The Jammu & Kashmir and Ladakh High Court has directed the department to return Education Cess and Secondary and Higher Education Cess that the assessee had paid back under protest.
The Bench of Justice Sanjeev Kumar and Justice Shahzad Azeem has observed that the company must furnish a bank guarantee for an equivalent amount, and the refund will remain subject to the outcome of proceedings before the Supreme Court.
The central question was whether a later ruling against the availability of a cess exemption could, by itself, undo refunds already granted under appellate orders based on the law prevailing at the time.
The appellant/assessee had claimed refunds of Education Cess and Secondary and Higher Education Cess for periods between April 2008 and April 2016. The jurisdictional Commissionerate rejected its claims, but CESTAT allowed the company’s appeals in light of the Supreme Court’s decision in SRD Nutrients Pvt. Ltd.
Under that decision, an assessee could claim a refund of the education cesses paid along with excise duty where the underlying excise duty was exempt. The Revenue challenged the CESTAT orders before the High Court. Those appeals were returned as not maintainable so that the Revenue could pursue them before the Supreme Court.
The legal position later changed. In Unicorn Industries, a three-judge Bench of the Supreme Court held that SRD Nutrients had been decided without considering an earlier binding decision. Following that ruling, the Revenue issued show cause notices in December 2020 seeking recovery of the cess refunded to the assessee. The company paid back the amounts under protest.
The assessee challenged those notices in an earlier writ petition. In March 2023, the High Court directed that the recovery notices remain dormant until the litigation pending before the Supreme Court was finally decided. The company then sought the return of the money it had deposited under protest, relying on the Supreme Court’s decision in Sarswati Agro Chemicals. A fresh show cause notice dated April 22, 2024, proposed rejection of its refund claims, leading to the present petition.
The April 2024 notice referred separately to ₹1,35,26,979 in Education Cess and ₹67,63,906 in Secondary and Higher Education Cess repaid by the company, as well as further refund claims of ₹83,24,783 and ₹41,62,569, respectively, that had been kept pending. The judgment does not state a single consolidated amount ordered to be released; its operative direction concerns the entire amount paid back under protest in response to the December 2020 notices.
The assessee argued that the assessee could not recover refunds granted pursuant to CESTAT orders merely because SRD Nutrients was subsequently displaced by Unicorn Industries. It relied on Sarswati Agro Chemicals and earlier High Court decisions addressing the effect of a later change in the law on refunds already granted.
The Revenue maintained that, under Unicorn Industries, the assessee was never entitled to the cess refunds. It also argued that the company should not receive the money while appeals against some of the CESTAT orders and other proceedings before the Supreme Court remained unresolved.
The High Court held that the Supreme Court’s ruling in Sarswati Agro Chemicals governed the dispute. As the Bench explained, refund decisions that had attained finality under SRD Nutrients could not be reopened solely because that judgment was later overruled in Unicorn Industries.
Applying that principle, the court observed that the CESTAT orders in assessee’s favour had “virtually attained finality”, although belated appeals concerning some of those orders were still pending before the Supreme Court. It also noted that assessee had already received the refunds once and had returned the money only after the Revenue issued the 2020 notices.
The Bench took account of the position of similarly situated assessees who had been permitted to retain refunds granted under SRD Nutrients. At the same time, it recognised that the pending appeals required protection for the Revenue if the Supreme Court ultimately set aside or modified the assessee’s CESTAT refund orders.
The High Court directed that the assessee be refunded the entire amount of Education Cess and Secondary and Higher Education Cess it paid back under protest in response to the notices dated December 3 and December 31, 2020.
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