2017 (12) TMI 627 - HC - Central Excise

Refund claim - amount deposited under coercion - Held that - the department cannot hold on any amount from the assessee, which the department has no authority in law to retain. If the petitioners had disputed the duty liability at the very outset and promptly taken up the issue with the authorities immediately, the question of the department s authority to withhold such amount would rest on entirely different considerations. The facts of the present case are, however, peculiar. The petitioners having deposited the amount voluntarily and irrespective of what the petitioners now contend, we see no force or coercion. The petitioners did not take up the issue of the duty not being payable for nearly one and a half years. In the meantime, by their conduct and offer, the petitioners stopped the department from carrying out further investigations. There is no reason to direct the department to refund the amount in question at this stage - petition allowed.

Summary

Issues:
Challenge to communication dated 5.4.2017 and seeking return of deposited amount of ?61,82,592.

Analysis:

Issue 1: Challenge to Communication and Refund Request
The petitioners challenged a communication dated 5.4.2017 and sought the return of an amount of ?61,82,592 deposited with the department. The petitioners manufactured goods, including Spray Dried Vegetables and Food Powder, believing they attracted nil excise duty. However, during an inquiry, it was found that the goods were classified under a different category, inviting a duty of 6%. The petitioners voluntarily deposited the disputed amount, comprising excise duty, interest, and penalty, in installments. Despite a letter requesting closure of the matter after payment, the department demanded an additional sum, leading to a refund request by the petitioners.

Issue 2: Legal Arguments
The petitioners argued that the amount was deposited under coercion and, upon realizing no duty was payable, sought a refund. They relied on legal precedents to support their position. In contrast, the department contended that the petitioners had agreed to the duty liability voluntarily and only disputed it much later. The court acknowledged the legal principle that the department cannot withhold funds without legal authority but noted the peculiar circumstances of the case.

Issue 3: Court's Analysis and Decision
The court observed that the petitioners had sufficient time to challenge the duty liability but did not do so until later. Despite the petitioners' assertion of coercion, the court found no evidence of it. The court highlighted that the petitioners' actions had halted further investigations by the department. While acknowledging the petitioners' right to contest the duty liability, the court emphasized that refund cannot be sought before adjudication. Citing relevant case laws, the court directed the department to issue a show cause notice and complete the proceedings promptly. The deposited amount was to remain with the department pending the outcome of the proceedings.

In conclusion, the court disposed of the petition with directions for the department to proceed with the show cause notice and subsequent adjudication, emphasizing cooperation from the petitioners. The deposited amount would be adjusted based on the final determination of the petitioners' liability, ensuring a fair and lawful resolution to the dispute.