2022 (11) TMI 150 - AT - Service Tax

Rejection of refund of penalty deposited, after passing of the order-in-original - short payment of service tax - case of appellant is that since they have deposited entire amount of service tax with interest before issuance of show cause notice, no show cause notice should have been issued to them in terms of provisions of Section 73(3) of the Finance Act, 1994 - applicability of principles of unjust enrichment - time limitation - HELD THAT - It is held that, for refund of penalty, which has admittedly been deposited after passing of the order-in-original dated 26.03.2013, no limitation applies. Further, in the facts and circumstances, the provisions of unjust enrichment are not attracted as the burden of penalty is borne by the appellant and has not been passed on to their service receivers. Moreover, it is found that the refund arising pursuant to being successful in appeal, is available to an assessee under the provisions of Section 35 FF of the Central Excise Act. For this reason also, no limitation is applicable. The Adjudicating Authority is directed to grant refund of Rs.1,98,773/- with interest from the date of deposit till the date of refund - appeal allowed.

Summary

Issues:
Rejection of refund of penalty deposited after passing of the order-in-original.

Analysis:
The appellant, a hotel registered under Service Tax for Mandap Keeper Services, faced a show cause notice for service tax short paid/not paid. The Adjudicating Authority confirmed the service tax demand and imposed penalties under Section 77 & 78 of the Finance Act, 1994. The appellant deposited the penalty amounts as directed. The appellant appealed the order-in-original, arguing that since they had paid the entire service tax with interest before the show cause notice, no notice should have been issued. The Commissioner (Appeals) allowed the appeal, stating that penalties were not applicable. Subsequently, the appellant filed a refund claim for the penalty amount, which was rejected by the Asstt. Commissioner due to limitation and unjust enrichment. The Commissioner (Appeals) upheld the rejection.

The appellant contended that no limitation applied to the refund of penalty under Section 11B(1) of the Central Excise Act, 1944, as the penalty was deposited after adjudication and not passed on to others. Citing the Cooper Pharma case, the appellant argued that since Section 11B does not specifically mention refund of penalty, the time limit prescribed therein did not apply. The appellant prayed for the appeal to be allowed based on this argument. The Authorized Representative relied on the impugned order-in-appeal.

The Tribunal held that no limitation applied to the refund of penalty deposited after the order-in-original. The provisions of unjust enrichment did not apply as the penalty burden was borne by the appellant and not transferred to service receivers. Refund arising from a successful appeal was deemed available to the assessee under Section 35FF of the Central Excise Act, thus no limitation was applicable. Consequently, the Tribunal allowed the appeal, directing the Adjudicating Authority to grant a refund of Rs.1,98,773/- with interest from the date of deposit till the date of refund.