GST UPDATE NO. 65TH ON REFUND SANCTIONED CANNOT BE CONSIDERED AS ‘ERRONEOUS’ ON CHANGE OF LEGAL POSITION: -

We all know that the analysis and interpretation of law is a subjective matter and the same is subject to amendment from time to time. There is possibility that favourable decisions pronounced by High Courts are reversed by the Supreme Court or the latest decision passed by the Apex Court on an issue is unfavourable to the assessee. In such a scenario, whether the department can resort to recovery of refund sanctioned to the assessee based on interpretation taken earlier which is subsequently reversed by the Apex Court? This issue was recently raised before the Hon’ble Kolkata Tribunal in the case of M/S RNB CARBIDES & FERRO ALLOYS PRIVATE LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, SHILLONG wherein the department filed appeal against the refund order sanctioned by claiming it to be ‘erroneous’. The outcome of this decision is the subject matter of discussion of the present update. The issue involved in this case was regarding inclusion of freight amount in the assessable value of goods for the purpose of levy of central excise duty. The assessee’s unit was located in North Eastern States which were eligible for refund of excise duty paid in cash. The assessee had been sanctioned refund on assessable value inclusive of freight amount on FOR sales made by them in view of the decision rendered by the Apex Court in the case of ROOFIT INDUSTRIES LIMITED [2015 (319) E.L.T. 221 (S.C.)] wherein it was held that the place of removal is to be determined as per the facts of the case and can be the place of buyer’s premises with respect to FOR sales. However, recently a contrary view was taken by the Supreme Court in the case of ISPAT INDUSTRIES LIMITED [2015 (324) E.L.T. 670 (S.C.)] wherein it was opined that ‘buyer’s premises cannot be considered as place of removal as it is to be construed as premises having relation to the seller of goods. It was contended by the department that the refund already sanctioned to the assessee was ‘erroneous’ and is liable to be recovered. The hon’ble Tribunal held that the refund already sanctioned by relying on the judicial legal precedents holding the field then as well as clarifications issued by the Board cannot be termed as ‘erroneous refund’. Reliance was also placed on the decision given by Hon’ble Gujarat High Court in the case of TOPCEM INDIA VERSUS UNION OF INDIA [2021 (376) E.L.T. 573] wherein it was held that refund granted earlier by considering the favourable decision at that time which was subsequently reversed is not to be recovered from the assessee. The refund already sanctioned by taking the support of legal precedents holding the field then cannot be termed as erroneous merely because of the change in legal position subsequently. The above decision is very beneficial to the assessee as it protects them from recovery of refund on account of change in legal position by way of contrary judicial pronouncements. It is very common for the department to issue recovery show cause notices and file appeals for recovery of sanctioned refunds simultaneously to safeguard the interest of revenue in the erstwhile regime as there was dispute as regards whether appeal should be preferred against the order sanctioning the refund or show cause notice for recovery of refund already sanctioned should be issued to the assessee. Nonetheless, the decision rules in favour of the assessee by holding at the first place that refund sanctioned cannot be considered as ‘erroneous’ which is a big relief to the assessee. The decision will be definitely challenged by the revenue authorities before the High Court.

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GST UPDATE NO. 65TH ON REFUND SANCTIONED CANNOT BE CONSIDERED AS ‘ERRONEOUS’ ON CHANGE OF LEGAL POSITION: -

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