Refund Appropriation Against CGST Arrears Without Hearing Violates Natural Justice: CESTAT Directs Fresh Adjudication [Read Order]

The Chandigarh Bench of Customs,Excise and Service Tax Appellate Tribunal ( CESTAT ) held that refund appropriation against Central Goods and Services Tax ( CGST)  arrears without providing a hearing violates the principles of natural justice and directed fresh adjudication.

Degraphics Advertising And Marketing,appellant-assessee,provided advertising agency services. The authorities found that the assessee earned commission by booking space in print and electronic media and selling it to clients. A Show Cause Notice dated 07.09.2018 demanded service tax of Rs. 1.06 crore with interest and penalty for 2012-13 to 2015-16. This demand was confirmed on 26.03.2021.

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The Commissioner (Appeals) set aside the demand on 04.07.2022, ruling it unsustainable. The appellant then sought a refund of the Rs. 8 lakh pre-deposit. Though initially allowed, the refund was later appropriated in September 2022 to recover Rs. 68.69 lakh arrears under the CGST Act, 2017. The assessee’s appeal against this was dismissed on 05.01.2023, leading to the present appeal.

A single member bench P.Anjani Kumar (Technical Member) reviewed the case and the submissions. The assessee’s counsel argued that the authority did not follow the required procedure under Sections 78 and 79 of the CGST Act, 2017. They said no hearing was given before the order dated 09.09.2022 was passed. Also, the order dated 24.03.2022 was not properly served to the assessee. The assessee claimed the order was pre-planned since a letter dated 01.09.2022 warned that the refund would be appropriated.

The authorized representative asked to decide this appeal along with two others related to the service tax demand. However, this appeal focused only on whether the refund amount was correctly appropriated against arrears without notifying the assessee. The assessee did not get a chance to defend themselves, which violated natural justice.

Read More:Refund Claim Filed Within Time Rejected Without SCN: CESTAT Sets Aside Order for Natural Justice Violation

The authorities argued that the tribunal had no jurisdiction because the action was under Section 79 of the CGST Act. The bench had earlier rejected this objection temporarily but said the jurisdiction issue could be reconsidered later. Because the case involved a violation of natural justice, the CESTAT said this issue was important and could be decided at the right time.

The assessee provided a letter dated 30.08.2022 stating the refund amount of Rs. 8,00,000 would be appropriated against arrears of Rs. 68.69 lakhs from an order dated 24.03.2022. The original authority noted the assessee had not appealed or sought stay against that order.

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The appellate tribunal found that the order seemed pre-planned and that the appellant never received a copy of the 24.03.2022 order. This was a serious violation of natural justice as the appellant was not given a chance to respond or appeal. The bench held that the order could not be upheld and needed to be set aside.

Referring to similar cases decided by the Supreme Court and Madras High Court, the CESTAT decided to remand the case to the original authority for fresh consideration. The assessee was to be given a proper chance to be heard, and the matter was to be resolved within sixteen weeks of receiving the order.

To Read the full text of the Order CLICK HERE

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