Refund Recovery Proceedings Invalid Without Review of Sanction Order: CESTAT [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chandigarh Bench ruled that recovery proceedings under Section 11A of the Central Excise Act, 1944, cannot be sustained without first reviewing the original sanction order ratifying the refund claim.

The appellant, Crystal Crop Protection Pvt. Ltd., Ludhiana, along with Modern Papers and its Senior Manager Mohit Goel, had been issued a show cause notice alleging fraudulent availment of self-credit refunds and wrongful Cenvat credit based on allegedly fictitious purchases. The total duty demand included Rs. 3.43 crore treated as erroneous refund and Rs. 1.66 crore towards ineligible Cenvat credit, with interest and penalty.

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The Tribunal noted that the self-credit refunds in question were duly ratified by the jurisdictional Deputy or Assistant Commissioner after verification, as mandated under the notification. Since these refund orders were never reviewed or appealed under Section 35E, the Tribunal held that the show cause notice under Section 11A lacked legal backing. It emphasised that when refunds are sanctioned through speaking orders, they attain finality unless overturned through proper legal remedies.

It was further observed that the department had not issued any communication under Para 2C(e) of the Notification, which mandates that assessees be informed of any excess credit before initiating recovery. Bypassing this procedural requirement and proceeding directly with Section 11A action, according to CESTAT, was impermissible.

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On the allegation of overstated production and bogus availment of credit, the Tribunal found that the investigation was deficient. There was no stock verification or independent confirmation from dealers or transporters. The only evidence relied upon was the statement of Naresh Kumar, which was neither corroborated with further inquiry nor tested through cross-examination.

CESTAT Bench comprised of S S Garg (Judicial Member) and P Amjani Kumar (Technical Member) concluded that the department had not established any fraudulent conduct or suppression justifying the extended period of limitation under the proviso to Section 11A. It held that the demands were based on assumptions and lacked evidentiary support.

In Conclusion, The Bench allowed the appeals and granted consequential relief.

To Read the full text of the Order CLICK HERE

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