CESTAT Chennai Grants SAD Refund to Importer, Pulls Up Customs Department for Misplaced Records and Procedural Rejection

June 2, 2026 : In a significant ruling reinforcing the principle that substantive tax benefits cannot be denied on mere procedural lapses, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai, has allowed a refund claim of over ₹18.82 lakh filed by M/s Cape Electric Corporation under the Special Additional Duty (SAD) refund scheme. The Tribunal held that Customs authorities cannot reject a refund claim based on deficiencies in reconstructed documents when the original records were admittedly misplaced by the department itself.

The dispute arose from three SAD refund claims filed by the importer under Notification No. 102/2007-Cus., which grants refund of Special Additional Duty paid at the time of import when the imported goods are subsequently sold on payment of VAT or Sales Tax. The total refund sought by the company amounted to ₹18,82,526 in relation to imports covered under 27 Bills of Entry.

Initially, Customs authorities rejected the claims on the ground that certain sales invoices allegedly lacked the prescribed endorsement stating that CENVAT credit of the additional customs duty was not admissible. The matter was later remanded by the appellate authority for verification. However, during the remand proceedings, the department misplaced the original refund files and asked the importer to reconstruct the records by submitting available copies of invoices and supporting documents. Despite the department’s own failure to preserve the original records, the refund claims were once again rejected on the basis that some reconstructed invoice copies did not contain the required endorsement.

Appearing for the appellant, counsel argued that all necessary documents, including Bills of Entry, TR-6 challans, VAT payment records, sales invoices and Chartered Accountant certificates, had originally been furnished and verified by the authorities. The appellant contended that the department could not rely on discrepancies in reconstructed records after admitting that the original files had been lost. It was also submitted that any omission in endorsement related only to a limited number of office copies and that the company had voluntarily agreed to proportionate reduction of refund corresponding to such invoices.

After examining the record, the Tribunal found that the central issue was whether SAD refund claims could be denied solely due to endorsement-related defects in certain invoices, particularly when the department had lost the original records and the claimant had reconstructed the file at the department’s request.

The Bench comprising Technical Member Vasa Seshagiri Rao and Judicial Member Ajayan T.V. noted that the original adjudicating authority had itself recorded verification of the invoices during the initial proceedings. Therefore, the department could not later raise doubts about the existence or authenticity of those very documents after misplacing them.

The Tribunal observed, “Once the original adjudicating authority itself acknowledged verification of the invoices, it becomes impermissible for the department to subsequently cast adverse doubt regarding existence or production of those very invoices after admittedly misplacing the original records.”

The judgment extensively discussed the purpose of Notification No. 102/2007-Cus., which was introduced to eliminate the cascading effect of taxation and prevent double taxation of imported goods. The Tribunal emphasized that the notification is a beneficial scheme intended to neutralize the burden of Special Additional Duty and should not be defeated by hyper-technical interpretations of procedural requirements.

Relying on the Larger Bench decision in Chowgule & Co. Pvt. Ltd. v. Commissioner of Customs and several subsequent rulings, the Tribunal reiterated that the endorsement requirement is procedural in nature. Where payment of SAD at the time of import and subsequent sale of goods on payment of VAT or Sales Tax are established, refund cannot be denied merely because of defects in invoice endorsements.

The Tribunal further held that the endorsement made by the appellant, stating that “No CENVAT Credit Admissible in Respect of 4% CVD,” substantially satisfied the purpose of the notification. According to the Bench, exact reproduction of the notification’s wording is not mandatory if the underlying objective of preventing wrongful credit availment is fulfilled.

Importantly, the Tribunal found that Customs authorities never disputed the actual payment of Special Additional Duty at the time of import or the subsequent VAT-paid sale of the imported goods. Documentary evidence such as Bills of Entry, duty payment challans, VAT records, correlation statements and Chartered Accountant certificates sufficiently established compliance with the substantive conditions of the refund scheme.

The judgment also highlighted serious administrative lapses within the department. The Tribunal noted that the matter remained pending for several years after remand and that the importer was eventually compelled to approach the Indirect Tax Ombudsman because of departmental inaction. Ombudsman proceedings had reportedly recorded concern over the loss of refund files and recommended initiation of disciplinary action against responsible officials.

Expressing concern over the consequences of departmental negligence, the Tribunal observed that adverse consequences arising from missing files could not be imposed on a taxpayer who had complied with statutory requirements and cooperated in reconstructing the record. The Bench held that evidentiary difficulties created by the department’s own lapses cannot be used as grounds to deny lawful refunds.

The Tribunal ultimately set aside the Order-in-Appeal dated September 29, 2016, along with the underlying orders rejecting the refund claims. It directed that the appellant be granted the SAD refund after any proportionate exclusion voluntarily accepted by the company for invoices where endorsement omissions were admitted.

In addition to the refund, the Tribunal held that the importer would be entitled to statutory interest under Section 27A of the Customs Act, 1962. The Bench noted that the refund claims had been pending since 2009 and that the prolonged delay was largely attributable to repeated adjudication proceedings and the department’s admitted loss of records.

The ruling is likely to have wider implications for importers seeking SAD refunds and other indirect tax benefits. It reinforces the established legal principle that substantive entitlements should not be defeated by procedural irregularities, particularly where taxpayers have otherwise demonstrated compliance and where administrative failures originate from the authorities themselves. The judgment also serves as a reminder that government departments have a duty to preserve records and process refund claims efficiently, without shifting the burden of their own lapses onto taxpayers.

Case Reference: M/s Cape Electric Corporation v. Commissioner of Customs, Chennai VII Commissionerate, Customs Appeal No. 40308 of 2017, Final Order No. 40675/2026.