CESTAT Bars Recovery u/s 73 Without Prior Revision of Refund Orders u/s 84 [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has dismissed an appeal filed by the Commissioner of Service Tax, Delhi, and held that recovery proceedings under Section 73 of the Finance Act, 1994, cannot be initiated without first revising the original refund orders under Section 84 of the same Act.

The petitioner, Colt Technologies Services India Pvt. Ltd., had filed refund claims for the quarters ending March 2007 and June 2007 under Notification No. 5/2006-CE (NT). These refunds were sanctioned after verification, but the Department later issued two show cause notices dated 26.12.2008 and 31.01.2008 under Section 73, alleging that the refunds were erroneous due to lack of nexus between input and output services and other procedural deficiencies.

The Tribunal, after hearing both sides, observed that the refund orders were never reviewed or appealed as required under Section 84 of the Finance Act. It was noted that Section 84, prior to its substitution in August 2009, clearly barred any revision beyond a period of two years. The Bench found that once the refund had been sanctioned via Order-in-Original and not revised within the prescribed time limit, initiating recovery under Section 73 without first revising the order was not permissible.

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It was further held that the term “erroneous refund” cannot be loosely applied to justify recovery unless the original refund order is established as legally flawed through statutory processes. The Tribunal emphasized that procedural lapses, such as non-submission of original FIRCs or minor discrepancies in documentation, do not justify denial of substantive benefit, especially when the refund was granted following due verification.

The Tribunal referred to several decisions including Topcem India v. Union of India and RNB Carbides & Ferro Alloys Pvt. Ltd., and also relied on the judgment of the Delhi High Court in BT (India) Private Limited, reinforcing that quasi-judicial refund orders cannot be revisited or set aside through collateral proceedings. The Bench also stated that the alleged absence of nexus between input and output services should be determined in the course of credit eligibility proceedings, not during refund grant.

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The order was passed by S. S. Garg, Member (Judicial), and P. Anjani Kumar, Member (Technical), who concluded that the show cause notices issued under Section 73 were unsustainable and dismissed the Revenue’s appeal.

CESTAT ruled in favour of Colt Technologies Services India Pvt. Ltd., Gurgaon, which had contested the legality of show cause notices demanding recovery of service tax refunds granted earlier.

To Read the full text of the Order CLICK HERE

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