Cess refunds granted under prevailing law are not recoverable merely because that precedent is later overruled.

The petitioner claimed refund of Education Cess and Secondary & Higher Education Cess for the periods April 2008–March 2009 and December 2010–April 2016.

Although the jurisdictional Commissionerate rejected the claim, the CESTAT, Chandigarh allowed the refund on the basis of SRD Nutrients Pvt. Ltd. v. Commissioner of Central Excise, 2018 (1) SCC 105, which held that such cess was refundable where the underlying excise duty was exempted under Notification No. 56/2002-CE dated 14 November 2002.

The Revenue’s statutory appeals before the High Court were dismissed as not maintainable, after which the refunds were released to the petitioner.

Subsequently, a three-Judge Bench in Unicorn Industries v. Union of India, 2020 (3) SCC 492, declared SRD Nutrients per incuriam and held it contrary to the earlier decision in Union of India v. Modi Rubber Ltd., 1986 (4) SCC 56.

Pursuant to show-cause notices dated 3 and 31 December 2020, the petitioner redeposited the refunded cess under protest.

After the Supreme Court’s decision in Commissioner of CGST & Central Excise (J&K) v. M/s Sarswati Agro Chemicals Ltd., the petitioner sought refund of the redeposited amounts.

Instead, the Deputy Commissioner issued the impugned show-cause notice dated 22 April 2024 proposing rejection of the refund claims.

Whether the Revenue could recover or retain the Education Cess and Secondary & Higher Education Cess refunded pursuant to final CESTAT orders applying SRD Nutrients, merely because SRD Nutrients was subsequently overruled by Unicorn Industries.

Whether the petitioner was entitled to refund of the amounts redeposited under protest pursuant to the Revenue’s show-cause notices dated 3 and 31 December 2020.

Whether such refund should be made subject to the outcome of pending Supreme Court proceedings and secured by an equivalent bank guarantee.

The Court applied the principle in SRD Nutrients Pvt. Ltd. that Education Cess and Secondary & Higher Education Cess were refundable where the underlying excise duty was exempted under Notification No. 56/2002-CE.

It also considered Unicorn Industries, which subsequently overruled SRD Nutrients as inconsistent with the larger-Bench decision in Modi Rubber.

However, relying on Sarswati Agro Chemicals Ltd., the Court held that refunds already settled under the law prevailing at the relevant time and pursuant to final orders could not be recovered merely because the legal position later changed; a subsequent overruling judgment does not reopen concluded matters, since doing so would undermine finality and open a “Pandora’s box” of litigation.

The Court also followed the approach adopted in M/s Coromandel International Ltd. and Lupin Ltd., under which the finality of decisions rendered while SRD Nutrients held the field was preserved.

The petitioner’s refunds were not voluntary or provisional payments; they had been granted pursuant to CESTAT orders based on the then-operative rule in SRD Nutrients and had effectively attained finality, except to the extent of certain belated appeals pending before the Supreme Court.

The petitioner had redeposited the amounts only because the Revenue relied on the later decision in Unicorn Industries.

Applying Sarswati Agro Chemicals, the Court held that the subsequent change in legal interpretation could not retrospectively invalidate or reopen refunds already settled under the earlier binding law.

Nevertheless, because some CESTAT orders remained under challenge and proceedings concerning the legal position were pending before the Supreme Court, the Court balanced the parties’ interests by directing refund subject to the outcome of those proceedings and requiring equivalent security in the form of a bank guarantee.

The refund was made subject to the outcome of any pending Supreme Court appeals against the CESTAT refund orders.

The petitioner was required to furnish an equivalent bank guarantee from a nationalised bank, which the Revenue could encash if it ultimately succeeded and the CESTAT refund orders were set aside, quashed, or modified.

The refund was made subject to any order passed by the Supreme Court in review or other related proceedings.