2025 (3) TMI 577 - AT - Service Tax

Refund of amount paid under protest - reversal of CENVAT credit involved in respect of alleged exempted services demanded in terms of Rule 6(3A)(c)(iii) of the CENVAT Credit Rules 2004 on which subsequently show cause proceedings initiated and the same was dropped by the adjudicating authority - applicability of principles of unjust enrichment - HELD THAT - The facts involved therein being germane to the issue of refund these should have been dealt with by the first appellate authority in the impugned order when the same were specifically brought to his attention during the personal hearing. On the other hand the impugned order did not examine this aspect by specifically stating that the core issue of demand of CENVAT credit is legally sustained or not is not being taken up for consideration by him in the impugned order. From the above it clearly transpires that the impugned order has not followed the legal tenets laid down under Section 11B ibid in dealing with the claim for refund of duty/tax. Therefore the impugned order is liable to be dismissed on this ground alone. The Co-ordinate Bench of the Tribunal in the case of Persistent Systems Limited Vs. Commissioner of C. Ex. S.T. Pune-III 2016 (3) TMI 141 - CESTAT MUMBAI has held that eligibility for refund should have been decided taking into consideration the taxability of the service and the procedures laid down in law relating to tax collection and refund. The Tribunal while remanding the case to the original authority for fresh adjudication had further observed that the duties and responsibility reposed to an authority under the law cannot be brushed aside without discharging the same as provided under the statute which showed lack of responsibility on such authorities in proper handling the refund claim. The Tribunal in the case of Chambal Fertilizers Chemicals Ltd. 2023 (2) TMI 10 - CESTAT NEW DELHI have by following the various decisions of the High Courts and Tribunal have held that voluntary deposits made during the pendency of adjudication is pre-deposit of duty and unjust enrichment would not apply while dealing with refund of such duty. Conclusion - The amounts paid under protest during adjudication or investigation are considered deposits not payments towards duty or tax. Consequently the principles of unjust enrichment do not apply to such refunds. The refund claim application restored to the original authority for disposal on merits of the case as per law - appeal allowed by way of remand.

1. ISSUES PRESENTED and CONSIDERED

The primary issue considered was whether the amount paid 'under protest' by the appellants, in reversal of CENVAT credit related to alleged exempted services, is refundable. This involved examining whether the payment made under protest could be refunded following the dropping of demands in the adjudication process.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involved the application of the Finance Act, 1994, and the Central Excise Act, 1944, specifically Section 11B concerning refund claims. The precedents considered included various judgments from the Tribunal and High Courts, which established principles regarding refunds of amounts paid under protest and the non-applicability of unjust enrichment in such cases.

Court's Interpretation and Reasoning

The Tribunal interpreted that amounts paid under protest during the pendency of adjudication or investigation are not considered as payments towards duty or tax but as deposits. Therefore, the principles of unjust enrichment do not apply to such refunds. The Tribunal emphasized that the refund claim should be examined on its merits, considering the finality of the adjudication process where the demands were dropped.

Key Evidence and Findings

The Tribunal noted that the appellants had paid the CENVAT credit amount under protest and had communicated this to the department. The adjudication process had concluded with the dropping of demands, and no appeal was filed by the department, indicating that the issue had attained finality. The Tribunal found that the original authority and the first appellate authority had erred in rejecting the refund claim as premature without considering the merits of the case.

Application of Law to Facts

The Tribunal applied the provisions of Section 11B of the Central Excise Act, 1944, which allow for refund claims without the limitation period when the duty or tax is paid under protest. The Tribunal found that the appellants had fulfilled the requirements for a refund claim, including the non-applicability of unjust enrichment, as the amount was carried as 'receivables' in their balance sheet.

Treatment of Competing Arguments

The Tribunal addressed the arguments from the Revenue, which supported the rejection of the refund claim as premature. However, the Tribunal found these arguments unconvincing, given the legal provisions and precedents supporting the appellants' position. The Tribunal emphasized the need for the original authority to examine the refund claim on its merits, considering the finality of the adjudication process.

Conclusions

The Tribunal concluded that the impugned order lacked legal sanctity and was liable to be set aside. The Tribunal remanded the case to the original authority for a fresh decision on the merits of the refund claim, ensuring compliance with legal provisions and proper examination of the material presented by the appellants.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning

The Tribunal stated, "The principles of unjust enrichment would not apply if a refund is claimed for refund of this amount," emphasizing the non-applicability of unjust enrichment to amounts deposited under protest.

Core Principles Established

The Tribunal established that amounts paid under protest during adjudication or investigation are considered deposits, not payments towards duty or tax. Consequently, the principles of unjust enrichment do not apply to such refunds. The Tribunal also highlighted the importance of examining refund claims on their merits, considering the finality of adjudication processes.

Final Determinations on Each Issue

The Tribunal set aside the impugned order and remanded the case to the original authority for a fresh decision on the merits of the refund claim. The Tribunal directed the original authority to provide a reasonable opportunity for a personal hearing and to consider all material submitted by the appellants in their decision-making process.

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