High Court corrects Tribunal’s error and directs refund where a typographical omission led to an unnecessary remand

By | June 28, 2025
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High Court corrects Tribunal’s error and directs refund where a typographical omission led to an unnecessary remand on the issue of unjust enrichment.

Issue

  1. Whether the assessee is entitled to a cash refund of service tax paid under the reverse charge mechanism (RCM) where the corresponding Cenvat credit was reversed before the transition to the GST regime.
  2. What is the correct course of action for a High Court when the Appellate Tribunal, due to a clear typographical error (omission of the word “no”) in quoting a binding precedent, wrongly remands a matter to the adjudicating authority to examine the bar of unjust enrichment, when the precedent itself had held that unjust enrichment was not applicable?

Facts

The assessee had paid service tax under the reverse charge mechanism during the pre-GST era. It had initially taken Cenvat credit for this tax payment but subsequently reversed the credit entry in its books. Following the transition to GST, the assessee filed a claim for a cash refund of the service tax paid, as the credit was no longer usable. This refund claim was rejected by both the Adjudicating Authority and the first Appellate Authority.

The assessee then appealed to the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Tribunal, in its order, referred to and extracted portions from its own judgment in OSI Systems Pvt. Ltd. v. CCT, which had dealt with an identical factual scenario. While quoting the relevant paragraph from the OSI Systems judgment, the Tribunal inadvertently omitted the crucial word “no” from the phrase “no unjust enrichment”.

Because of this typographical error, the Tribunal mistakenly concluded that the issue of unjust enrichment needed to be examined. Consequently, while it set aside the lower authorities’ orders, it remanded the matter back to the Adjudicating Authority solely for the purpose of verifying whether the refund was barred by unjust enrichment, instead of ordering the refund outright. The assessee approached the High Court against this limited remand.

Decision

The High Court ruled decisively in favour of the assessee, modifying the Tribunal’s order and directing the Adjudicating Authority to grant the refund within a specified timeframe.

The High Court reasoned as follows:

  1. Error Apparent on Record: The omission of the word “no” from the extracted portion of the OSI Systems judgment was a clear and admitted error apparent on the face of the record.
  2. Incorrect Conclusion by Tribunal: The Tribunal’s decision to remand the matter was a direct consequence of this error. Had the precedent been quoted correctly (i.e., with the word “no”), it would have been clear that the principle of unjust enrichment was not applicable in such cases. The factual matrix in OSI Systems was identical to the assessee’s case.
  3. Correction of the Order: The High Court held that the Tribunal, upon realizing the error, should have allowed the assessee’s appeal in full and directed the refund. Remanding the matter based on a mistake was incorrect. The High Court, therefore, stepped in to correct this error.
  4. Direction for Refund: The Court set aside the part of the Tribunal’s order that remanded the matter. It directed the Adjudicating Authority to grant the refund to the assessee, effectively bringing the litigation to a close.

