2025 (7) TMI 220 - AT - Service Tax

Rejection of appeal as not maintainable - Interest on refund claim - refund granted within 90 days from the date of application for refund or not - relevant date for calculation of interest - rate of interest. Relevant date for calculation of interest - HELD THAT - In the present case admittedly the appellant had deposited Rs. 33, 73, 971/- towards their purported service tax liability during the course of investigations. In view of the decision of this Tribunal in M/S. HARISONS INDUSTRIES VERSUS COMMISSIONER OF SERVICE TAX KOLKATA 2021 (12) TMI 182 - CESTAT KOLKATA allowing the appeal filed by the appellant with consequential relief there is no service tax liability payable by the appellant. Thus the amount paid by the appellant during investigation takes the shape of a pre deposit made during investigation and not service tax payment. Thus the provisions of section 11B of the Central Excise Act 1944 made applicable to service tax matters by Section 83 of the Finance Act 1994 are not attracted for the refund of the amount predeposited during the course of investigation. Once the appellant succeeds in his appeal the amount prdeposited is to be returned to the appellant along with interest. There is no need for filing any application for this refund as provided under Section 11B of the Central Excise Act 1944. Refund of the amount deposited along with interest is payable automatically. The appellant are entitled for granting of interest from the date of deposit during the course of investigation till the date of refund. Rate of Interest - HELD THAT - As per the decision of the Hon ble Apex Court interest at the rate of 12% is payable when the amount deposited during the course of investigation is refunded later - the appellant is liable to be paid the refund along with interest @12%. Maintainability of appeal - HELD THAT - The ld. adjudicating authority has given his reasons for not granting interest vide his letter dated 16.02.2023. Thus under these circumstances since the reasons for rejection of interest had been spelt out for the first time in the purported communication dated 16.02.2023 the appellant challenged the letter communicating the rejection of interest. Hence there is no merit in the impugned order passed by the Commissioner (Appeals) in rejecting the appeal as not maintainable. Further it is observed that while granting refund interest is automatically payable along with the refund. If interest is not granted automatically there is no time limit fixed for claiming the interest. Thus the impugned order rejecting the appeal filed by the appellant on the ground of maintainability is not sustainable The impugned order rejecting the appeal filed by the appellant on the ground of maintainability is not sustainable - the appellant are entitled to grant of interest @ 12% per annum from the date of deposit during the course of investigation till the date of refund - Appeal disposed off.

Summary

The core legal questions considered by the Tribunal revolve around the appellant's entitlement to interest on the refund of an amount deposited under a show cause notice during the course of investigation, specifically:

1. Whether the appeal filed by the appellant against the rejection of interest on the refunded amount was maintainable, given that the original refund order did not expressly reject the claim for interest.

2. Whether interest is payable on the refund of amounts deposited during the course of investigation, which were subsequently held not to be payable service tax liabilities.

3. The applicability of statutory provisions, particularly Sections 11B, 11BB, 35F, and 35FF of the Central Excise Act, 1944 (as made applicable to service tax under Section 83 of the Finance Act, 1994), and the relevance of Section 85 of the Finance Act, 1994, regarding appeals.

4. The appropriate rate of interest payable on such refunded amounts and the legal basis for awarding interest.

Issue 1: Maintainability of the Appeal

The appellant challenged the rejection of their claim for interest on the refund amount. The Commissioner (Appeals) had rejected the appeal on the ground that the appellant had not challenged the original refund order dated 05.07.2022, which sanctioned the refund but did not expressly address the issue of interest.

Relevant legal framework includes the provisions of Section 85 of the Finance Act, 1994, which governs the filing of appeals against orders passed by adjudicating authorities.

The appellant contended that since the original refund order neither granted nor rejected interest, it was unclear whether the claim for interest was formally rejected. The rejection of interest was communicated only later by a letter dated 16.02.2023, which the appellant challenged. The appellant argued that the appellate authority erred in holding the appeal as not maintainable.

The Tribunal observed that the original order sanctioning the refund was not a speaking order on the issue of interest. The reasons for rejection of interest were first articulated in the subsequent communication dated 16.02.2023. Thus, the appellant's challenge was properly directed against the communication rejecting interest.

In light of this, the Tribunal set aside the impugned order rejecting the appeal on maintainability grounds, holding that the appeal was maintainable.

Issue 2: Entitlement to Interest on Refund of Pre-Deposit Made During Investigation

The appellant had deposited Rs. 33,73,971/- during the course of investigation pursuant to a show cause notice demanding service tax. The CESTAT later allowed the appellant's appeal, holding that no service tax liability was payable. Consequently, the appellant applied for refund of the deposited amount, which was sanctioned without interest.

The legal question was whether interest was payable on such refunds of amounts deposited during investigation but later held not to be due.

Section 11B of the Central Excise Act, 1944, as made applicable to service tax by Section 83 of the Finance Act, 1994, provides for refund of duty paid and interest on delayed refunds. However, the Tribunal noted that Section 11B applies to refund claims of duty of excise and does not extend to amounts paid under mistake or without authority of law.

