Refund Once Granted Cannot Be Recovered via SCN Unless Proper Appeal u/s 35E of Central Excise Act: CESTAT [Read Order]
CESTAT ruled that a refund once granted cannot be recovered through a show cause notice unless the original refund order is appealed under Section 35E of the Central Excise Act.
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The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a refund once sanctioned cannot be recovered merely by issuing a show cause notice, unless the refund order is appealed and set aside under Section 35E of the Central Excise Act. Huawei Telecommunications India Co. Pvt. Ltd., the appellant, had been granted a refund of service tax amounting...
The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that a refund once sanctioned cannot be recovered merely by issuing a show cause notice, unless the refund order is appealed and set aside under Section 35E of the Central Excise Act.
Huawei Telecommunications India Co. Pvt. Ltd., the appellant, had been granted a refund of service tax amounting to Rs. 11.92 crore on the classification of services as Business Auxiliary Services (BAS), treated as exports. The refund order was passed on December 26, 2013, and attained finality as it was not challenged by the department.
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The department initiated proceedings to recover the refund by issuing a show cause notice under the proviso to Section 73(1) of the Finance Act, 1994, alleging that the services were wrongly classified and that the refund had been erroneously granted. The department stated that the services were actually Market Research Agency Services (MRAS) and not BAS, so not qualify as an export of services.
The appellant’s counsel argued that the refund order had not been appealed and it had attained finality. They relied on multiple precedents, including Honda Siel Power Products, Eveready Industries India Ltd., and Flock (India) Pvt. Ltd., which held that a refund granted through adjudication cannot be reversed without a proper statutory appeal.
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The department’s counsel argued that it was entitled to recover the amount under Section 73, citing the classification error and the nature of services rendered. They further argued that the refund sanctioning authority had erred and that the show cause notice was valid under the law.
The two-member bench comprising Judicial Member S. S. Garg and Technical Member P. Anjani Kumar observed that refund adjudications made under Section 11B are final unless set aside through appellate processes under Section 35E. The tribunal held that the department could not seek to recover the refund on the basis of a change of opinion without first invalidating the original refund order through an appeal.
Citing the Allahabad High Court’s judgment in Honda Siel Power Products and the Supreme Court’s rulings in Flock (India) and Priya Blue Industries, the tribunal explained that the doctrine of finality bars indirect reassessment through show cause notices when statutory appeals have not been pursued. The tribunal allowed the appeal and quashed the recovery proceedings initiated under the show cause notice.
To Read the full text of the Order CLICK HERE
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