Amounts Paid During Investigation Become ‘Duty’ After Excise Adjudication & Appropriation: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) held that amounts paid during investigation take the character of duty after adjudication and appropriation, and refund claims filed beyond the prescribed period are time-barred under Section 11B of the Central Excise Act.

Galaxy Match Company, the appellant, is engaged in manufacture of safety matches. Based on investigation, the department alleged suppression of production and clandestine removal of goods and issued a show cause notice proposing demand of duty. During the course of investigation, even before issuance of the notice, the appellant paid certain amounts.

The adjudicating authority confirmed the demand along with interest and penalty, and the appellant paid the amounts. On appeal, the Commissioner (Appeals) reduced the demand substantially, which resulted in excess payment by the appellant. The department filed an appeal before the Tribunal but later withdrew it. After this, the appellant filed a refund claim for the excess amount.

The refund claim was rejected as time-barred under Section 11B and the rejection was upheld by the Commissioner (Appeals). Aggrieved by this, the appellant approached the CESTAT.

The appellant’s counsel argued that the amounts paid during investigation were in the nature of deposits and not duty. It was argued that such payments are treated as made under protest and limitation under Section 11B would not apply. It was also argued that the relevant date for filing refund should be the date when the dispute finally attained finality and not the earlier appellate order.

The revenue counsel argued that once adjudication is completed and amounts are appropriated towards confirmed demand, they assume the character of duty. It was further argued that the relevant date for limitation is the date of the Order-in-Appeal which granted relief, and since the refund was filed much later, it is clearly time-barred.

The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) agreed with the revenue’s arguments. The tribunal observed that payments made during investigation may initially be in the nature of deposits, but once adjudication is completed and amounts are appropriated, they take the character of duty.

The tribunal observed that under Section 11B, the relevant date in cases where refund arises due to an appellate order is the date of such order. It explained that the right to claim refund arises immediately on passing of the Order-in-Appeal which reduced the demand. The tribunal pointed out that pendency of further appeal or its withdrawal does not extend the limitation period.

The tribunal also pointed out that cross-objections filed by the appellant do not create a fresh cause of action or extend limitation. It explained that such cross-objections are only defensive in nature and do not affect the statutory time limit for filing refund.

The refund claim was filed beyond one year from the date of the Order-in-Appeal, so the tribunal held that the claim is time-barred. The appeal filed by the appellant was dismissed.

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