2020 (6) TMI 342 - HC - Service Tax

Claim of interest with refund of Pre-deposit made - Rate of interest - amount was deposited under protest - HELD THAT - We do not find the petitioner entitled to interest at any higher rate than @ 6% per annum from the date of deposit i.e. 27th October, 2006 till the end of May, 2018 i.e. 31st May, 2018. However, we do not find any justification for the respondents retaining the said amount thereafter and find the respondents liable for interest with effect from 1st June, 2018 onwards and till date @ 7.5% per annum. While so enhancing the rate of interest, we have also taken into consideration the noncompliance by the respondents of the orders of this Court as detailed above, leading to a contempt notice being issued to the respondents and in response whereto Ms. Niharika Gupta, Assistant Commissioner in the Office of Division-Nehru Place, Central GST, Delhi East Commissionerate is present in the Court. The respondents are expected to at least now, on or before 15th July, 2020 refund the amount of ₹ 2,38,00,000/- with interest @ 6% per annum from 1st November, 2006 to 31st May, 2018 and with interest @ 7.5% per annum from 1st June, 2018 till the date of refund on or before 31st July, 2020. However, if the said amount is not refunded by 15th July, 2020, the rate of interest with effect from 1st August, 2020 shall stand enhanced to 12% per annum. No purpose will be served in proceeding with the contempt proceedings and the contempt notice issued vide order dated 3rd March, 2020 is discharged - respondents having however indulged in frivolous litigation, are burdened with costs of ₹ 25,000/- payable to the petitioner along with the amounts with respect whereto mandamus has been issued. Petition disposed off.

Issues Involved:
1. Refund of pre-deposit of ?2,38,00,000/- with interest.
2. Legality of the respondents' refusal to refund.
3. Applicability of the Circulars dated 16th September 2014 and 10th March 2017.
4. Interest rate applicable on the refund.
5. Alleged concealment of facts by the petitioner.
6. Contempt proceedings against the respondents.

Issue-wise Detailed Analysis:

1. Refund of Pre-deposit of ?2,38,00,000/- with Interest:
The petitioner sought a mandamus directing the Assistant Commissioner, Central Tax, GST-Delhi East, to refund ?2,38,00,000/- with interest. The amount was deposited under protest during an audit/investigation from 24th July 2006 to 28th July 2006. The Tribunal allowed the petitioner's appeal on 22nd February 2018, declaring the demand barred by limitation. The respondents' appeal against this order was dismissed by the High Court on 24th August 2018.

2. Legality of the Respondents' Refusal to Refund:
The respondents refused the refund, arguing that the deposit was not a pre-deposit under Section 35F of the Central Excise Act but made under protest during an investigation. They contended that the Circular dated 16th September 2014, which mandates refunds with interest when an appeal is decided in favor of the assessee, did not apply. The Court found this reasoning illogical, emphasizing that the respondents could not retain the amount since the entire demand had been set aside by the Tribunal.

3. Applicability of the Circulars Dated 16th September 2014 and 10th March 2017:
The Circulars clarify that when an appeal is decided in favor of the assessee, the assessee is entitled to a refund with interest. The Court held that the petitioner was entitled to the refund despite the deposit being made under protest, as the demand had been set aside in its entirety.

4. Interest Rate Applicable on the Refund:
The Court awarded interest at 6% per annum from 27th October 2006 to 31st May 2018, and at 7.5% per annum from 1st June 2018 until the date of refund. If the refund is not made by 15th July 2020, the interest rate would increase to 12% per annum from 1st August 2020.

5. Alleged Concealment of Facts by the Petitioner:
The respondents argued that the petitioner had concealed facts regarding the rejection of the refund application. However, the Court dismissed this argument, stating that once the respondents were found not entitled to the monies, the alleged concealment did not justify retaining the amount.

6. Contempt Proceedings Against the Respondents:
The Court noted non-compliance with its previous orders and issued a contempt notice. However, after hearing the Assistant Commissioner, the Court discharged the contempt notice but imposed costs of ?25,000/- on the respondents for indulging in frivolous litigation.

Conclusion:
The Court directed the respondents to refund ?2,38,00,000/- with interest as specified and imposed costs on the respondents for frivolous litigation. The petition was disposed of with a mandamus issued to the respondents to comply with the refund order.

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