2025 (3) TMI 1405 - HC - Customs

Refund of the Countervailing Duty (CVD) and Special Additional Duty (SAD) paid after failing to fulfill export obligations under the Advance Authorization and Export Promotion Capital Goods (EPCG) schemes - failure to fulfill export obligation - HELD THAT - On perusal of Section 142 it is apparent that the respondent authorities could not have referred to and relied upon the provisions of section 142(8)(a) as the same would not be applicable to the facts of the case as the petitioners did not deposit the amount of duties in any recovery proceedings but the petitioners had voluntarily deposited the amount of duties on reconciliation of the imports made by the petitioners with the Advance Authorisation and EPCG license entitlement. Therefore the case of the petitioners would be squarely covered by provisions of section 142(3) of the CGST Act which provides for considering the refund claim of the petitioners as per the existing law at the relevant time when import was made in the year 2016. As held by Telangana High Court in case of Principal Commissioner of Customs v. M/.s Granules India Limited 2024 (12) TMI 725 - TELANGANA HIGH COURT the respondents were required to process the refund claim under section 142(3) read with section 142(6)(a) of the CGST Act. The Hon ble Telangana High Court held that The Tribunal by taking into account the provisions of sub sections (3) (5) and (8A) of Section 142 of the CGST Act has held that the assessee is entitled to claim refund of CVD and SAD paid after the appointed day. Accordingly the assessee had been held to be entitled to refund of central value added tax credit of Rs. 3, 28, 75, 733/-. This Court in case of Indo-Nippon Chemicals Co. Ltd. v. Union of India 2002 (2) TMI 136 - GUJARAT HIGH COURT has also held that assessee would be entitled to the refund claim as per the proviso of section 11B of the Central Excise Act 1944 and clause(c) of proviso could not be construed as enlarging the scope of the main provision in sub-section (1) of section 11B read with Cenvat Credit Rules, 2004. Conclusion - Refund claim filed by the petitioners is required to be processed under the provisions of Central Excise Act 1944 read with Cenvat Credit Rules 2004 as per the provisions of section 142(3) read with 142(6)(a) of the CGST Act, 2017. Therefore without disturbing the order rejecting Form TRAN-1 passed by the respondent authorities so far as order-in-original dated 10.10.2019 rejecting the refund claim of the petitioner for Rs. 45, 84, 371/- is concerned is herby quashed and set aside and the matter is remanded back to the respondent authorities so as to decide the refund claim of the petitioners on merits as per the provisions of Central Excise Act 1944 read with Cenvat Credit Rules 2004 in view of provisions of section 142(3) read with section 142(6)(a) of the CGST Act 2017 The petition is partly allowed by way of remand.

Summary

1. **ISSUES PRESENTED and CONSIDERED**

The core legal issues considered in this judgment include:

- Whether the petitioners are entitled to claim a refund of the Countervailing Duty (CVD) and Special Additional Duty (SAD) paid after failing to fulfill export obligations under the Advance Authorization and Export Promotion Capital Goods (EPCG) schemes.

- Whether the petitioners are entitled to carry forward the CVD and SAD as Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime through Form TRAN-1.

- The applicability of Section 142(3) and Section 142(8)(a) of the Central Goods and Services Tax Act, 2017 (CGST Act) concerning the refund claims and transitional credit.

2. **ISSUE-WISE DETAILED ANALYSIS**

- **Relevant legal framework and precedents**: The legal framework involves the CGST Act, particularly Section 142(3) regarding the refund of duties paid under the existing law, and Section 142(8)(a) concerning the recovery of duties as arrears. Precedents include the decisions in Principal Commissioner of Customs v. M/s Granules India Limited and Indo-Nippon Chemicals Co. Ltd. v. Union of India.

- **Court's interpretation and reasoning**: The Court interpreted that the petitioners voluntarily deposited duties for non-fulfillment of export obligations, which should not be treated as arrears under Section 142(8)(a). Instead, the refund claim should be processed under Section 142(3), which allows for the refund of duties paid under the existing law.

- **Key evidence and findings**: The petitioners had imported goods under licenses that allowed duty-free imports contingent on fulfilling export obligations. Upon failing to meet these obligations, they voluntarily paid the duties. The Court found that these payments were not made under recovery proceedings.

- **Application of law to facts**: The Court applied Section 142(3) to the petitioners' case, determining that the refund claim should be processed under the existing law at the time of import. The Court rejected the application of Section 142(8)(a) as the duties were not paid during recovery proceedings.

- **Treatment of competing arguments**: The petitioners argued for the refund and carry forward of duties as ITC, while the respondents contended that the duties paid after 01.07.2017 could not be carried forward as they were not outstanding in the Cenvat Credit register. The Court sided with the petitioners regarding the refund claim but upheld the rejection of Form TRAN-1.

- **Conclusions**: The Court concluded that the refund claim should be processed under the provisions of the Central Excise Act, 1944, and Cenvat Credit Rules, 2004, as per Section 142(3) of the CGST Act. The rejection of Form TRAN-1 was upheld, but the refund claim was remanded for reconsideration.

3. **SIGNIFICANT HOLDINGS**

- **Verbatim quotes of crucial legal reasoning**: "The case of the petitioners would be squarely covered by provisions of section 142(3) of the CGST Act which provides for considering the refund claim of the petitioners as per the existing law at the relevant time when import was made in the year 2016."

- **Core principles established**: The Court established that voluntary payment of duties for non-fulfillment of export obligations should be processed for refund under the existing law, not as arrears under Section 142(8)(a) of the CGST Act.

- **Final determinations on each issue**: The Court quashed the order rejecting the refund claim and remanded the matter for reconsideration under the existing legal framework. The rejection of Form TRAN-1 was upheld as the duties paid post-01.07.2017 were not eligible for carry forward as ITC.