Key Takeaways

  • Refund of RCM Tax on Credit Reversal: Service tax paid under RCM, for which Cenvat credit was taken and subsequently reversed before the GST transition, is eligible for a cash refund under the transitional provisions (Section 142 of the CGST Act).
  • Unjust Enrichment Not Applicable: In such scenarios, where the tax paid under RCM is not passed on to any customer and the credit is reversed, the bar of unjust enrichment does not apply. The economic burden of the tax remains with the assessee.
  • Rectification of Errors: Courts have the power to rectify errors that are apparent on the face of the record. A typographical error in an order that leads to an incorrect legal conclusion is a classic example of such an error.
  • Avoiding Needless Litigation: Higher judicial forums will intervene to prevent unnecessary further rounds of litigation. When the legal position is clear and settled by precedent, and a lower forum errs due to a factual mistake, the higher court will often provide the final relief itself rather than remanding the case.
HIGH COURT OF CALCUTTA
IPSEN Technologies (P.) Ltd.
v.
Commissioner of CGST and CX Kolkata South Commissionerate
T.S. SIVAGNANAM, CJ.
and CHAITALI CHATTERJEE (DAS), J.
CEXA No. 13 of 2025
IA No. GA 1 of 2025
MAY  21, 2025
Dipankar Majumdar, Sarangam Chakraborty, Ms. Deblina Chattaraj and Ms. Aishi Pal, Advs. for the Appellant. Bhaskar Prosad Banerjee and Kaustav Kanti Maity, Advs. for the Respondent.
ORDER
1. This appeal has been filed by the assessee under Section 35G of the Central Excise Act, 1944 (the Act) challenging the order passed by the learned Customs, Excise & Service Tax Appellate Tribunal (Tribunal), Eastern Zonal Bench, Kolkata in Service Tax Appeal No. 75798 of 2024 dated 04.09.2024 and the rectification order in Service Tax (ROM) Application No.75650 of 2024 dated 11.02.2025.
2. The assessee has raised the following substantial questions of law for consideration:
I)Whether the Learned Tribunal erred in law as well as in fact in not appreciating that in cases where refund of tax is sought for tax paid under Reverse Charge Mechanism the question of unjust enrichment does not arise ?
II)Whether the Learned Tribunal erred in law as well as facts by expanding the scope of dispute before itself in respect of issues, which were never raised in the underlying show cause notice ?
III)Whether the Learned Tribunal erred in law as well as fact by reminding the case of the appellant to the adjudicating Authority for determination of the issued of is enrichment, even though the refund prayed by the appellant was allowed ?
IV)Whether the Learned Tribunal erred in law as well as fact while passing the rectification order by disallowing the prayer of the appellant for modification of the operative portion of the order, despite recording of existence of factual errors at the time of passing the final order ?
3. We have heard Mr. Dipankar Majumdar, learned Counsel appearing for the appellant/assessee and Mr. Bhaskar Prosad Banerjee, learned standing Counsel assisted by Mr. Kaustav Kanti Maity, learned Advocate for the respondent/revenue.
4. The assessee preferred the appeal before the Tribunal challenging the order passed by the Commissioner of CGST & CX, Kolkata, Appeal-I dated 06.12.2023 by which the Commissioner of Appeals affirmed the Order-in-original dated 28.02.2019.
5. By the said Order-in-original, the Adjudicating authority rejected the appellant’s claim for refund for violation and mis-interpretation of Circular No. 207/5/2017- Service Tax dated 28th September, 2017 read with Section 142(9)(b) of CGST Act, 2017, Rule 7 of the Point of Taxation Rules, 2011 and Rule 7B of the Service Tax Rules, 1994. The provision envisaged under Section 174 of the CGST Act, 2017 was also made applicable to the said order. The Appellate authority concurred with the view taken by the Adjudicating authority and rejected the appeal. The correctness of these orders was questioned before the learned Tribunal.
6. The assessee relied upon Circular No.341/34/2010-TRU dated 31st March, 2011 where the applicable point of taxation has been illustrated by way of an example in respect of cases where part payments were made for receipt of services. The assessee also contended that the Circular dated 28th September, 2017 was issued to clarify the position as to the details of credit arising out of service tax paid under reverse charge mechanism after 30th June, 2017 would be reflected in the service tax return in the transitional forms under GST. Further, the assessee contended that the service tax paid under reverse charge mechanism was eligible credit and the same was indefeasible in nature and in this regard placed reliance on the decision of the Hon’ble Supreme Court in the case of Collector of Central Excise v. Dai Ichi Karkaria Ltd. 1999 (112) ELT 353 (SC). Further, the assessee contended that they are eligible for refund of CENVAT Credit as claimed in its refund application