No Recovery Proceedings U/S 11A Central Excise Act Unless Sanctioned Refunds Reversed In Appeal: Jammu & Kashmir High Court

The Jammu & Kashmir and Ladakh High Court has ruled that Section 11A of the Central Excise Act 1944 which deals with recovery proceedings is not applicable when the excise duty refund has been sanctioned by the competent authority through proper assessment and after following due process.

“Unless the orders of sanctioning refund passed by the Adjudicating Authority are reversed in appeal or revision under the Act, Section 11 cannot be invoked by terming such sanctioned refund of excise duty as ‘erroneous refund’ by holding collateral proceedings under section 11A of the Act”, Justice Sanjeev Kumar & Justice Javed Iqbal Wani observed.

Section 11A of the Central Excise Act deals with the recovery of duties not levied, not paid, short-levied, short-paid, or erroneously refunded. The section empowers the Central Excise Officer to issue a show cause notice to a person if there has been any non-levy, non-payment, short-levy, short-payment, or erroneous refund of excise duty.

The case pertained to a manufacturing company engaged in the production of Pesticides and Plant Growth Regulators, availing exemption/refund of excise duty under a specific notification. However, an investigation revealed that the company had misclassified some products and claimed an exemption inappropriately. The revenue department issued a show cause notice to recover the alleged erroneous refund on the grounds of wilful misstatement and suppression of facts. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed the company's appeal, stating that the extended period of limitation for recovery was not invocable, and the refund orders had attained finality.

Assailing the order of CESTAT the revenue department argued that the company had misstated and suppressed facts to evade payment of excise duty and subsequently claimed an erroneous refund. They invoked the extended period of limitation under Section 11A of the Central Excise Act for recovery of the claimed refund.

On the other hand, the respondents contended that Section 11A could not be invoked because the case involved grant of an exemption, not a refund. It was further argued that once the refund orders were passed by the competent authority and not challenged by the revenue in appeal, they attained finality and could not be considered erroneous.

Adjudicating upon the matter the court pointedly observed that the sine qua non for invoking the proviso to Section 11A(1) is the establishment of two vital factors: (1) that the refund was erroneous, and (2) such erroneous refund occurred due to fraud, collusion, willful misstatement, suppression of facts, or contravention of the Act with an intent to evade payment of duty and the onus to prove these elements rested squarely on the Revenue.

The bench underscored that the power to recover an erroneously refunded amount cannot be exercised in a casual or cavalier manner and must be rooted in the concrete establishment of intentional deceit or evasion on the part of the assessee.

Considering the facts presented before it, the court noted the absence of any evidence to substantiate the Revenue's claim of fraudulent intent on the part of the respondent and recorded,

“We have gone through the entire record, but could not find an iota of material on record which would suggest that the assessee-the respondent herein had, at any time, suppressed any material facts or made any willful misstatement as is attributed to it by the Adjudicating Authority in the Order In Original passed for recovery of purported erroneous refund”.

Highlighting the significance of the competent authority's role in sanctioning the refund, the bench emphasised that once a speaking order has been passed by the competent authority, sanctioning the refund and making it appealable under Section 35 of the Act, recovery of such sanctioned refund cannot be pursued through parallel proceedings under Section 11A.

“The revenue, if it is of the opinion that the Adjudicating Authority has made an erroneous refund in favour of assessee to which it was not otherwise eligible, can avail the remedy of filing appeal or revision under the Act. So long as the orders stand as having attained finality, the same cannot be tampered with by the Adjudicating Authority by launching collateral proceedings purportedly under Section 11A of the Act”, the bench reasoned.

Asserting that the remedy of challenging the refund lies through the statutory appeals the bench maintained that unless such orders are overturned through due process, Section 11A cannot be invoked to recover the sanctioned refund.

“The refund sanctioned by the adjudicating authority in favour of the respondent was after proper application of mind and by passing of speaking orders and therefore, cannot be termed as ‘erroneous refund’ for the purposes of section 11A of the Act”, the bench concluded while dismissing the appeal.

Case Title: Commissioner of Central GST and Central Excise Vs Krishi Rasayan Exports Pvt. Ltd

Citation: 2023 LiveLaw (JKL) 186

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