Education Cess Refunds Settled Under Earlier Law Cannot Be Recovered Due To Later Change In Law: J&K&L High Court

The High Court of Jammu & Kashmir and Ladakh has held that refunds of Education Cess and Higher Education Cess granted under the law prevailing at the time cannot be recovered merely because the Supreme Court later overruled that position in Unicorn Industries v. Union of India.

Justice Sanjeev Kumar and Justice Shahzad Azeem observed that once a subsequent judgment overrules an earlier decision on a point of law, the earlier judgment cannot be reopened or reviewed on that basis.

“Once there is a subsequent judgment overruling the earlier judgment on a point of law, the earlier judgment can neither be reopened nor reviewed on the basis of subsequent judgment,” the court ruled.

The ruling came in a petition filed by Biostadt India Ltd. against a show-cause notice issued by the Deputy Commissioner, Central Goods and Services Tax Division-1, Jammu. The notice questioned refunds of Education Cess and S&H Education Cess claimed by Biostadt, including amounts it had already paid back under protest.

Biostadt had claimed Education Cess and S&H Cess for April 2008 to March 2009 and December 2010 to April 2016. After the claim was rejected, the company approached the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chandigarh, which held it entitled to the refund by applying the Supreme Court's ruling in SRD Nutrients Pvt. Ltd. v. Commissioner of Central Excise.

In SRD Nutrients, the Supreme Court had held that Education Cess and Higher Education Cess paid along with excise duty could be refunded where the underlying excise duty itself was exempted. The Revenue challenged the CESTAT orders before the High Court, but the appeals were held not maintainable and returned for presentation before the Supreme Court.

After the refunds were granted, the Supreme Court declared SRD Nutrients per incuriam in Unicorn Industries, holding it contrary to the law declared by the Larger Bench in Union of India v. Modi Rubber Ltd.

The Revenue then issued notices dated December 3 and December 31, 2020 seeking recovery of the refunded cess. Biostadt paid the amount back under protest.

The company later sought a refund after the Supreme Court's judgment in Commissioner of CGST and Central Excise (J&K) v. Sarswati Agro Chemicals Ltd. The Deputy Commissioner declined to refund the amount and issued the April 22, 2024, show-cause notice.

The High Court relied on Sarswati Agro Chemicals, where the Supreme Court had clarified that past decisions which had attained finality under SRD Nutrients could not be disturbed merely because that judgment was subsequently overruled.

“Otherwise a Pandora's box would be opened and there would be no end to litigation, which is against public policy,” the Supreme Court had observed.

The court found that Biostadt's CESTAT orders had “virtually attained finality”, although three belated appeals concerning some orders remained pending before the Supreme Court.

It accordingly directed the Revenue to refund the Education Cess and Higher Education Cess paid back by Biostadt under protest. The refund remains subject to the outcome of pending Supreme Court appeals.

Biostadt must also furnish an equivalent bank guarantee from a nationalised bank, which can be encashed if the Revenue ultimately succeeds before the Supreme Court.

The refund will further remain subject to any order passed by the Supreme Court in review or other proceedings instituted by the Revenue.