2020 (10) TMI 214 - HC - Central Excise

Recovery of erroneous refund - Refund of the education cess secondary and higher education cess - HELD THAT - The education cess secondary and higher education cess were required to have been calculated on the basis of the excise duty payable. In the circumstance, a question had arisen as to whether in view of the exemption granted to the excise duty the petitioner would also be entitled to an exemption to the payment of education cess secondary and higher education cess. The said question was decided by the Supreme Court in its pronouncement in SRD Nutrients Pvt. Ltd. Vs. Commissioner of Central Excise, Guwahati 2017 (11) TMI 655 - SUPREME COURT wherein in paragraph 27 of the said judgment it was held that the appellants therein were entitled to refund of education cess and higher education cess which was paid along with the excise duty once the excise duty itself was exempted from levy. The demand cum show-cause notice dated 06.08.2020 is assailed in this writ petition on the ground that the condition precedent to invoke the power under section 11(A-1) is that the refund made must be erroneous - the condition precedent of section 11(A-1) of the Excise Central Act, 1944 is not satisfied. - Operation of SCN stayed

Summary

Issues:
1. Entitlement to exemption from education cess & secondary and higher education cess.
2. Validity of refund granted to the petitioner.
3. Interpretation of Section 11(A-1) of the Central Excise Act, 1944.
4. Effect of subsequent judgment on earlier refunds.

Analysis:

1. The petitioner, engaged in economic activities under the Northeast Industrial Policy, 2007, claimed exemption from excise duty. The question arose whether this exemption extended to education cess & secondary and higher education cess. The Supreme Court in SRD Nutrients Pvt. Ltd. Vs. Commissioner of Central Excise held that exemption from excise duty entitled the petitioner to a refund of education cess and higher education cess. Subsequently, in Unicorn Industries vs. Union of India, the Court clarified that exemption from one duty does not automatically exempt other duties, emphasizing that statutory notifications must specifically cover the duty exempted.

2. The Assistant Commissioner, Guwahati, Division 1, sanctioned refunds to the petitioner based on the earlier judgment. However, a demand cum show cause notice was issued post the Unicorn Industries judgment, claiming the refunds as erroneous and seeking recovery under Section 11(A-1) of the Central Excise Act, 1944. The petitioner challenged this notice, arguing that the refunds were not erroneous when granted as they aligned with the law prevailing at that time. The issue is whether the subsequent judgment renders the refunds erroneous.

3. The petitioner contests the validity of the demand notice under Section 11(A-1), asserting that the condition precedent for invoking this provision – that the refund must be erroneous – is not met. The petitioner argues that the refunds were valid under the law in force during the refund period, as per the SRD Nutrients Pvt. Ltd. judgment. The key question is whether the demand notice complies with the requirements of Section 11(A-1).

4. In light of the conflicting judgments and the evolving legal landscape, the High Court stayed the operation of the demand cum show-cause notice dated 06.08.2020 until further orders. The Court allowed time for the GST Department to file an affidavit-in-opposition, ensuring both parties have the opportunity to present their arguments. The outcome will depend on the interpretation of the law and the applicability of the judgments to the petitioner's case.