Legal Insights into the Case of M/s. Shobika Impex Pvt. Ltd. vs. Commissioner of GST & Central Excise, Trichy

The core issue in this case was the recovery of refunded CENVAT credit from M/s. Shobika Impex Pvt. Ltd., a manufacturer and exporter of insecticide bed nets.  The Revenue demanded the refunded CENVAT credit based on some procedural irregularities highlighted in a post-audit report that was not communicated to the appellant. The central question was whether such recovery was permissible without conforming to the principles of natural justice, viz., issuance of show cause notice.

ID: 2024 (8) TMI 152 - CESTAT CHENNAI

Key Points:

1. Refund Claim: M/s. Shobika Impex had initially claimed a refund of CENVAT credit under Rule 5 of CENVAT Credit Rules, 2004, which was sanctioned by the department after verification

2. Revenue’s Challenge: The Revenue challenged the refund based on a post-audit report, citing procedural deficiencies in the refund process. However, the report was not provided to the appellant, and no show cause notice was issued before the recovery of the refund.

3. Appellant’s Argument: The appellant argued that procedural lapses should not deprive them of substantial benefits, especially since their claims were already verified. They further contended that the failure to issue a show cause notice violated principles of natural justice. The appellant relied on legal precedents that supported their position on due process.

4. Violation of Natural Justice: The Tribunal noted that while the appellant was not necessarily entitled to a copy of the internal audit report, the absence of a show cause notice before recovery violated the principle of natural justice.

5. Remand for Fresh Consideration: The Tribunal acknowledged that the issues in question were a mixture of fact and law and were not adequately dealt with by the lower authority; hence, the Tribunal squashed the recovery order and remitted it back to the Commissioner of Appeals for fresh determination with an order that the process should be done within 90 days.

Judgement:

•  Judgment of the Tribunal: The Tribunal decided that issuing a show-cause notice before revoking the CENVAT credit amount without following the prescribed procedure is inappropriate and thus upheld appellant’s plea.
• Re-Referencing for Fresh Hearing: The appeal was sent back to the Commissioner of Appeals for expeditious consideration within 90 days, allowing the appellant an opportunity to present their case.

Comment from MyGST Refund on this case:

It is essential to note that procedural lapses leading to denial of rightful tax benefits where due process was not followed are against good law, as this M/s. Shobika Impex Pvt. Ltd. . case has shown. However, taxpayers must not be subjected to minor procedural irregularities on payment refund claims; hence, our stand at MyGST Refund is tied around the due diligence we encourage when it comes to refunds. Furthermore, this matter reiterates the necessity of openness and effective communication between tax authorities and taxpayers, especially during post-audit dealings.

Therefore, businesses must keep proper documentation always during refunds so that they will have all their rights shielded against any gauge possible during such proceedings.

Also Read:  National Plasto Moulding Vs. State of Assam & Ors. (Gauhati High Court)