Procedural Defects In Invoices Cannot Defeat SAD Refund Entitlement: CESTAT Chennai

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has allowed an appeal filed by Cape Electric Corporation and set aside orders rejecting Special Additional Duty (SAD) refund claims of ₹18.82 lakh.

The claims arose from imported goods that were subsequently sold in the domestic market on payment of VAT.

The Division Bench of Judicial Member Ajayan T.V. and Technical Member Vasa Seshagiri Rao held that the department could not deny the refund claims on the basis of reconstructed invoice copies. The original refund records had been misplaced by the department, and the importer had been directed to reconstruct the file.

"We also find force in the appellant's contention that the invoices did not separately reflect the 4% SAD component and therefore there was no practical possibility of availment of CENVAT credit by the buyers, which contention has not been rebutted anywhere in the impugned orders. In such circumstances, denial of refund on hyper-technical interpretation of endorsement requirements, despite substantial compliance and absence of any allegation of actual availment of inadmissible credit, is clearly unsustainable.", it held. 

The dispute arose from three SAD refund claims aggregating to ₹18.82 lakh. The claims related to imports covered under 27 Bills of Entry.

The Customs Department rejected the claims principally on the ground that certain sales invoices did not contain the prescribed endorsement regarding non-admissibility of CENVAT credit.

During remand proceedings, the original refund files were misplaced by the department. Cape Electric Corporation was subsequently directed to reconstruct the records from available documents.

The tribunal noted that the company had produced Bills of Entry, TR-6 challans, VAT payment documents, Chartered Accountant certificates and correlation statements. It observed that these documents substantially established payment of SAD and subsequent sale of the goods on payment of VAT.

"adverse inference could not have been drawn merely on the basis of reconstructed office copies furnished after admitted loss of original records by the department.", it noted. 

The tribunal observed that the company reconstructed the file using available copies. It also noted that the company agreed to a proportionate reduction of refund relating to invoices where endorsement omission was acknowledged.

Relying on earlier decisions, the Tribunal held that the endorsement requirement was procedural in nature. It ruled that substantive refund entitlement could not be denied where payment of SAD and subsequent VAT-paid sales were established.

"procedural defects relating to endorsement in invoices cannot defeat substantive SAD refund entitlement where payment of duty and subsequent VAT-paid sales stand established"

The Tribunal also took note of Ombudsman proceedings concerning the missing refund files.

"The records disclose that the Ombudsman directed initiation of appropriate disciplinary proceedings in relation to the loss/misplacement of the refund records. This circumstance assumes considerable significance because the very evidentiary difficulties now sought to be raised against the appellant arose only due to the department's own failure in preserving the original records."

Setting aside the impugned orders, the tribunal held that Cape Electric Corporation would be entitled to refunds in accordance with law after allowing proportionate exclusion, if any, relating to invoices where endorsement omission had been accepted by the company.

The tribunal also held that the importer would be entitled to consequential statutory interest.

For Appellant: Advocate S. Sridevi, 

For Respondent: Vineet Goyal, Authorised Representative