Case Law Details
Alkem Health Science Vs Commissioner of CGST & CX (CESTAT Kolkata)
Introduction: The Central Excise and Service Tax Appellate Tribunal (CESTAT) Kolkata has recently delivered a crucial judgment in the case of Alkem Health Science versus the Commissioner of CGST & CX. This case revolved around the issue of refund claims concerning education cess and higher education cess paid by the appellant, a pharmaceutical manufacturer. The decision carries significant implications for similar cases involving the refund of these cess amounts.
Background: Alkem Health Science, engaged in pharmaceutical manufacturing, availed the benefit of area-based exemption as per Notification no. 20/2007-CE dated 25.04.2007, later amended by Notification no. 38/2008-CE dated 10.06.2008. This exemption allowed them to pay duty in cash after exhausting CENVAT credit.
Refund Claim: Following a Supreme Court judgment in the case of SRD Nutrients, the appellant filed refund claims for education cess and higher education cess paid, along with excise duty, on final products cleared from their factory. The SRD Nutrients decision stated that once excise duty is exempt, no cess is applicable.
Controversy: However, the subsequent Supreme Court ruling in the case of Unicorn Industries contradicted SRD Nutrients and held that manufacturers are not entitled to a refund of education cess and higher education cess. This led to the issuance of show-cause notices by the department for the recovery of the erroneously sanctioned refunds.
CESTAT Verdict: The core issue before CESTAT Kolkata was whether the refund claims made by the appellant, relying on the SRD Nutrients decision, could be recovered in light of the Unicorn Industries judgment.
Tripura High Court Precedent: CESTAT relied on a precedent set by the Hon’ble Tripura High Court in the case of Tripura Ispat vs. UOI [2021-TIOL-146-HC-TRIPURA-CX]. The Tripura High Court stated that if a refund claim was granted based on a valid Supreme Court judgment prevailing at the time, it cannot be recovered later due to a change in legal position.
Section 11A of the Central Excise Act: CESTAT referred to Section 11A of the Central Excise Act, which addresses recovery of duties erroneously refunded. The section distinguishes between cases involving fraud, collusion, misstatement, or suppression of facts and those without such elements. In the latter cases, recovery can be made within two years from the relevant date.
Legal Certainty: CESTAT emphasized that at the time of sanctioning the refund claims, the decision in SRD Nutrients was valid and applicable. Subsequent overruling of SRD Nutrients by the Supreme Court in the Unicorn Industries case cannot retroactively affect the legality of refunds previously granted.
Conclusion: Consequently, CESTAT Kolkata ruled that the show-cause notices issued to the appellant for refund recovery were not sustainable in law. The impugned orders were set aside, allowing the appeals with consequential relief. The judgment in Alkem Health Science vs. Commissioner of CGST & CX by CESTAT Kolkata underscores the importance of legal certainty in refund claims. When refunds are granted based on prevailing legal interpretations, they should not be subject to recovery solely due to subsequent changes in legal positions. This decision provides guidance for similar cases involving the refund of education cess and higher education cess in India’s indirect tax regime.
The matter was argued by Ld. Counsel Mahesh Raichandani
FULL TEXT OF THE CESTAT KOLKATA ORDER
Both the appeals are having common issue, therefore, both are disposed of by a common order.
2. The facts of the case are that the appellants are engaged in manufacture of pharmaceutical products and they have accordingly registered themselves with the central excise department. Vide Notification No.20/2007-CE dated 25.04.2007, as the appellants are located in the state of Sikkim they were entitled to pay duty in cash after exhausting cenvat credit and whatever duty paid in cash, the appellant is entitled to take refund of the same.
3. The issue with regard to in these cases is that terms of the above said Notification whether the appellants were entitled to claim refund of education cess or higher education cess paid by them or not?
4. Initially the said issue was settled by the decision of the Hon’ble Apex Court in the caes of SRD Nutrients Private Limited v. Commissioner of Central Excise, Guwahati [2017-TIOL-416-SC-CX] on the basis that refund claim of education cess, higher education cess was allowed to the appellant. Thereafter the Hon’ble Apex Court in the case of Unicorn Industreis v. Union of India and others [2019-TIOL-528-SC-CX-LB] have turned down the decision of this Tribunal in the case of SRD Nutrients (supra) and held that assessee is not entitled to avail refund of education cess or higher education cess. Consequent to the decision of Hon’ble Apex Court in the case of Unicorn Industries (supra), protective show cause notices were issued to the appellants for recovery of the erroneous refund sanctioned to the appellants of education cess or higher education cess. The adjudicating authority confirmed the demand. Aggrieved from the said order, the appellants are before us.
5. Heard the parties.
6. The facts of the case are not in dispute, therefore, the issue arises before us is that in case whether that the refund claim has already been sanctioned reliance on the decision of the Hon’ble Apex Court in the case of SRD Nutrients (supra), the same is recovered from the appellants in the light of the decision of the Hon’ble Apex Corut in the case of Unicorn Industries (supra).
