Revenue cannot Retain Illegally recovered Tax without Interest: CESTAT allows Service Tax Appeal [Read Order]
The Adjudicating Authority was directed to grant a refund of the illegally recovered amount along with interest at the rate of 6% per annum for the period from the date of recovery till the date of the refund.
Service Tax Appeal - Taxscan
Service Tax Appeal - Taxscan
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) service tax appeal filed holding that revenue cannot retain illegally recovered tax without interest. The Adjudicating Authority was directed to grant a refund of the illegally recovered amount along with interest at the rate of 6% per annum for the period from the date of recovery till the date of the refund.
M/s Coal Mines Provident Fund Organization, the appellant, provides services under the Coal Mines Provident Fund and Miscellaneous Provisions Act 1948. The dispute arose from a Show Cause Notice issued to the appellant for the period 2006-07 to 2010-11, demanding service tax of Rs. 50,89,14,218/- on the ground that its services fell under "Banking and other Financial Services".
The Tribunal initially affirmed the demand. However, while the appellant's appeal was pending before the Hon'ble High Court, the department recovered a total of Rs. 277,59,48,831/- in two separate installments during 2021 and 2022. The matter was subsequently remanded to the Tribunal, which vide its order dated 03/08/2022, allowed the appellant's appeal and held that the demand was not legally sustainable, directing a refund of the recovered amount.
The Adjudicating Authority refunded the principal amount in December 2022 but without any interest. The appellant's appeal for interest before the Commissioner (Appeals) was dismissed on the ground that no specific request for interest was made, leading to the present appeal before the Tribunal.
Counsel for the appellant argued that since the original demand was found to be unsustainable, the tax recovered by the department was illegal. He submitted that the Revenue cannot retain such amounts for years and refund them without paying interest, relying on precedents including the Supreme Court's decision in Sandvik Asia Ltd. and various Tribunal rulings that granted interest at 12%. Per contra, the Authorized Representative for the Revenue reiterated the lower authority's finding, contending that since the refund was granted within three months of the Tribunal's order, no interest was payable.
The two member bench of R Muralidhar, Member (Judicial), and K Anpazhakan , Member (Technical) observed that the amounts recovered during the pendency of the High Court appeal were, in retrospect, illegal recoveries as the final order established that no service tax was payable. Following the principle laid down by the Supreme Court, the Tribunal held that the Revenue cannot unjustly retain the assessee's money without paying interest.
While initially considering precedents for a 12% interest rate, the Tribunal noted a recent judgment of the Orissa High Court in the case of Vedanta Ltd., which had modified the interest rate to 6% per annum.
Accordingly, the Tribunal allowed the appeal, holding that the Revenue is liable to pay interest. The Adjudicating Authority was directed to grant a refund of the illegally recovered amount along with interest at the rate of 6% per annum for the period from the date of recovery till the date of the refund.
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