The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has allowed Bharat Heavy Electrical Limited’s appeal against the rejection of its claim for refund of unutilised Krishi Kalyan Cess (KKC), holding that the original refund application must be considered for determining limitation when a subsequent application merely corrects procedural defects.

The bench of Dr. Suvendu Kumar Pati (Judicial Member) has observed that tax authorities cannot introduce fresh grounds to deny a refund when the show-cause notice raises only the issue of limitation. It directed the department to refund the unutilised KKC with applicable interest within two months of receiving the order.

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The appellant/assessee is a Power Sector Western Region that was engaged in setting up power generation projects and bringing them to an operational condition. It had availed CENVAT credit of service tax, including KKC paid on input services, under the CENVAT Credit Rules, 2004.

The company had a closing KKC credit balance of ₹15,59,013. This credit could be utilised only towards payment of KKC, which was discontinued following the introduction of GST. The appeal concerned the rejection of a refund claim of ₹15,24,314.

The assessee first applied for a cash refund on May 10, 2018, invoking the transitional provisions of the Central Goods and Services Tax Act, 2017. The department returned the application on the ground that it did not mention the provision under which the refund was claimed.

The company submitted another application on November 4, 2019. The department then required it to submit the claim in Form-R, which assessee filed under a covering letter dated March 9, 2020.

The department subsequently issued a show-cause notice alleging that the refund application had been filed after October 8, 2018, the deadline it had identified under Section 11B of the Central Excise Act, 1944. The refund was rejected, and the Commissioner (Appeals) upheld the rejection.

BHEL argued that its first application had been filed within the department’s stated deadline and that submitting the claim later in the prescribed form could not make it time-barred.

The Tribunal accepted this submission. It found that the original application dated May 10, 2018, was well within the period determined by the department.

Relying on Arya Export & Industries, a Tribunal decision affirmed by the Delhi High Court, CESTAT held that the date of the original claim remained relevant for determining limitation. A later submission correcting the form of the application could not displace the original filing date.

The Tribunal also examined Section 142(3) of the CGST Act, which provides for disposal of refund claims under the existing law and payment in cash of amounts eventually found refundable. It interpreted the provision’s non-obstante clause as overriding the one-year limitation requirement under Section 11B(1), while preserving the exception concerning Section 11B(2).

On these grounds, it held that BHEL’s refund application was within time.

The Tribunal found that the show-cause notice challenged the refund claim solely on limitation. However, the adjudicating authority and the Commissioner (Appeals) had also examined  assessee’s substantive eligibility and introduced additional grounds for denying the refund.

CESTAT held that findings cannot travel beyond the allegations in the show-cause notice. It referred to the Supreme Court’s decisions in Toyo Engineering India Ltd. and Ballarpur Industries Ltd. in support of this principle.

Consequently, the authorities could not sustain the rejection by relying on grounds that had not been put to the company in the notice.

On eligibility,  the assessee relied on the Bombay High Court’s decision in Godrej & Boyce Manufacturing Company Limited. Its argument concerned the operation of the explanations to Section 140 of the CGST Act and whether Explanation 3 could independently exclude KKC credit when the relevant amendments to Explanations 1 and 2 had not been brought into operation.

The Tribunal accepted the submission concerning the independent application of Explanation 3 and relied on the Bombay High Court’s ruling. It also discussed the contrary view in Sutherland Global Services Pvt. Ltd. and explained why it considered the Bombay High Court decision applicable to the dispute before it.

The department had urged the Tribunal to defer its decision in view of interim orders concerning Granules India Limited and Autoform Engineering India Private Limited.

CESTAT rejected this request. It observed that interim orders passed in particular proceedings do not require every other court or tribunal to suspend similar cases unless there is a specific direction stopping proceedings in all pending matters.

Allowing the assessee’s appeal, the Tribunal set aside the Commissioner (Appeals)’ order dated November 26, 2021, and granted consequential relief of refund of unutilised KKC with applicable interest.

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