Mere Challenging Tribunal's/High Court's Order Before Supreme Court Not Valid Ground To Ignore Tribunal's Order, Unless Stayed: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that mere filing of an appeal to challenge the order of the Tribunal or the High Court before the Apex Court is not really a valid ground to ignore or disregard the orders of the Tribunal, unless and until the same are stayed, suspended, or finally set aside.

The bench of Binu Tamta (Judicial Member) has observed that the authorities below have seriously erred in upholding the recovery of the refunded amount from the appellant. Once the issue has been decided by the Tribunal that the appellant is entitled to the refund, the authorities below have no jurisdiction to order the recovery of the refunded amount unless the order of the Tribunal granting the refund is stayed or set aside by a higher forum.

The appellant/assessee is engaged in the manufacture of ball bearings and axle boxes and in 'Consultancy Services'. The appellant is registered with the Service Tax Department and is duly paying service tax on the taxable services provided and received by it.

Electro Motive Diesel, Inc. (EMD), a company incorporated in the USA engaged in the manufacture of diesel locomotives, entered into a sales representation agreement with the appellant for appointment as a sales representative of EMD in India. The Indian Railways procured various components of locomotives from EMD through the appellant; however, the purchase orders were placed by the Indian Railways directly on EMD. As per the terms and conditions mentioned in the purchase order, Indian Railways undertook to pay commission to the appellant out of the total consideration payable by Indian Railways to EMD, i.e., instead of paying the entire consideration to EMD, the appellant received back the commission from EMD. The commission payable is deducted by converting into equivalent Indian rupees, and the balance is remitted to EMD.

Treating such services rendered to EMD as exports of services, the appellant filed a refund claim for the service tax paid thereon, relying on several decisions of the Tribunal, including those passed in their own case for the period from 2005 onwards.

In the 1st round of litigation, an application for refund of service tax amounting to Rs. 11,11,899 paid on the export of services to EMD pertaining to April 2008. A Show Cause Notice (SCN) was issued proposing rejection of the refund claim on the ground that the services provided to EMD do not qualify as exports of services as the appellant had not received the commission in convertible foreign exchange. An Assistant Commissioner rejected the refund claim on the ground that it did not satisfy the conditions stipulated in Rule 3(2) of the Export Services Rules, 2005. The Commissioner (Appeals) rejected the appeal in toto and upheld the OIO dated December 16, 2009.

The CESTAT set aside the order passed by the Commissioner (Appeals) and allowed the appeal following the Tribunal's decisions passed in the appellant's own case for earlier periods. The CESTAT's order has attained finality since no appeal has been preferred by the department before the higher forum.

In compliance with the CESTAT's Order, the Assistant Commissioner sanctioned an amount of Rs. 11,11,899 as a consequential refund to the appellant, based on a verification report of the jurisdictional range officer. The refund order has attained finality since no appeal has been preferred by the department before the higher forum.

The Show Cause Notice (SCN) has been issued under Section 11A of the Excise Act, proposing recovery of an amount of Rs. 11,11,899 refunded to the appellant, as erroneous inasmuch as the commission received by the appellant was in convertible Indian rupees; therefore, the condition of export of service contemplated under Rule 3(2) of the Export of Service Rules, 2005, was not compiled. Hence, the CESTAT had erred in allowing the appeal. The decisions of CESTAT pertaining to earlier periods and affirmed by the Rajasthan High Court are pending and were filed by the department before the Supreme Court.

The Deputy Commissioner confirmed recovery of Rs. 11,11,899 from the appellant, alleging erroneous sanction of refund pertaining to April 2008 under Section 11A of the Excise Act read with Section 73 of the Finance Act, 1994, along with interest under Section 11AA of the Excise Act read with Section 75, on the ground that the transaction does not qualify as an export of services.

The CESTAT has erred in allowing the appeal of the assessee. A non-filing of an appeal by the department against a refund order or CESTAT order and the issuance of a protective SCN for recovery of an erroneous refund are both separate issues and cannot be clubbed together. The Commissioner (Appeals) dismissed the appeal of the appellant, upholding the aforesaid OIO dated 30.7.2021, on the ground that the basic condition of receipt of service in convertible foreign exchange, as per Rule 3(2) of the Export of Services Rule, 2005, is not complied with. If the same appellant is pending a decision before the Supreme Court, the appeals are therefore rejected.

The appellant contended that the issue raised in the present appeal, whether the refund granted to the appellant pursuant to the order of the Tribunal can be challenged by way of show cause notice under Section 11A of the Central Excise Act for recovering the amount refunded to the appellant, is no longer res integra. Several decisions have been passed by the Tribunal on the issue under consideration, including the orders passed in favor of the appellant on earlier occasions. The decisions have binding precedent, and therefore, the refund amount granted to the appellant could not have been directed to be recovered. Reopening the question of admissibility of a refund claim in execution or implementation proceedings is not sustainable once an order has been passed by the Tribunal and on the basis of which the refund has been allowed. Neither the final order nor the refund sanctioned order have been challenged by the department.

The tribunal held that the authorities below have absolutely no regard for the orders passed by the tribunal, though, as per the judicial discipline, they are binding on them and they are required to follow the same. There have been decisions after decisions by the Tribunal and also by the Apex Court, specifically conveying that the orders by the Tribunal are binding on the lower authorities and there is no reason to differ from the same.

Counsel For Appellant: Sukriti Das

Counsel For Respondent: Rohit Issar

Case Title: National Engineering Industries Limited Versus Commissioner of CGST and Central Excise

Case No.: Excise Appeal No.55306 of 2023

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