7. We find as the said issue came up before the Hon’ble Tripura High Court in the case of Tripura Ispat vs. UOI [2021-TIOL-146-HC-TRIPURA-CX], the Hon’ble High Court of Tripura examined the issue, wherein the Hon’ble High Court observed as under:-
“[10] None of the relevant facts are in dispute. The petitioner having set up a manufacturing unit in the State of Tripura, availed the benefit of duty exemption on the goods cleared from such manufacturing unit pursuant to the Government of India policy to encourage industrial investment and growth in North Eastern region. The petitioner contended that since the basic duty of excise was not payable the additional charge of education cess and higher education www.taxguru.in Page 9 of 17 cess also cannot be collected. Based on the decision of the Supreme Court in case of SRD Nutrients, the petitioners made refund claims for refund of education and higher education cess. Such refund application was allowed by the Assistant Commissioner. However, soon thereafter in the decision in case of Unicorn Industries the Supreme Court held and observed that decision in case of SRD Nutrients was rendered per incuriam. Short question is in view of such factual scenario can the Assistant Commissioner seek recovery of refund already granted.
[11] In this context, we may first refer to Section 11A of the Central Excise Act. It pertains to recovery of duties not levied or not paid or short levied or short paid or erroneously refunded. Relevant portion of this Section reads as under :
“(1) When any duty of excise has not been levied or paid or has been short- levied or short- paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been short-levied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice”.
Provided that where any duty of excise has not been levied or paid or has been short- levied or short- paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub- section shall have effect as if for the words one year, the words” five years” were substituted.
4. Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, by the reason of
(a) fraud; or
(b) collusion; or
(C) any wilful mis-statement; or
(d) suppression of facts; or
(d) contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty.”
[12] Section 11A thus makes a distinction between the cases of duty of excise not having been levied, paid or short levied or short paid or erroneously refunded for the reason of fraud, collusion or any misstatement or suppression of facts or contravention of the provisions of the Act or the rules with intent to evade payment of duty and in cases where none of these elements is present. Under sub-section 1 of Section 11A when any such duty of excise has not been levied, paid or short levied or short paid or erroneously refunded for reasons other than fraud, collusion etc. the Central Excise Officer would within 2 years from the www.taxguru.in Page 11 of 17 relevant date serve a notice on the person chargeable to the duty calling upon him to show cause why the amount specified in the notice along with interest not be recovered. Sub-section 1 of Section 11A thus authorizes the Central Excise Officer to recover any duty of excise, besides others, which has been erroneously refunded. It is in this context that the term erroneously refunded assumes significance. Before we refer to certain decisions on the question of erroneously refunded or erroneously ordered, we may briefly state that when the Excise Officer passed the order of refund, he was applying the law laid down by the Supreme Court which by virtue of Article 142 of the Constitution is the law of the land. He had no other choice but to follow the decision of the Supreme Court in case of SRD Nutrients (supra). Any other action on his part would be wholly illegal. His order of refund thus was in consonance with the law declared by the Supreme Court at the time when he was passing the order. In our view any subsequent change in the legal position, would not permit him to invoke the powers under Section 11A of the Central Excise Act. As is well settled, all legal proceedings on the date when they are being decided by any Court, would be governed by the law laid down by the Supreme Court which prevails on such date. As is often happens, a decision of the Supreme Court is reviewed, reconsidered or overruled by larger Bench. Such www.taxguru.in Page 12 of 17 subsequent decision would undoubtedly clarify the position in law and such declaration would undisputedly apply to all pending proceedings, the proceedings which are closed in the meantime, cannot be reopened on the basis of subsequent declaration of law by the Supreme Court. Any other view would lead to total anarchy. Based on the judgment of the Supreme Court several proceedings would have been decided. If years later such view is reversed, the parties who had not carried the proceedings in higher forum and thus not kept the proceedings alive, cannot trigger a fresh look at the decision already rendered by the competent court on the basis of the previous judgment of the Supreme Court which was correctly applied at the relevant time.”
8. We find that refund claims were sanctioned in the light of the decision of the Hon’ble Apex Court in the case of SRD Nutrients (supra) and thereafter the decision of SRD Nutrients (supra) was over-ruled by the Hon’ble Apex Court in the case of Unicorn Industries (supra), it does not mean that at the time of sanctioning of refund claim, the decision of the Hon’ble Apex Court in the case of SRD Nutrients was valid. As the decision of Hon’ble Apex Court in the case of SRD Nutrients (supra) during the relevant period holding the field, in that circumstances, the refund claims were rightly sanctioned to the appellants as held by the Hon’ble High Courts in the above-cited decisions namely Tripura Ispat vs. UOI (supra), therefore, we hold that the show cause notice issued to the appellant are not sustainable.
9. Accordingly, the impugned orders are bad in law. Accordingly, the same are set aside.
In the result, the appeals are allowed with consequential relief, if any.
(Operative part of the order was pronounced in the open Court.)
Author Bio
Even though the judgement follows a precedent and is welcome being favourable to tax-payers, it raises a fundamental issue. In the same factual and legal situation there may be three scenarios 1. Refund is issued, 2. Refund is not released and 3. proceedings pending. The results would be different in the three situations without simply because different stage of refund while all the cases are similarly situated. This might be obnoxious and against equality before law. It needs clarification from the apex court.