Excise Duty Mistakenly Paid on Alcohol-Based Homoeopathic Medicines Refundable Without Time Bar: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that excise duty paid by mistake on alcohol-based homoeopathic medicines like tinctures and mother solutions is refundable, and such claims are not barred by the one-year time limit under Section 11B of the Central Excise Act.

Parul Homoeo Laboratories Pvt. Ltd., the appellant, manufactures homoeopathic medicines containing alcohol. Between 2011 and 2016, the appellant paid central excise duty on these products under the belief that they were dutiable under Chapter 30 of the Central Excise Tariff.

Later, the appellant realized that the goods in question were actually covered under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955, and not subject to central excise. The appellant filed a refund claim for Rs. 6.5 lakh, stating that the duty had been paid under a mistake of law.

The department rejected the refund application, stating that it was filed beyond the one-year limit prescribed under Section 11B. On appeal, the Commissioner (Appeals) upheld the rejection, leading the appellant to file a further appeal before the CESTAT.

The appellant’s counsel argued that the duty had been paid without legal basis, and therefore the one-year limitation under Section 11B was not applicable. They submitted that the goods were never legally dutiable under central excise and the payment was due to an error in law.

The counsel relied on several High Court rulings including KVR Constructions and Parijat Construction, where it was held that amounts paid under mistake of law are not subject to the statutory refund limitation period.

The departmental representative argued that even if the payment was made by mistake, the refund claim had to follow the process laid out in Section 11B, and since the claim was filed after one year, it was time-barred.

The single-member bench comprising P.K. Choudhary (Judicial Member) observed that since the goods were never liable to central excise duty, the payment could not be treated as duty under the Act. The refund claim, being one for rectifying a mistake of law, was not subject to the one-year limit.

The tribunal explained that the refund claim was not a typical tax refund but a recovery of an amount paid without legal authority. It held that the excise department could not retain such payments, as doing so would violate Article 265 of the Constitution. The tribunal allowed the appeal and directed the department to refund the amount of Rs. 6.5 lakh.

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