Claim for 12% Interest on Service Tax Refund: CESTAT Upholds 6% Interest [Read Order]

The New Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) dismissed an appeal, upholding that interest on a service tax refund paid under protest during investigation should be granted at 6%, not the claimed 12%.

M/s. Seher, the appellant assessee filed an appeal against an order that rejected its claim for 12% interest on a sanctioned service tax refund of Rs. 30,54,449/-. The amount was originally paid under protest during an investigation and was later ordered to be refunded after the appellant won a separate appeal. The dispute centered solely on the applicable rate of interest for the delayed refund.

The core issue was whether the interest on the refund of an amount paid 'under protest' during investigation should be governed by principles allowing for a 12% rate (as cited in past judgments) or by a specific government notification fixing the rate at 6%.

The appellant's counsel argued that the amount paid was akin to a pre-deposit, for which interest under Section 35FF should be 12% per annum. They relied on the Supreme Court's decision in Sandvik Asia Ltd.and several subsequent CESTAT orders to support their claim for a higher interest rate.

The Department's Representative defended the 6% rate, stating it was correctly applied in accordance with CBEC Circular No. 984/08/2014-CX and relied on the Supreme Court's decision in Mafatlal Industries Ltd. vs. Union of India.

The two member bench of Dr. Rachna Gupta (Judicial Member), first affirmed that an amount paid 'under protest during investigation' is indeed in the nature of a pre-deposit. However, on the question of the interest rate, the tribunal held that the relevant provision, Section 35FF of the Central Excise Act, is 'plain and unambiguous'. It noted that a government notification (No. 24/2014-CE) had fixed the rate at 6% per annum.

The tribunal distinguished the appellant's cited case of Sandvik Asia, observing that the 12% interest awarded there was as 'compensation' for an exceptional 17-year delay, not the standard statutory rate.

It observed that the tribunal is bound by the statute and does not have the inherent powers of a superior court to deviate from the rate fixed by the government.The tribunal held that the lower authorities had correctly sanctioned interest at 6% per annum. Finding no infirmity in the impugned order, CESTAT dismissed the appeal.

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