

3. DOW CHEMICALS INTERNATIONAL PVT. LTD. VS. COMMR. OF CUS., KANDLA – 2019 (370) ELT 1302 (Tri- AHMD)]

4. Shri Vishwa Jeet Saharan, learned Authorised Representative appearing for the department reiterated the findings of Commissioner (Appeals) and place reliance on the decision of Tribunal, Bangalore in the case of Mineral Enterprises Ltd. vs Commissioner of Customs, Mangalore reported as [2022 (2) TMI 680-CESTAT Bangalore].

5. I have heard the learned Counsel for the appellant and Learned authorised representative. The issue relates to the rejection of refund claim in the impugned order, wherein the appellant has submitted that the same was done on a ground Which was not taken in the show cause notice.

6. I note that the Commissioner (Appeals) in para 9 of the impugned order has stated that the Bill of Entry submitted with the refund claim is the only document which indicates the payment of the differential duty under protest on account of classification dispute. For the scrutiny of bill of entry so submitted, it was noted that the assessment of import goods was provisionally assessed. He has referred to the guidelines regarding provisional assessment under section 18 of the Customs Act, 1962 wherein it has been stipulated that the provisional assessment is for the subject to final assessment in accordance with the provisions of the act. As the appellant had failed to bring on record the document of final assessment of such provisionally assist bill of entry. Hence, he has rejected the refund claim. This is not tenable. The show cause notice in the instant case sought to reject the refund claim on the grounds that the documents submitted were not original and were photocopies. The original adjudicating authority has rejected the claim purely on the ground that they had not submitted the proof of payment of duty, and other supporting documents such as the bill of entry in original. Therefore, instead of appreciating or examining the grounds on which the original authority had rejected the refund claim, the appellate authority has introduced a new ground for rejection of the refund claim which was not indicated in the show cause notice. This is not acceptable. In this context, I rely on the following decisions wherein it has been held that no new ground not specified in the show cause notice can be raised by the adjudicating authority. In the case of Senor Metals Pvt Limited Versus Commissioner of Central Excise & ST, Rajkot [2023 (7) TMI 1115 – CESTAT AHMEDABAD], this Tribunal held as follows:

“5.2 It has been the contention of the learned Advocate that verification report referred in the order-in-original, in the above-mentioned Para have never been revealed or provided to the appellant. We also find that the basis on which the Adjudicating Authority has confirmed the demand has never been subject matter of the show cause notice and therefore, we hold that Adjudicating Authority has travelled beyond the scope of the show cause notice and therefore, violated the principles of natural justice by not disclosing the verification report to the appellant, this clearly amounts to an act of violation of the principles of natural justice. In this regard we also take note of the Hon’ble Supreme Court decisions in the case of Ballarpur Industries Limited (supra) and in the case of Toyo Engineering India Limited (supra). However, we take shelter of Hon’ble Gujarat High Court decision in the case of Kandarp Dilipbhai Dholkia vs. UOI – 2014 (307) ELT 484 (Guj.) and reproduce the relevant portion of the judgment as follow:-

“5.1 However, from the impugned orders, it appears that so far as rebate/refund claim of the petitioners on the inputs/used excisable goods used in manufacturing of the final product is denied also on the ground that petitioners have not followed the procedure while claiming rebate/refund under Rule 8, which is required to be followed under Notification No. 21/2004-C.E. (N.T.), dated 6-9-2004. However, on that ground, show cause notice was not issued and the rebate claim was not sought to be denied. Under the circumstances, to the aforesaid extent, the impugned orders are beyond the show cause notice. Under the circumstances, we are of the opinion that impugned orders deserve to be quashed and set aside and the matter is required to be remanded to the First Authority to consider the same in accordance with law and on merits.” 6. In view of the above, we do not take up the matter on merits and we set-aside the impugned order-in-original for the reasons as stated above and remand the matter to the Adjudicating Authority for de-novo adjudication.”

7. Further, in the case of Commissioner of Customs, Mumbai Vs Toyo Engineering India Limited [2006 (8) TMI 184 – SUPREME COURT], the Apex Court held the following:

“16. Learned counsel for the Revenue tried to raise some of the submissions which were not allowed to be raised by the Tribunal before us, as well. We agree with the Tribunal that the revenue could not be allowed to raise these submissions for the first time in the second appeal before the Tribunal. Neither adjudicating authority nor the appellate authority had denied the facility of the project import to the respondent on any of these grounds. These grounds did not find mention in the show cause notice as well. The Department cannot be travel beyond the show cause notice. Even in the grounds of appeals these points have not been taken.”

8. In view of the above, I set aside the impugned order, and remand the matter to the original authority to examine the refund claim in the light of the fact that the claim with all the relevant documents in original had been filed with the department on 23.08.2004 by the appellant. Mere observation that the payments cannot be verified, cannot be a ground to deny the claim.

9. The appeal is disposed off accordingly.

(Pronounced in the open court on 25.08.2023)