2025 (3) TMI 743 - AT - Service Tax

Rate of Interest on Refund - Rejection of appellant s prayer for higher rate of interest of 12% instead of the notified rate of 6% for deposits under section 35FF - nature of the amount deposited by the appellant during investigation towards service tax which was appropriated by the adjudicating authority towards confirmed demand of service tax - interest on refund of the above amount as prescribed under section 11 BB under section 35FF of the Central Excise Act 1944 as made applicable to Service Tax by virtue of section 80 of the Finance Act 1994. How should an amount which has been deposited as service tax but which subsequently became refundable consequent upon an order of the tribunal or courts be treated. Will it be a service tax pre-deposit or just a revenue deposit? - HELD THAT - There are no separate provisions for refund of service tax under Chapter V of the Finance act 1994 Finance Act . The provisions of sections 11B 11BB 35F 35FF have been made applicable to service tax by section 83 of the Finance act 1994. Section 11B deals with refund of excise duty and when applied to service tax it deals with refund of service tax. Section 11BB deals with interest on refund under section 11B - vidently section 11B covers situations where the duty becomes refundable as a consequence of an order or judgment by the Tribunal or any Court which is precisely the case here. The submission of the appellant is that what it had paid was not duty at all because no duty was payable. To examine this submission what needs to be examined what is the situation under which a duty becomes refundable. If the amount which is paid as duty is due it will not be refundable at all. If it is not payable as duty then it becomes refundable under section 11B. Who and what factors will determine if the amount paid as duty was payable or not? - HELD THAT - This question was dealt with at length by the larger bench of the Supreme Court in ITC LTD. Vs. Commissioner Of Central Excise Kolkata-Iv 2019 (9) TMI 802 - SUPREME COURT (LB) . In this judgment the Supreme Court dealt with a batch of appeals dealing with the question as to whether refund can be sanctioned so as to modify the assessment including self-assessment. The Supreme Court held that refund proceedings are in the nature of execution proceedings and refund cannot be sanctioned so as to modify the assessment including self-assessment. The person seeking modification of the assessment has to assail it in an appeal and refund can be sanctioned only after the assessment is modified. In this case the SCN issued by the department proposing demand of service tax effectively modifying the assessment. This proposal was confirmed by the lower authorities. The amounts paid by the appellant during investigation were appropriated towards the service tax. Had there been no appeal or further orders by this Tribunal the amount paid by the appellant would have been Service tax. The distinction between refund of pre-deposit made under section 35F and duty or service tax paid under section 11B is that the pre-deposit under section 35F can be a percentage of duty fine or penalty. It must be deposited as a pre-condition for filing an appeal. If the pre-deposit is not made there will be no right of appeal to the person aggrieved by the order. Section 11B on the other hand provides for refund of duty or service tax. If an amount is already paid as duty or service tax it is reckoned while computing if any further amount needs to be paid to meet the mandatory requirement of pre-deposit under section 35F. Merely because such adjustment is made the amount paid as service tax or fine or penalty does not become pre-deposit under section 35F. Conclusion - What was paid by the appellant was service tax as determined by the lower authorities in the adjudication proceedings. If there was no further order nothing would have been refundable. However the order of the adjudicating authority was modified by this Tribunal setting aside the demand. Therefore the service tax became refundable as per section 11B and the relevant date for the purpose was the date of the order of the Tribunal. If there was any delay in sanctioning of the refund interest must be paid as per section 11BB. Matter remanded to the Assistant Commissioner to examine and sanction refund under section 11B along with interest under section 11BB. It is made clear that the appellant had already made an application in the form of a letter which was processed and no new application is required. Only the amount of interest may be recalculated as per section 11BB instead of as per section 35FF. The impugned order is set aside and the matter is remanded to the Assistant Commissioner.

Summary

ISSUES PRESENTED and CONSIDERED

A) What is the nature of the amount deposited by the appellant during the investigation towards service tax, which was appropriated by the adjudicating authority towards a confirmed demand of service tax, which was, on appeal, set aside by the tribunal?

