Court Rules Adjudicating Authority Cannot Rely on Appellate Order Overturned by CESTAT; Orders Refund of Pre-Deposit with Interest
In a significant decision impacting refund claims under the Central Excise regime, the Delhi High Court on September 14, 2026, quashed a Demand-cum-Show Cause Notice and the consequent Order-in-Original issued against Welspring Universal by the Additional Commissioner of Central GST, Delhi (West). The Court held that the adjudicating authority erred in proceeding on the basis of an appellate order which had been set aside by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
The dispute arose when Welspring Universal, a 100% Export Oriented Unit engaged in manufacturing engineering products, claimed a refund of Rs. 76,72,000/- under Rule 5 of the CENVAT Credit Rules, 2004, relating to excise duty paid on exported goods. Initially, the refund was sanctioned by the Assistant Commissioner, CGST, in May 2019. However, the Department challenged this refund order before the Commissioner (Appeals), who allowed the appeal in December 2019, setting aside the refund. The petitioner then moved the CESTAT, which, in August 2024, reversed the Commissioner (Appeals) order and upheld the refund entitlement, holding that the claim was not barred by limitation.
Despite the CESTAT's clear ruling, the Additional Commissioner proceeded in March 2025 to confirm the demand against Welspring Universal, relying on the overturned Commissioner (Appeals) order. The petitioner challenged this order before the Delhi High Court.
The Court examined the sequence of appellate proceedings and held that once the CESTAT set aside the Commissioner (Appeals) order, the adjudicating authority could not treat the earlier appellate order as operative. The Court emphasized that ignoring a binding higher appellate order renders subsequent adjudication unsustainable. It also upheld the CESTAT’s findings that the refund claim was within limitation and that the substantive entitlement of the petitioner to the refund was established.
Further, the Court directed the Department to refund the pre-deposit amount of Rs. 7,67,200/- deposited by the petitioner during the appeal proceedings before the CESTAT, along with applicable interest.
This judgment reinforces the principle that adjudicating authorities must consider the latest appellate rulings, and cannot disregard decisions of higher appellate tribunals. It also clarifies that refund claims under the CENVAT Credit Rules, once upheld on merit and limitation grounds by CESTAT, cannot be negated by subsequent departmental actions based on orders already set aside.
Bottom Line:
Demand-cum-Show Cause Notice and Order-in-Original cannot be sustained if based on an appellate order that has been set aside by a higher appellate authority.
Statutory provision(s):
Central Excise Act, 1944; CENVAT Credit Rules, 2004; Customs Act, 1962; Central Goods and Service Tax Act (CGST Act)