in terms of Section 142(9)(b) of the CGST Act, which makes it apparent that upon fulfilling the conditions listed hereunder the amount which is in the nature of admissible CENVAT Credit or which is refundable, the same becomes refundable in cash under the existing law notwithstanding anything to the contrary contained in the said law other than the provisions of sub-Section 2 of Section 1B of the Central Excise Act, 1944. An alternate submission was also made that their refund claim is also eligible to be allowed in terms of Section 142(3) of the CGST Act. The grounds canvassed by the assessee did not find favour with the Appellate Authority who rejected the appeal which was put to challenge before the learned Tribunal. The learned Tribunal accepted the case of the assessee and in doing so followed the decision of the co-ordinate Bench of the Tribunal in Circor Flow Technologies India (P.) Ltd. v. Principal Commissioner of GST & Central Excise GSTL 63 (Chennai – CESTAT)/[(2022-VIL-15-CESTAT-CHE-ST)]; and OSI Systems Pvt. Ltd. v. CCT [Service Tax Appeal No. 30086 of 2022, dated 16-9-2022]/[2022 (9) TMI 801 -CESTAT Hyderabad]. In the order passed by the learned Tribunal dated 4.9.2024, the relevant paragraph of the above two judgments were extracted and agreed with the contentions raised by the appellant that the decision in OSI Systems Pvt. Ltd (supra). would be applicable to the assessee’s case. But however, in the penultimate paragraph of the order dated 4.9.2024, the learned Tribunal while setting aside the order and allowing the appeal, remanded the matter to the Adjudicating authority for the purpose of considering whether there is a bar of unjust enrichment. To be noted that this plea of unjust enrichment was never the case of the department as could be seen from the show cause notice as well as the order of admission and the order passed by the Appellate Authority. The mistake occurred on account of the fact that while extracting the decision in the case of OSI Systems Pvt. Ltd (supra)., the word “no” before the word “unjust enrichment” was omitted. Consequently, the Tribunal appears to have been of the view that the only point to be considered is whether the word “unjust enrichment” is applicable. Having noted the error, the assessee filed an application for rectification of the order dated 4.9.2024. The applicant pointed out two errors which are apparent on the face of the order passed by the learned Tribunal dated 4.9.2024. The first being that the Tribunal has observed that the assessee paid the license fees on 17th March, 2017 when the erstwhile provisions of service tax was in force but reversed the credit on 26th September and October, 2017. This finding, according to the assessee, was erroneous since the service tax paid subsequently to the implementation of GST of which refund was sought for was paid by the assessee under reverse charge mechanism and therefore, what was recorded by the learned Tribunal was factually incorrect. The next error which was pointed out was the omission of the word “no” in the extracted portion of the decision in the case of OSI Systems Pvt. Ltd (supra). The said application for rectification was considered by the Tribunal and the case of the assessee was accepted and the word “no” was inserted in paragraph 3.1 of the order passed by the learned Tribunal dated 11.2.2025. In the rectification application another prayer was made by the assessee to grant refund without subjecting the assessee for further verification by the adjudicating authority. This prayer was rejected by the learned Tribunal in paragraph 4 of the order dated 11.2.2025. Therefore, the assessee is on appeal.
7. The learned Tribunal having accepted the fact that there is an error apparent on the face of the order inasmuch as the word “no” was missed out while extracting the relevant portion of the decision in the case of OSI Systems Pvt. Ltd (supra)., the Tribunal ought to have noted that the consequence thereof would be to allow the appeal of the assessee and direct the Adjudicating authority to grant refund within a time-frame. In fact, the factual position in OSI Systems Pvt. Ltd (supra)., is identical to that of the case of the assessee. Therefore, the conclusion of the learned Tribunal that the assessee sought for modification of the earlier order dated 4.9.2024 is incorrect since if the word “no” is inserted in the appropriate place then the judgment in OSI Systems Pvt. Ltd. will fully apply to the facts and circumstances of the assessee’s case and consequently, they would be entitled for refund.
8. In the light of the above, the appeal filed by the assessee is allowed and the order passed by the learned Tribunal is set aside and the substantial questions of law are answered in favour of the assessee and the Adjudicating authority is directed to grant refund within a period of 60(sixty) days from the date of receipt of the server copy of this order.
The stay petition (GA/1/2025) also stands allowed.