The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that where the entitlement of a taxpayer to exemption from duty is itself under dispute and has not yet been finally settled in the taxpayer’s own case, a refund application filed before such final adjudication is premature and not maintainable because no cause of action to claim refund has arisen at that stage.
The Tribunal specifically held, by applying the Supreme Court’s decision in Dena Snuff vs Commissioner of Central Excise, Chandigarh [2003 (157) E.L.T. 500 (SC)], that even though the appellant ultimately succeeded on the merits of the exemption issue before the Larger Bench and the Division Bench of the Tribunal, the refund application could not be sustained because, on that date, the dispute as to the appellant’s entitlement to exemption from payment of basic customs duty had not yet been finally settled, and therefore the cause of action for refund had not arisen.
This cause-of-action principle applies equally to so-called protective departmental demands under section 28 of the Customs Act: a notice or claim cannot validly be founded at a point of time when the necessary cause of action does not exist, even if subsequent events may later furnish such cause of action, added CESTAT.
Accordingly, notwithstanding that the earlier order dated December 19, 2017 ceased to be good law after the Larger Bench decision of June 14, 2024 and notwithstanding that the appellant obtained a favourable order on exemption on September 09, 2024, the present appeal against rejection of the earlier refund claim failed because the maintainability of the refund application had to be assessed as on the date of its filing, and on that date it was premature for want of accrued cause of action.
The Division Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) noted that the appellant had, from March 2014 onwards, consistently disputed the denial of exemption, sought provisional assessment, requested a speaking order under section 17(5) of the Customs Act, paid duty under protest on future Bills of Entry, and eventually filed the refund application on July 21, 2015 because no speaking order had been issued despite repeated reminders.
The Tribunal expressly observed that the Larger Bench, by order dated June 14, 2024, held the digital cameras imported by the appellant to be entitled to exemption from basic customs duty, and that following that Larger Bench decision, the Division Bench on September 09, 2024 set aside the impugned order with consequential relief. It further noted that the Bills of Entry in the present appeal formed part of the same set of Bills of Entry covered in the September 09, 2024 order.
Despite acknowledging that the merits of exemption had ultimately been decided in favour of the appellant and that the earlier 2017 precedent had been displaced, the Tribunal did not allow the refund appeal, because it considered the preliminary issue of maintainability of the refund application as decisive.
The cause of action had not arisen to the appellant when it filed the refund application on July 21, 2015, because the dispute regarding entitlement to exemption was settled only much later, namely when the Larger Bench of the Tribunal answered the reference on June 14, 2024. On that reasoning, the Tribunal concluded that the refund application was liable to be rejected as premature, notwithstanding the subsequent success of the appellant on the merits of the exemption issue.
The Tribunal also dealt with the appellant’s submission that, if such a view were accepted, the department likewise should not be able to issue protective demand notices under section 28 of the Customs Act. Rejecting any asymmetry, the Tribunal observed that even so-called “protective demands,” meaning show cause notices issued without an existing cause of action in the hope of succeeding in appeal later, would be equally covered by the principle in the case of Dena Snuff vs Commissioner of Central Excise.
Briefly, the appellant, engaged in the import and trade of electronic products including digital still image video cameras, challenged an order by which its application for refund of duty allegedly paid under protest on 52 Bills of Entry filed during the period from January 05, 2015 to February 27, 2015 was rejected. The appellant claimed that it was entitled to exemption from payment of basic customs duty on import of digital cameras under Notification No. 25/2005-Cus. dated May 01, 2005, as amended on March 17, 2012, and asserted that though the benefit had earlier been granted for the period from March 17, 2012 to February 12, 2014, the department stopped allowing the exemption from February 2014 onwards after a DRI investigation into such imports.
When the department did not permit the appellant to claim the exemption, the appellant requested provisional assessment of the Bills of Entry, whereupon the Deputy Commissioner, informed the appellant that digital cameras were not eligible for exemption, but that if the appellant disagreed, it could intimate the department so that a speaking order could be passed under section 17(5) of the Customs Act, 1962. The appellant requested issuance of a speaking order, but in the meantime paid basic customs duty under protest on future Bills of Entry and filed protest letters along with each Bill of Entry.
Appearances:
Advocates V. Lakshmikumaran, Anjali Gupta and Ashwani Bhatia, for the Appellant/ Taxpayer
Advocate P.R.V. Ramanan and AR, Rakesh Kumar, for the Respondent/ Department