The Tribunal relied heavily on precedents, notably the Karnataka High Court decision in Commissioner of Central Excise, Bangalore v. KVR Construction, which held that amounts paid under a mistaken notion and not constituting duty are outside the ambit of Section 11B. The Court reasoned that if the department lacked authority to levy the tax, the amount paid cannot be considered duty and thus must be refunded with interest, notwithstanding the absence of a specific statutory provision for interest.

Further, the Tribunal referenced the Larger Bench decision in Credible Engineering v. Commissioner, upheld by the Telangana High Court, which affirmed that limitation provisions under Section 11B do not bar refund claims where tax was paid as a mistake of law. The Delhi High Court's decision in Hind Agro Industries Ltd. was also cited, reinforcing that Mafatlal Industries Ltd. (a Supreme Court decision) does not apply to mistaken payments of tax under other enactments.

Applying these precedents, the Tribunal concluded that the appellant's deposit during investigation was a pre-deposit made under mistake and not a service tax payment. Therefore, the appellant was entitled to refund with interest automatically, without the need for a separate application under Section 11B.

Issue 3: Applicability of Relevant Statutory Provisions and Procedure

The appellant argued that the appellate authority failed to consider provisions of Sections 11B, 11BB, 35F, and 35FF of the Central Excise Act, as applicable to service tax matters, and erred in not applying Section 85 of the Finance Act regarding appeals.

The Tribunal observed that the refund was sanctioned under Section 35F of the Excise Act read with Circular No. 984/08/2014-CX, which deals with refund of pre-deposits made during investigation. Section 11BB, which deals with interest on delayed refunds, was held not attracted in the case of pre-deposits made under mistake of law.

The Tribunal noted that the refund was granted within the stipulated 90-day period from the date of application, which under Section 11BB negates entitlement to interest for delay in refund. However, since the refund related to a mistaken payment, the appellant was entitled to interest not under Section 11BB but as a matter of principle and consistent judicial precedents.

Regarding the appeal procedure, the Tribunal held that since the rejection of interest was first communicated by letter dated 16.02.2023, the appeal was maintainable under Section 85 of the Finance Act.

Issue 4: Rate of Interest Payable

The appellant claimed interest at 12% per annum, relying on the Supreme Court decision in Sandvik Asia Ltd. v. Commissioner of Income Tax, which held that interest is payable on delayed refunds of amounts lawfully due to the taxpayer.

The Tribunal reproduced extensive excerpts from the Sandvik Asia judgment, emphasizing the principle that interest on delayed refunds is compensatory and must be paid even if the delay is attributable to erroneous views taken by the revenue. The Court underscored that withholding of monies unlawfully is wrongful regardless of justifications claimed by the revenue.

The Tribunal also cited decisions of the Calcutta High Court and various CESTAT benches, which consistently awarded interest at 12% per annum on delayed refunds of pre-deposits made during investigations.

Accordingly, the Tribunal held that the appellant was entitled to interest at 12% per annum from the date of deposit till the date of refund.

Application of Law to Facts and Treatment of Competing Arguments

The Tribunal carefully examined the factual matrix: the appellant had deposited the amount under a show cause notice, the CESTAT allowed the appellant's appeal, and the refund was sanctioned without interest. The appellant's claim for interest was initially not addressed in the refund order but later rejected by communication.

The revenue argued that refund was granted within 90 days and hence no interest was payable under Section 11BB. The Tribunal distinguished this statutory provision from the principle applicable to mistaken payments, relying on judicial precedents that carve out an exception for such cases.

The Tribunal rejected the revenue's contention that the appeal was not maintainable, holding that the rejection of interest was communicated only after the refund order and thus appeal against that communication was valid.

The appellant's contention that the amount was illegally retained and hence interest was payable was accepted, with the Tribunal relying on authoritative judicial pronouncements affirming this principle.

Conclusions and Significant Holdings

The Tribunal set aside the impugned order rejecting the appeal on maintainability grounds, holding that the appeal was maintainable as it challenged the communication rejecting interest, not the refund order itself.

It was held that the appellant was entitled to interest on the refund of the amount deposited during investigation, as the amount was paid under a mistaken notion and not constituting service tax liability.

The Tribunal emphasized that Section 11B of the Central Excise Act and related provisions do not apply to such mistaken payments, and interest is payable as a matter of principle and consistent judicial precedent.

Regarding the rate of interest, the Tribunal held that interest at 12% per annum is payable from the date of deposit to the date of refund, relying on the Supreme Court's decision in Sandvik Asia Ltd. and corroborative High Court and Tribunal decisions.

The Tribunal further noted that the refund order was not a speaking order on interest, and the reasons for rejection were first communicated later, which justified the appellant's appeal.

In conclusion, the Tribunal ordered that the appellant is entitled to refund of Rs. 33,73,971/- along with interest @ 12% per annum from the date of deposit during investigation till the date of refund, and the appeal was disposed accordingly.