Delhi HC Quashes ₹76.72L CENVAT Refund Demand, Says Authority Could Not Rely On CESTAT-Set Aside Order
The Delhi High Court has quashed a ₹76.72 lakh CENVAT refund recovery demand against an engineering products manufacturer, holding that the adjudicating authority could not rely on an order after it had been set aside by the CESTAT.
The Division Bench of Justices Anil Kshetarpal and Shail Jain observed that the Additional Commissioner, while confirming the demand, failed to take into account the CESTAT's subsequent order expressly upholding the petitioner's entitlement to refund of ₹76.72 lakh under Rule 5 of the CENVAT Credit Rules, 2004.
The Court was dealing with a petition filed challenging show cause notice dated December 10, 2019 and the order dated March 24, 2025, whereby the demand of ₹76.72 lakh was confirmed against the Petitioner.
Petitioner had exported 36 consignments between April and December 2007 after paying excise duty of ₹76.72 lakh. Following a series of proceedings, the Commissioner had dropped proceedings against the petitioner in 2017, and the Department did not challenge that order.
Thereafter, Petitioner sought refund of the ₹76.72 lakh. The refund was sanctioned by the Assistant Commissioner in May 2019. However, the Department challenged the refund order before the Commissioner (Appeals). During the pendency of that appeal, the Department also issued a SCN seeking recovery of the refund amount.
The Commissioner (Appeals) subsequently allowed the Department's appeal in December 2019, holding that Petitioner ought to have transitioned the credit through TRAN-1 and that cash refund could not be sustained.
Petitioner challenged this order before the CESTAT. In August 2024, the CESTAT allowed the appeal, set aside the Commissioner (Appeals)'s order and expressly held that the Petitioner was entitled to refund of ₹76.72 lakh under Rule 5 of the CENVAT Credit Rules. The Tribunal also held that the refund claim was not barred by limitation.
Despite being informed of the CESTAT ruling in February 2025, the Additional Commissioner proceeded to confirm the ₹76.72 lakh demand in March 2025.
The authority treated the refund claim as a fresh claim barred by limitation and relied on the fact that the earlier refund order had been set aside by the Commissioner (Appeals).
At the outset, the High Court noted that the Commissioner (Appeals)'s order dated December 16, 2019, which had set aside the refund order, had itself been set aside by the CESTAT in August 2024.
"Once the Order-in-Appeal dated 16.12.2019 had been set aside by the CESTAT, the same could not thereafter be treated as an operative determination adverse to the Petitioner," the Court observed.
It held that the adjudicating authority was required to consider the effect of the CESTAT's subsequent order, particularly since the Tribunal had substantively held that Petitioner was entitled to the refund.
The Court further rejected the Additional Commissioner's finding that the refund claim was a fresh application barred by limitation. It noted that the issue of limitation had already been specifically considered by the CESTAT and decided in the petitioner's favour.
“An adjudicating authority exercising statutory powers is necessarily required to take into account the operative orders of the appellate authorities having appellate jurisdiction over the adjudicating authority. The adjudicating authority cannot disregard a subsequent appellate determination which directly bears upon the very issue under adjudication,” it said.
As such, the Court set aside both the SCN and demand order, and directed the Respondent to refund ₹7.67 lakh pre-deposit to Petitioner.
For Petitioner: Advocates Kunal Sharma and Rishika Goyal
For Respondent: Brijesh Yadav, SPC with Advocates Nikita, Sandeep Yadav, Sawan Saini, Anirudh Nagar, Atul Yadav & Kunal Chaudhary