When the Department Collects, It Is One Department; When Refund Is Claimed, It Suddenly Becomes Many: The S.I. Property Paradox By Adv.G.Jayaprakash(Former Central Excise Officer)

The decision of the Kerala High Court in the S.I. PROPERTY KERALA PVT LTD. Versus THE COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX, CENTRAL TAX AND CENTRAL EXCISE, THIRUVANANTHAPURAM - 2019 (6) TMI 1280 - KERALA HIGH COURT matter raises a troubling question in tax administration: can the Department collect money through one arm of the administration and later deny refund by arguing that the assessee approached the wrong arm of the same Department

The dispute arose from service tax paid during audit proceedings on the basis of objections regarding inclusion of free-supplied materials in taxable value. Later, the Supreme Court of India in Commissioner of Service Tax Etc. Versus M/s. Bhayana Builders (P) Ltd. Etc. - 2018 (2) TMI 1325 - Supreme Court. authoritatively held that free-supplied goods cannot be added to the 'gross amount charged' for levy of service tax. The very foundation on which such audit collections were made thus collapsed.

S.I. Property sought refund. The Department rejected it as time-barred under Section 11B, and the Kerala High Court affirmed the rejection, observing that the plea of payment 'under protest' was unsupported by sufficient material.

Yet the larger issue remains unanswered.

The Department outwardly functions as one sovereign authority. Central Excise officers in audit formations raise objections in the name of the Department. Range officers call for records and secure payments in the name of the Department. But when refund is claimed, the same Department suddenly fragments itself into technical compartments and pleads that protest was not lodged before the 'proper officer.'

This inconsistency is difficult to ignore.

If a Central Excise officer is competent to induce payment and conduct proceedings, it is artificial to contend that the same officer is incompetent even to receive a protest relating to that payment. Assessees dealing directly with audit formations naturally address their objections or protests to those very officers. Internal departmental segmentation cannot fairly become a weapon against taxpayers.

The irony becomes even sharper when viewed against the backdrop of the 1997 Citizen's Charter issued by the Central Board of Excise and Customs. The Charter promised fairness, transparency, accountability, and taxpayer assistance in dealings with citizens. The philosophy underlying the Charter was clear: the Department exists to facilitate lawful administration, not to defeat substantive rights through procedural compartmentalisation.

The CBEC itself has also long recognised the administrative principle that communications received in one office should be forwarded to the proper office. Citizens are not expected to understand the Department's internal architecture.

The constitutional difficulty becomes sharper after Bhayana Builders. Article 265 permits retention of tax only by authority of law. Once the Supreme Court declared that inclusion of free-supplied materials in taxable value was legally unsustainable, continued retention of such amounts deserved closer constitutional scrutiny rather than strict procedural rejection.

The doctrine of 'payment under protest' evolved precisely to protect assessees who pay during investigations or audits to avoid escalation and litigate later. But decisions like S.I. Property risk converting that doctrine into a procedural trap where routing formalities outweigh the illegality of the levy itself.

The broader concern is institutional asymmetry:

For collection, the Department behaves as one unified authority.

For refund, it suddenly becomes many.

That paradox lies at the heart of the S.I. Property controversy.