B) Will the appellant be entitled to interest on the refund of the above amount as prescribed under section 11BB under section 35FF of the Central Excise Act, 1944, as made applicable to Service Tax by virtue of section 80 of the Finance Act, 1994, or at 12% per annum as claimed by the appellant?

ISSUE-WISE DETAILED ANALYSIS

Issue A: Nature of the Amount Deposited

- Relevant legal framework and precedents: The legal framework involves sections 11B and 11BB of the Central Excise Act, 1944, as applicable to service tax through section 83 of the Finance Act, 1994. The Supreme Court's decision in ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV is pivotal in understanding the nature of deposits and refund procedures.

- Court's interpretation and reasoning: The Tribunal determined that the amount deposited by the appellant during the investigation was treated as service tax. This determination was based on the fact that the amount was appropriated towards the confirmed demand of service tax by the adjudicating authority. The Tribunal's subsequent order setting aside the demand rendered the amount refundable.

- Key evidence and findings: The appellant deposited the amount during an investigation, which was appropriated by the adjudicating authority. The Tribunal's order set aside the demand, making the amount refundable.

- Application of law to facts: The Tribunal applied section 11B, which covers situations where duty becomes refundable due to a judgment or order. The Tribunal concluded that the amount was service tax, which became refundable following its order.

- Treatment of competing arguments: The appellant argued that the amount was a 'Revenue deposit' and not service tax or a pre-deposit. The Tribunal rejected this argument, stating that the amount was appropriated towards service tax and became refundable upon the Tribunal's order.

- Conclusions: The Tribunal concluded that the amount deposited was service tax, which became refundable under section 11B following the Tribunal's order setting aside the demand.

Issue B: Entitlement to Interest on Refund

- Relevant legal framework and precedents: The legal framework involves sections 11BB and 35FF of the Central Excise Act, 1944, regarding interest on refunds. The appellant claimed interest at 12% per annum, while the Revenue applied a 6% rate as per section 35FF.

- Court's interpretation and reasoning: The Tribunal reasoned that the interest on the refundable amount should be governed by section 11BB, not section 35FF. The Tribunal emphasized that the amount was service tax, not a pre-deposit, and thus section 35FF was inapplicable.

- Key evidence and findings: The appellant received a refund with 6% interest, which was contested. The Tribunal found that the interest should be recalculated under section 11BB.

- Application of law to facts: The Tribunal applied section 11BB, which mandates interest on refunds when there is a delay in sanctioning the refund. The Tribunal directed the Assistant Commissioner to recalculate interest under section 11BB.

- Treatment of competing arguments: The appellant's claim for 12% interest was based on equity, arguing that statutory provisions did not apply. The Tribunal rejected this, applying statutory provisions for interest.

- Conclusions: The Tribunal concluded that interest should be recalculated under section 11BB, not section 35FF, and directed the Assistant Commissioner to do so.

SIGNIFICANT HOLDINGS

- Core principles established: The Tribunal established that amounts deposited as service tax during investigations, which become refundable due to a Tribunal order, are subject to refund procedures under section 11B. Interest on such refunds is governed by section 11BB, not section 35FF.

- Final determinations on each issue: The Tribunal determined that the amount was service tax, refundable under section 11B, with interest recalculated under section 11BB. The Tribunal set aside the impugned order and remanded the matter to the Assistant Commissioner for recalculating interest.

- Verbatim quotes of crucial legal reasoning: "Therefore, on the facts of this case and the law laid down by Supreme Court in ITC Ltd., the amount paid by the appellant was Service Tax which became refundable consequent upon the order of this Tribunal. Such refunds are payable as per section 11B and the relevant date for applying for such refunds as per Explanation B (ec) to section 11B is the date of the order of the Tribunal or the judgment of the Court."

The Tribunal's decision underscores the importance of adhering to statutory provisions for refund and interest calculations, rejecting claims based on equity when statutory provisions are clear and applicable.