2021 (8) TMI 693 - AT - Central Excise

Refund claim of the amount reversed under protest - Rejection as the amount was paid by them voluntarily - the amount to be treated as deposit or not - HELD THAT - It is admitted fact that although audit team raised objection and the respondent reversed the amount along with interest and protest letter was sent by the respondent to the Department but no show cause notice was issued to the respondent for appropriation of amount reversed by the respondent. The amount reversed by the respondent can only be treated as a deposit and as no assessment order has been passed, therefore, the decision of Hon ble Supreme Court in the case of PRIYA BLUE INDUSTRIES LTD. VERSUS COMMISSIONER OF CUSTOMS (PREVENTIVE) 2004 (9) TMI 105 - SUPREME COURT and ITC LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, KOLKATA -IV 2019 (9) TMI 802 - SUPREME COURT are not applicable to the facts of this case. These judgments held that the process of refund is only a mechanical process based on an assessment already made and the officer sanctioning refund cannot revise the assessment already made. He can sanction refund only if it flows from the assessment. Therefore, only when an assessment (including self assessment) is made and consequently an amount is paid, refund cannot be sanctioned unless the assessment is appealed against and modified in appeal. Unlike in refunds, the procedure for recovering short paid duty, does not require the original assessment to be challenged before the Appellate Authority. Therefore, if there is a short payment of duty, the only option for the Revenue is to follow the procedure prescribed under section 11A to recover such short paid duty. Even if the assessee pays the duty when pointed out by the Audit Party or Preventive team, such a payment of duty is only a deposit because any report or conversation with audit or preventive team is not a method of recovering short paid duty. Thereafter, a Show Cause Notice under Section 11A must be issued demanding the duty and proposing to appropriate the amount already deposited during audit or preventive checks towards this amount. This has not been done in this case. The respondent is entitled for refund claim of the amount already reversed during the course of audit - there are no infirmity in the impugned order and any merit in the appeal filed by the Revenue and accordingly the same is dismissed.

Summary

Issues:
Appeal against refund claim sanction by Commissioner (Appeals), rejection of refund claim by adjudicating authority, validity of refund claim, applicability of assessment process, necessity of show cause notice for appropriation.

Analysis:
The case involved an appeal by Revenue against the sanctioning of a refund claim by the Commissioner (Appeals) for a differential duty paid by the respondent. The respondent, a manufacturer of Electronic Power steering, had cleared goods below the cost of production. The audit team flagged this issue, leading the respondent to pay the differential duty partly through their CENVAT account and partly in cash. The respondent filed a letter of protest and later a refund claim, which was rejected by the adjudicating authority but allowed by the Commissioner (Appeals), prompting the Revenue's appeal.

The Revenue argued that the protest letter was an afterthought and cited Supreme Court decisions to support the stance that refunds cannot be sanctioned without challenging the assessment. Conversely, the respondent contended that as no show cause notice was issued, the question of assessment did not arise. They maintained that the amount reversed under protest was a deposit until appropriated, emphasizing that they had intimated the protest upon receiving the audit report.

After considering the submissions, the Tribunal noted that no show cause notice was issued to the respondent for the appropriation of the reversed amount. It was established that the amount reversed should be treated as a deposit, and since no assessment order had been passed, the Supreme Court judgments cited by the Revenue were deemed inapplicable. The Tribunal highlighted the distinction between the process of refund and recovering short paid duty, emphasizing the necessity of following the quasi-judicial process under Section 11A for recovering short paid duty.

Relying on a precedent from the High Court and Supreme Court, the Tribunal concluded that unless an assessment and demand were made, the amount deposited by the respondent could not be appropriated. Therefore, the respondent was deemed entitled to the refund claim for the amount reversed during the audit process. Consequently, the Tribunal found no merit in the Revenue's appeal and dismissed it, upholding the Commissioner (Appeals) decision to allow the refund claim.