The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has directed the Customs Department to refund Special Additional Duty (SAD) amounts of ₹17.96 lakh to Johnson & Johnson Private Limited, holding that a refund cannot be adjusted against a disputed demand that has not attained finality.
The bench of Dr. Suvendu Kumar Pati (Judicial Member) set aside the order of the Commissioner of Customs (Appeals), Mumbai-II, which had upheld the appropriation of the company’s SAD refund against a duty drawback demand.
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The appellant/assessee filed two refund claims amounting to ₹14,28,537 and ₹3,67,588, respectively. The total refund claimed was ₹17,96,125.
The first claim related to imports made through five Bills of Entry between November 2016 and March 2017. The second arose from imports covered by eight Bills of Entry filed between October and November 2016.
The Assistant Commissioner of Customs, Jawaharlal Nehru Custom House, Nhava Sheva-III, sanctioned the two refund claims. However, instead of paying the amounts to the company, the authority appropriated them against a duty drawback demand confirmed through an order dated March 27, 2018.
The appropriation was made by invoking the recovery provisions under Section 142 of the Customs Act, 1962.
Johnson & Johnson challenged the adjustment before the Commissioner of Customs (Appeals). The appellate authority, however, upheld the department’s action, prompting the company to approach the CESTAT.
Appearing for the company, advocate Bharath Menon submitted that the original drawback recovery order had been passed in the company’s absence and in violation of the principles of natural justice.
The drawback order was separately challenged before the Revisional Authority of the Government of India. The Revisional Authority allowed the challenge and remanded the matter to the original adjudicating authority for fresh determination after granting the company an opportunity of hearing.
Following the remand, the Assistant Commissioner passed a fresh order on August 16, 2024, dropping the demand-cum-show cause notice issued for recovery of the drawback.
The company argued that once the underlying demand had been dropped, there was no surviving liability against which the SAD refund could be appropriated.
It was further submitted that even at the time of the original adjustment, the drawback demand had not attained finality because it remained open to challenge before the appellate or revisional authorities.
The assessee relied on the CESTAT decision in Voltas Limited v. Commissioner of Central Excise, Hyderabad-IIand the Karnataka High Court judgment in Commissioner of Central Excise, Bangalore-III v. Stella Rubber Works.
According to the company, these decisions establish that the department can adjust a refund only against a demand that has become final. A demand confirmed by an appealable adjudication order cannot immediately be treated as an enforceable arrear for adjusting a sanctioned refund.
The company also contended that the refund had been appropriated without providing it an opportunity of hearing on the proposed adjustment. It consequently sought interest for the delay in payment of the sanctioned refund.
The Customs Department defended the order of the Commissioner (Appeals). Its representative argued that no favourable order had been passed by the Revisional Authority when the Commissioner (Appeals) heard the matter. Therefore, the order confirming the duty drawback demand was in force at the relevant time.
The CESTAT referred to a status report dated March 30, 2026, submitted by the concerned Commissioner to the department’s authorised representative.
The report expressly acknowledged that the duty drawback demand against which the two SAD refund amounts had been appropriated stood completely dropped under the fresh adjudication order dated August 16, 2024.
The Tribunal observed that this amounted to an admission by the Customs Department that the liability forming the basis of the adjustment no longer existed.
It held that after the demand was dropped, the department ought to have released the appropriated amount to the company on its own. However, the amount was not returned.
The CESTAT reiterated that a demand confirmed through an original adjudication order does not immediately acquire finality because such an order remains appealable.
There is always a possibility that the demand may be set aside by the Commissioner (Appeals), the Tribunal or another judicial forum. Consequently, a demand pending adjudication before a higher forum cannot be treated as final arrears for the purpose of adjusting a refund.
The Tribunal noted that several judicial decisions have held that refunds cannot be appropriated against demands that are sub judice. Recovery or adjustment provisions should be invoked only after the demand has attained finality and not merely at the initial stage of confirmation.
The subsequent dropping of the entire drawback demand further demonstrated that the appropriation of Johnson & Johnson’s SAD refund could not be sustained.
The CESTAT allowed both appeals and set aside the common order passed by the Commissioner of Customs (Appeals), Mumbai-II, on June 10, 2022.
It directed the Commissioner to refund ₹14,28,537 and ₹3,67,588 to Johnson & Johnson within two months from the receipt of the Tribunal’s order.
The Tribunal also granted applicable interest on the delayed refund in accordance with law.
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