Refund Not Time-Barred If Excise Duty Paid Under Protest During Pendency of Appeal: Madras HC [Read Order]

In a recent ruling, the Madras High Court held that refund cannot be denied on the ground of limitation when the amount was appropriated during the pendency of appeal and is treated as payment under protest.

The case started after the department denied CENVAT credit taken by the Sanmar Matrix Metals Ltd (appellant) and confirmed a demand of around Rs. 18.66 lakhs along with interest and penalty through an Order. The appellant challenged this order before the appellate authorities and later filed an appeal before the CESTAT.

During the pendency of the appeal, the Tribunal passed an interim order, directing a pre-deposit of Rs. 10,000 and granted a stay of recovery of the remaining dues. Even after this stay order, the department appropriated the rebate amount which was otherwise refundable to the appellant and adjusted it against the alleged dues.

Later, the CESTAT set aside the demand raised against the appellant. After this, the appellant asked for refund of the rebate amount which was already appropriated. But the department rejected the request saying that the claim was time-barred under Section 11B of the Central Excise Act, as it was not filed within one year from the Tribunal’s order.

The rejection was confirmed by the appellate authority and also by the CESTAT, so the appellant filed this appeal before the High Court.

The Division Bench comprising Justice N. Anand Venkatesh and Justice K.K. Ramakrishnan observed that the appropriation of rebate amount was done during the pendency of the appeal and even when there was a stay order by the Tribunal. The court explained that such recovery cannot be treated like a normal payment of duty and observed:

“If the revenue is permitted to adopt such novel ways to adjust the amounts by getting over an order of stay and thereby indirectly recovering the money, it cannot be construed as a duty payable as on the date of such appropriation.”

The court further observed that when an assessee challenges a demand by filing an appeal, it means protest. In such cases, any amount recovered or adjusted during the appeal should be treated as payment made under protest. The court pointed out:

“Now, where a person proposes to contest his liability by way of appeal, revision or in the higher courts, he would naturally pay the duty, whenever he does, under protest.”

The court explained that under the second proviso to Section 11B, the limitation of one year will not apply where duty is paid under protest and observed:

“The limitation of one year will not apply where the duty and interest has been paid under protest.”

The court also rejected the department’s argument that the refund claim came only after the Tribunal’s order in 2018 and should have been filed within one year. It explained that this is not a simple refund case but it is about returning money which was taken during a dispute.

The court set aside the order of the CESTAT and directed the department to refund the amount to the appellant within six weeks. So, the appeal was allowed in favour of the assessee.

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