Service Tax Paid by Mistake on Residential Construction Treated as Revenue Deposit: CESTAT Orders 12% Interest on Refund [Read Order]
The Tribunal relied on judicial precedent KVR Construction (2012), which clarified that amounts paid under mistake of law cannot be treated as “tax” and thus do not attract Section 11B of the Central Excise Act.
CESTAT - Refund - Taxscan
CESTAT - Refund - Taxscan
The bench of the Customs, Excise & Service Tax Appellate Tribunal, New Delhi, held that where service tax was deposited by mistake on exempt construction services, the amount was in the nature of a revenue deposit and not “service tax” payable in law. Accordingly, the Tribunal directed that interest on delayed refund be paid at 12% per annum instead of 6%.
There were three separate appeals filed by Gajendra Singh Sankhla, I.P. Singh Construction Co., and P.S. Builders. However, since all the appeals involved a common issue regarding refund of service tax paid on construction of individual residential units, the Tribunal consolidated them and disposed of the matters by a common order.
The appellant, Gajendra Singh Sankhla, had deposited service tax on construction of individual residential houses during the periods 2012-2013 and 2014-2015. Later, relying on Notification No. 25/2012-ST dated 20.06.2012, he claimed refund since such construction was not taxable prior to 01.07.2012 and was exempt thereafter.
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Earlier, the Tribunal in Final Orders No. 50859-50862 of 2023 dated 04.07.2023 had already decided in their favour on merits, limitation, and unjust enrichment. Refunds were sanctioned by the authorities, but interest was restricted to 6% under Section 11BB of the Central Excise Act, 1944. Aggrieved, the appellants challenged the rate of interest before the Tribunal.
Represented by Om P. Agarwal, the Appellants argued that since the payments were made under a mistake of law on exempt services, they could not be treated as “service tax” under the Finance Act, 1994. Therefore, Sections 11B and 11BB of the Central Excise Act, 1944, were inapplicable.
Reliance was placed on the Karnataka High Court ruling in CCE v. KVR Construction (2012), affirmed by the Supreme Court in 2018 which held that payments made under mistake of law are revenue deposits, not tax. It was further contended that in such cases, higher interest of 12% had been consistently granted, citing a series of precedents including Sandvik Asia Ltd. v. CIT (2006).
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Represented by Kuldeep Rawat, the Department argued that the appellants were rightly granted interest at 6% under Section 11BB of the Central Excise Act, 1944, and Notification No. 67/2003-CE (NT) dated 12.09.2003. Reliance was placed on the Tribunal’s decision in Triumph International (India) Pvt. Ltd. v. Commissioner of GST & CE, Chennai (2024), which limited interest to 6%.
The Bench comprising of Judicial Member, Ashok Jindal observed that since the service tax was paid by mistake on exempt activities, the amount was not “tax” but a revenue deposit. Therefore, Sections 11B and 11BB of the Central Excise Act, 1944, had no application.
Relying on the Supreme Court affirmed ruling in KVR Construction (supra), the Tribunal concluded that interest should be paid at 12% per annum on the delayed refunds.
Accordingly, the impugned orders were modified to direct payment of interest at 12%.
Thus, all appeals were allowed.
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