Facts of the Case

M/s Ascendas Service (India) Pvt. Ltd. challenged the communication dated 22.09.2021 whereby the Department rejected its refund application for ₹38,94,844. The dispute arose after the petitioner had filed an appeal before the CESTAT against the Order-in-Original along with the mandatory pre-deposit of 7.5% of the disputed demand. Since the appeal was filed beyond the prescribed limitation period, an application for condonation of delay accompanied the appeal.

While the condonation application was pending, the Department initiated recovery proceedings and directed the petitioner's banker to remit the disputed amount. Consequently, the bank debited the petitioner's account and transferred the amount to the Department. Subsequently, the CESTAT condoned the delay, admitted the appeal, and numbered it for hearing. Thereafter, the petitioner sought refund of the amount recovered during the pendency of the appeal. The refund claim was rejected, leading to the filing of the writ petition before the Karnataka High Court.

Issues Involved

  1. Whether recovery proceedings initiated during the pendency of an appeal become unsustainable once the delay in filing the appeal is condoned by the appellate authority.
  2. Whether the order condoning delay relates back to the original date of filing of the appeal.
  3. Whether the petitioner is entitled to refund of the amount recovered after filing of the appeal but before condonation of delay.
  4. Whether rejection of the refund application was legally sustainable in view of the statutory provisions governing recovery during pendency of appeals.

Petitioner's Arguments

  • The petitioner contended that the appeal had already been filed before the CESTAT together with the mandatory pre-deposit, although accompanied by an application seeking condonation of delay.
  • It was argued that after the CESTAT condoned the delay and admitted the appeal, the order of condonation related back to the original date of filing of the appeal.
  • Since the appeal was deemed to have been pending from the date of its filing, the recovery proceedings initiated thereafter were contrary to law.
  • The petitioner submitted that the amount recovered through the bank account should be refunded by applying the principle of restitution.
  • Reliance was placed upon various judicial precedents supporting the doctrine that condonation of delay validates the appeal retrospectively from the date of presentation.

Respondent's Arguments

  • The Department defended the rejection of the refund application.
  • It contended that the recovery proceedings had been undertaken in accordance with law at the relevant time.
  • The respondents submitted that the writ petition lacked merit and sought dismissal of the petition.

Court Order / Findings

The Karnataka High Court allowed the writ petition and held that once the CESTAT condoned the delay in filing the appeal, such condonation related back to the original date on which the appeal had been presented.

The Court observed that the appeal must be deemed to have been pending from its original filing date and not from the date on which the delay was condoned. Consequently, any recovery made by the Department after the filing of the appeal became legally unsustainable.

The High Court further held that the recovery effected from the petitioner's bank account during the pendency of the appeal violated the statutory protection available under Section 87 of the Finance Act, 1994 and Section 35F of the Central Excise Act, 1944. Applying the principle of restitution, the Court ruled that the petitioner was entitled to restoration of the status existing on the date of filing of the appeal.

Accordingly, the Court:

  • Quashed the communication dated 22.09.2021 rejecting the refund application.
  • Directed the Department to refund ₹38,94,844 along with applicable interest.
  • Ordered that the refund be made within four weeks.
  • Directed the petitioner to cooperate for expeditious disposal of the pending appeal before the CESTAT.

Important Clarification

This judgment clarifies that once delay in filing an appeal is condoned, the order of condonation operates retrospectively and relates back to the original filing date of the appeal. Consequently, recovery proceedings initiated after the appeal was filed but before condonation of delay cannot survive in law. Any amount recovered during such period is liable to be refunded by applying the doctrine of restitution. The decision reinforces the statutory safeguards available to assessees during the pendency of appellate proceedings.

Sections Involved

  • Section 87 of the Finance Act, 1994
  • Section 35F of the Central Excise Act, 1944
  • Article 226 of the Constitution of India

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785325694_2268compressed.pdf

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