2016 (9) TMI 1405 - HC - Service Tax

Pre-deposit made involuntarily during raid is refundable with interest under Section 11AB despite no statutory interest provision

The HC held that a pre-deposit made involuntarily during a raid, without a lawful liability, is refundable along with interest under Section 11AB, as the ... Refund of excess service tax paid - entitlement to interest - Applicability of principles of unjust enrichment - Held that:- If an amount is paid by an assessee, in duly of excise, pursuant to a liability created under a Statute or by statutory order, passed by competent authority, and such demand is later found illegal, Section 11 AB contemplates that amount received shall be refunded to assessee provided that the incidence of such duty had not been passed on by him to any other person - In the present case, the amount in question, refund whereof is claimed, was not paid. It is not such amount of duty which was deposited by assessee. To check evasion of 'Excise duty' or 'Service Tax', raid was conducted on 12.1.2007, when during raid, sum of ₹ 25,55,000/- was got deposited. Amount of interest thereon was subsequently realized from petitioner on 29.3.2007 i.e. before issue of notice on 3.7.2007. Such deposit was involuntary by petitioner since no one shall deposit a huge money without creation of liability in law. Such an amount has been held to be a pre-deposit and principles of unjust enrichment has been held inapplicable in such cases. Circular No. 802/35/2004-CX dated 8.12.2004 provides that against an order whereunder refund is admissible to an assessee with regard to the pre-deposit, if an appeal is pending, that shall not be taken as justification for denying refund. Interest on delayed deposit or refund - Held that: - A Division Bench of Delhi High Court in Surinder Singh v. Union of India, [2006 (11) TMI 12 - HIGH COURT, DELHI], relying on Supreme Court judgment in Prince Khadi Woollen Handloom Producers Cooperative Society[1996 (11) TMI 72 - SC ORDER], said that State, if has wrongly collected a tax from a person, and, even if there is no specific provision, still is liable to refund tax alongwith interest. The consensus of the authorities of various High Courts as well as Supreme Court is that any amount received by Revenue, as deposit or pre-deposit i.e. unauthorizedly or under mistaken notion etc., cannot be retained by Revenue since it has no authority in law to retain such amount and it must be refunded with interest. Petition allowed - decided in favor of petitioner. ISSUES: Whether the petitioner is entitled to refund of the amount of 'Service Tax' and interest paid under coercion and subsequently appropriated by the Revenue.Whether Section 11B of the Central Excise Act, 1944 applies to refund claims of amounts deposited as pre-deposit during investigation or adjudication proceedings.Whether interest is payable on delayed refund of pre-deposit or amounts paid under protest in excise/service tax matters.Whether the Revenue can retain amounts deposited voluntarily or under coercion without lawful authority pending appeal or adjudication.Whether the limitation period under Section 11B(1) applies to refund claims where duty was paid under protest or coercion. RULINGS / HOLDINGS: The petitioner is entitled to refund of the amount of 'Service Tax' and interest paid, as the amount was a pre-deposit made under protest during investigation and was subsequently appropriated without lawful authority; such retention is illegal and unauthorized.Section 11B of the Central Excise Act, 1944 is applicable to refund claims of duty or pre-deposits, and the limitation of one year does not apply where duty has been paid under protest or coercion.Interest on delayed refund of pre-deposits is payable at the rate of 12% per annum, as established by Supreme Court precedent and Board Circulars; interest is payable even if no specific statutory provision exists, based on equitable principles.The Revenue cannot refuse refund or retain amounts deposited under mistaken belief or coercion pending appeal, as the order of Commissioner (Appeals) setting aside the demand is binding unless stayed by the Tribunal.The requirement to file refund application in prescribed form under Section 11B(3) is relaxed in cases of pre-deposit refunds, as per Board Circulars, and a simple letter along with relevant documents suffices. RATIONALE: The Court applied the statutory provisions of Section 11B of the Central Excise Act, 1944, which governs refund claims, including provisos excluding the limitation period for payments made under protest.Precedent from multiple High Courts and the Supreme Court was relied upon, establishing that amounts deposited during investigation or adjudication proceedings are 'deposits under protest' or 'pre-deposits,' and principles of unjust enrichment do not apply.Supreme Court rulings, including Commissioner of Central Excise, Hyderabad v. I.T.C. Ltd., mandate payment of interest on delayed refunds of pre-deposits at 12% per annum, and Board Circulars clarify procedural relaxations and entitlement to interest.The Court rejected the Revenue's contention that no refund claim was pending due to non-filing of formal application, citing Board Circular No. 275/37/2K-CX.8A dated 2.1.2002 and subsequent clarifications allowing simpler procedures for refund claims of pre-deposits.The Court emphasized that retention of amounts without lawful authority violates fundamental principles, and the Revenue's appeal pending before the Tribunal does not preclude refund where the Commissioner (Appeals) has set aside the demand.Equitable principles and commercial fairness, supported by case law such as Surinder Singh v. Union of India and Sandvik Asia Ltd. v. Commissioner of Income-tax, were invoked to justify interest on wrongful retention of amounts by the Revenue.