Subordinate Authorities Cannot Issue Qualifications not Prescribed by Law: CESTAT [Read Order]

The Allahabad Bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) recently in a ruling held that subordinate authorities cannot impose qualifications not prescribed by law.

This ruling came in the case of  one assessee/ appellant, M/s Tikkan Lal Khatri & Sons, which involved a lengthy dispute about a refund of pre-deposit and the associated interest.

The case began when a show-cause notice was issued to the assessee,  M/s Tikkan Lal Khatri & Sons, Kanpur, demanding recovery of service tax totaling Rs. 11,51,270. On May 17, 2012, the Additional Commissioner of Central Excise, Kanpur, confirmed the demand through an order.

Dissatisfied, the appellant appealed to the Commissioner (Appeals) of Central Excise and Service Tax, Kanpur. In response, the Order dated November 16, 2012, modified the initial order, reducing the service tax demand to Rs. 7,70,407 while maintaining penalties and interest under Section 78 of the Finance Act, 1994.

Get a Copy of Achieve Success: Expert-Led Courses for Tax and Finance Pros, Click here

The appellant then filed a further appeal and a stay application with the CESTAT, invoking erstwhile Section 35F of the Central Excise Act, 1944. In an order dated July 28, 2014, CESTAT conditionally stayed the demand, requiring the appellant to deposit the service tax amount along with applicable interest within four weeks. In compliance, the assessee deposited Rs. 9,20,408 (comprising Rs. 7,70,407 in tax and Rs. 1,50,000 in interest).

The case continued, and in its final order dated August 19, 2016, CESTAT remanded the matter to the adjudicating authority for reconsideration. Upon review, the adjudicating authority confirmed the service tax demand at a slightly revised amount of Rs. 8,21,986 in an order dated March 23, 2017. Once again, the appellant appealed to the Commissioner (Appeals), which resulted in a further modification of the demand.

Continuing the dispute, the appellant filed another appeal before CESTAT, resulting in Final Order on August 1, 2019. This order set aside the previous ruling and remanded the case once again. Following this, the appellant filed a refund claim on October 15, 2019, requesting a refund of Rs. 9,20,408—the pre-deposit amount—citing the August 1, 2019, CESTAT order. The Assistant Commissioner approved this request, sanctioning a refund of Rs. 9,20,408 along with Rs. 2,65,309 in interest under Section 35FF of the Central Excise Act, amounting to a total of Rs. 11,85,717.

Get a Copy of Achieve Success: Expert-Led Courses for Tax and Finance Pros, Click here

The Revenue Department challenged this decision, asserting that interest was inappropriately granted on the pre-deposit since the original appeal was filed before August 6, 2014. According to them, under the previous provisions of Section 35FF, interest on pre-deposit refunds was only due if the refund was delayed beyond three months. They argued that the appellant’s refund request was processed within the stipulated three-month period, thereby negating eligibility for interest.

During the CESTAT proceedings, arguments were presented by both parties. Counsel for the assessee contended that the pre-deposit was made after the effective date of Section 35FF (post-August 6, 2014) and argued that interest should apply from the date of deposit per the Finance (No. 2) Act, 2014. The counsel further contended that the impugned order violated judicial principles, failed to acknowledge the appellant’s cross-objections, and was unsupported by any detailed reasoning.

The Revenue’s authorized representative reiterated the Commissioner (Appeals)’s stance, stressing  that interest was not warranted given the timeline of the original appeal.

The CESTAT bench of Mr Sanjiv Mishra examined both amended and unamended versions of Sections 35F and 35FF. It noted that the Finance Act, 2014, significantly modified these sections, differentiating between appeals filed before and after August 6, 2014. Under the new Section 35FF, interest on a pre-deposit refund is granted from the date of deposit if a decision favors the appellant. The Tribunal found that the appellant’s pre-deposit was made after the amendment, thus entitling them to interest from the date of deposit, as granted by the Assistant Commissioner.

Get a Copy of Achieve Success: Expert-Led Courses for Tax and Finance Pros, Click here

Furthermore, the Tribunal highlighted the necessity of adhering strictly to statutory language and the importance of judicial consistency. In support of this, CESTAT cited precedents from Kamalakshmi Finance Corporation Ltd. (1991) and other decisions pointing out that statutory interpretations should reflect legislative intent without imposing qualifications not expressly stated.

The Tribunal observed  that the Commissioner’s order failed to observe these principles, particularly overlooking a CBIC Circular dated March 10, 2017. This circular unambiguously stated that interest on refunded pre-deposits should be calculated from the deposit date to the refund date per the amended Section 35FF, and it was issued without exceptions. CESTAT noted that lower authorities do not have the power to introduce qualifications beyond those prescribed by law or issued guidelines.

The Tribunal further referenced the Supreme Court's ruling in Dilip Kumar & Co. (2018), which clarified that statutory interpretation, especially in fiscal laws, must adhere to the plain language of the statute. Strict adherence to the statute is required, ensuring neither interpretation nor additional qualifications alter legislative intent. Therefore, since the amended Section 35FF categorically provides for interest on pre-deposit refunds from the date of deposit, the Tribunal deemed the Assistant Commissioner’s order legally sound.

Get a Copy of Achieve Success: Expert-Led Courses for Tax and Finance Pros, Click here

In conclusion, CESTAT annulled the Commissioner’s order and upheld the assessee’s entitlement to both the principal refund and interest, confirming that subordinate authorities cannot impose additional, unauthorized requirements.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates