Revenue Dept Can't Recover Refunded Cess Amount Because Refund Was Based On A Judgment Which Was Later Overruled : Supreme Court

In the present case Commissioner of CGST and Central Excise (J and K) vs M/s Saraswati Agro Chemicals Pvt. Ltd, the bench of Justices B.V. Nagarathna and Prashant Kumar Mishra was hearing an appeal against the decision of the J&K&L High Court who had found that the assessee was entitled to the refund of the Educational Cess and Secondary & Higher Educational Cess on the basis of the judgment and order of the Supreme Court in M/s SRD Nutrients (P) Limited vs. CCE, (2018) 1 SCC 105, which was applicable at the relevant time. Thus, the Revenue Department was not entitled to make recovery of the said refunded amount on the basis of the subsequent decision of the Supreme Court in M/s Unicorn Industries vs. Union of India, (2020) 3 SCC 492, where the decision in M/s SRD Nutrients was overruled by the top court, the High Court had ruled.

The Apex Court in M/s SRD Nutrients had held that when payment of Excise Duty is exempt under the Central Excise Act, 1944, then the 2% Education Cess and Secondary and Higher Education Cess payable on the aggregate duties of excise will also be exempted. However, later in the case of M/s Unicorn Industries, the judgment in M/s SRD Nutrients was overruled and it was held that there is no exemption from payment of education cess where exemption from payment of excise duty is granted under a notification. The Supreme Court had ruled that the decision in M/s SRD Nutrients was per incuriam as it had not considered the earlier judgment of the Supreme Court in Modi Rubber Ltd. and Anr. vs. Union of India and Others, (1986) 4 SCC 66.

The Revenue Department placed reliance on the reference order dated 27.09.2021 made by the Supreme Court, where it had referred the decision rendered in M/s SRD Nutrients to a larger Bench. The Revenue Department argued that since the matter under reference order was connected with the present matter, the judgment to be passed in line with M/s Unicorn Industries when the Reference is answered would follow in the present case also.

Noting that the decision in M/s SRD Nutrients was overruled by the top court on 06.12.2019 in M/s Unicorn Industries, the bench remarked that the reference order dated 27.09.2021 made by the Supreme Court, was unnecessary.

The reference order was passed by the Apex Court in a miscellaneous application filed by the Revenue Department seeking to undo the judgment in M/s SRD Nutrients.

At the outset, the court observed that such an application could not have been filed by the Department after a review petition in M/s SRD Nutrients had been dismissed by the Supreme Court.

The bench added that by filing the miscellaneous application, the Revenue was seeking a second review of the said judgment which is impermissible in law in view of Order XLVII Rule 9 of the Code of Civil Procedure, 1908 (CPC).

It further remarked that the contention that if a judgment is overruled by the court by a subsequent judgment, then the overruled judgment will have to be reopened and brought in line with the subsequent judgment which had overruled it, is not permissible in law. “This is not permissible in law for two reasons: firstly, there has to be finality in litigation and that is in the interest of State. Secondly, a person cannot be vexed twice,” the court added.

“That is why the explanation to Order XLVII Rule 1 which is a wholesome provision has been inserted to the Code of Civil Procedure. It states that once there is a subsequent judgment overruling an earlier judgment on a point of law, the earlier judgment cannot be reopened or reviewed on the basis of a subsequent judgment,” the court said.

The J&K&L High Court was dealing with the issue whether the assessee, M/s Saraswati Agro Chemicals Pvt. Ltd, was liable to return the Education Cess and Secondary & Higher Education Cess in view of the law subsequently laid down by the Full Bench of the Supreme Court in M/s Unicorn Industries, overruling M/s SRD Nutrients on the basis of which the said cess was refunded to the assessee. The Revenue Department alleged that in view of the subsequent judgment of the court in M/s Unicorn Industries, recoveries could be made from the assessees with regard to the refund of education cess made by the Department.

The High Court, in substance, had ruled that the subsequent decision of the court in M/s Unicorn Industries could not have a bearing on past decisions which had attained finality although they had followed M/s SRD Nutrients, which was subsequently overruled in M/s Unicorn Industries. The High Court had remarked that if such an action is permitted, it will open a Pandora box and there would be no end to litigation, which is against public policy.

The Supreme Court concluded that this was exactly what was sought to be done by the reference order dated 27.09.2021. “That is exactly what is sought to be done by the reference order dated 27.09.2021. When we read the reference order in light of the what has been discussed, we find that the reference order was unnecessary,” the court said, while upholding the decision of the High Court.

The court thus dismissed the Special Leave Petition against the judgment of the J&K&L High Court.

Case Title: Commissioner of CGST and Central Excise (J and K) vs M/s Saraswati Agro Chemicals Pvt. Ltd.

Citation : 2023 LiveLaw (SC) 522

Counsel for the Petitioner: Mr. N. Venkataraman, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mr. Mukesh Kumar Maroria, AOR Mr. V.C. Bharathi, Adv. Mr. Ashok Panigrahi, Adv. Mr. Navanjay Mahapatra, Adv.

Code of Civil Procedure, 1908 (CPC): Order XLVII Rule 1, Rule 9-

The Supreme Court has upheld the decision of the Jammu and Kashmir and Ladakh High Court where the court had held that where the assessee had been held entitled to the refund of the Educational cess and Secondary & Higher Educational cess on the basis of the judgment and order of the Supreme Court in M/s SRD Nutrients (P) Limited vs. CCE, (2018) 1 SCC 105, which was applicable at the relevant time, the Revenue Department was not entitled to make recovery of the said refunded amount on the basis of the subsequent decision of the Supreme Court in M/s Unicorn Industries vs. Union of India, (2020) 3 SCC 492, where the decision in M/s SRD Nutrients was overruled by the top court.