2011 (6) TMI 27 - HC - Service Tax

Refund - Interest on refund - Assessee has produced both the Profit and Loss Account and a certificate of the Chartered Accountant in relation to which refund was claimed had been paid and that the incidence of such tax had not been passed on - Commissioner (Appeals) while remanding the proceedings had by an order dated 15-10-2010 directed the adjudicating authority to decide the refund claim along with interest under section 11BB - Interest is allowed on refund

Summary

Issues:
Challenge to disallowance of interest on a claim for refund under section 11BB of the Central Excise Act, 1944.

Analysis:
1. The petitioners challenged an order disallowing interest on a refund claim under Article 226 of the Constitution. They claimed that the disallowance was contrary to section 11BB of the Central Excise Act, 1944 and a previous finding by the Commissioner (Appeals) dated 15-10-2010.

2. The petitioners had applied for service tax registration in anticipation of importing intellectual property services. They deposited a sum under a TR 6 challan but did not receive permission to remit funds abroad until after the deadline, resulting in a failed acquisition. They filed a refund claim, which was initially rejected due to lack of evidence, but later allowed by the Commissioner (Appeals) on the basis of submitted documents.

3. Upon remand, the Deputy Commissioner sanctioned the refund but declined to grant interest under section 11BB, citing timely submission of documents and attendance at a personal hearing as reasons for disallowance. The petitioners argued that once the refund claim was allowed, interest under section 11BB became statutory, as they had submitted all necessary documents as per the Commissioner (Appeals) order.

4. The respondents contended that the Deputy Commissioner's decision was appealable, as the petitioners had submitted documents at a later stage. However, the court held that the entitlement to interest under section 11BB is automatic once the conditions are met, and the petitioners had fulfilled the requirements initially, rendering the reasons for disallowance suspicious.

5. The court found that the petitioners were entitled to interest under section 11BB, as the application was complete with all necessary documents submitted initially. The order of the Deputy Commissioner disallowing interest was set aside, and the petitioners were granted interest as permissible under section 11BB after a specified period from the date of the refund application.

6. The petition was allowed, and the order of the Deputy Commissioner was overturned, granting the petitioners the entitled interest under section 11BB. The court emphasized that once the conditions for refund are met, the entitlement to interest is a statutory mandate.