Revenue must pay Interest on Pre-Deposit From Date of Deposit Till Refund: CESTAT Orders 12% Interest [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ),Ahmedabad held that when an assessee’s pre-deposit is refunded after the appeal succeeds, the Revenue is liable to pay interest from the date of deposit till the date of refund.

The Tribunal directed that the appellant is entitled to 12% interest per annum on the refunded pre-deposit amount.

The appellant, Patel Labour Contractors Pvt. Ltd. filed an appeal challenging the order passed by the Commissioner (Appeals), which had upheld the rejection of the appellant’s claim for interest on refund of pre-deposit.

The Service Tax department conducted an audit for the period 2005-06 to 2009-10 and issued a show cause notice dated 19.05.2011 demanding Service Tax of ₹70.21 lakh for alleged non-declaration of receipts in ST-3 returns.

The demand was confirmed by the Commissioner vide order dated 28.09.2012, with interest and penalties under Sections 76 and 78 of the FinanceAct, 1994.

Therefore the appellant approached appellate tribunal in the main appeal, where the Tribunal directed the appellant to make a pre-deposit of ₹7 lakh. Accordingly, the appellant deposited ₹7.10 lakh in 2013 and informed the Department.

Later, the tribunal, through its final order dated 19.05.2021, set aside the service tax demand as time-barred. Thus, the appellant filed a refund claim for the pre-deposit amount with interest. However the claim of interest was rejected by the authorities.

The department, while rejecting interest, said that, since the deposit was made prior to 2014, the pre-amended Section 35FF would apply, under which interest was payable only if the refund was delayed beyond three months from the date of the appellate order.

Before the Tribunal, the appellant argued that the issue was entertained and decided by the Supreme Court in the matter of Sandvik Asia Ltd.

The bench of Dr. Ajaya Krishna Vishvesha, Judicial Member held that the assessee is entitled to interest on the refunded pre-deposit from the date of deposit till the date of realization.

The Tribunal noted the decision of Kerala High Court in Sony Pictures Networks India Pvt. Ltd. to hold that the applicable rate of interest should be confined to 12% per annum.

Accordingly, CESTAT allowed the appeal. It directed the Department to provide interest at 12% on the pre-deposit amount from the date of deposit till refund.

Bishan R. Shah, Chartered Accountant appeared for the Appellant and M P Solanki Assistant Commissioner (AR) appeared for the Revenue.

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