2022 (3) TMI 751 - AT - Service Tax

Tribunal rules in favor of Elegant Developers for refund with interest

The Tribunal set aside the Order-in-Appeal, ruling in favor of M/s Elegant Developers, entitling them to the refund of the pre-deposit amount with ... Interest on delayed refund of amount deposited under Section 35F - Applicability of amended Section 35FF vis-a -vis proviso for pre-commencement deposits - Retrospective/clarificatory effect of statutory amendment - Compensatory character of interest and entitlement from date of payment - Reasonableness of rate of interest on refunded pre-depositInterest on delayed refund of amount deposited under Section 35F - Applicability of amended Section 35FF vis-a -vis proviso for pre-commencement deposits - Amended Section 35FF applies to the refund of the pre-deposit made on 06.10.2015 and not the pre-amendment provision. - HELD THAT: - The deposit in question was made on 06.10.2015 pursuant to Section 35F and therefore after the Finance (No.2) Act, 2014 amendment to Section 35FF. The proviso to the amended Section 35FF preserves the un-amended regime only for amounts deposited prior to the commencement of the 2014 Act. Because the appellant's pre-deposit was made after the amendment took effect, the amended provision governs the entitlement to interest. The Tribunal held that reliance by the Commissioner (Appeals) on the erstwhile Section 35FF was incorrect and that the original adjudicating authority correctly sanctioned refund along with interest under the amended provision. [Paras 5, 6, 7, 8]Amended Section 35FF governs the refund of the pre-deposit made on 06.10.2015; the Commissioner (Appeals) erred in applying the pre-amendment provision.Compensatory character of interest and entitlement from date of payment - Reasonableness of rate of interest on refunded pre-deposit - Appellant is entitled to interest on the refunded pre-deposit from the date of payment and a rate of 12% per annum is reasonable in the circumstances. - HELD THAT: - The Tribunal observed that the deposited sum was not duty but a pre-deposit under Section 35F required to prosecute an appeal and thus, upon successful appeal, must be refunded with interest. Citing settled authority that interest is compensatory, the court held that interest should run from the date of payment. Although the amended Section 35FF provides a range of rates (not below 5% and not exceeding 36%), the original adjudicating authority had applied the minimum 5% without reasons. On the facts and circumstances of the case the Tribunal found 12% per annum to be a reasonable rate of interest and directed sanction of refund with interest at that rate. [Paras 9]Refund to be sanctioned with interest from date of payment at the rate of 12% per annum.Final Conclusion: The appeal is allowed: the amended Section 35FF applies to the pre-deposit made on 06.10.2015 and the appellant is entitled to refund of the pre-deposit with interest from the date of payment at 12% per annum; the Commissioner (Appeals) order is set aside. Issues:1. Entitlement to interest on sanctioned refund of pre-deposit.2. Applicability of Section 35FF pre-amendment or post-amendment.3. Rate of interest on the pre-deposit amount.Analysis:Issue 1: Entitlement to Interest on Sanctioned Refund of Pre-DepositThe case involved M/s Elegant Developers engaged in Real Estate Agent Services. A show cause notice was issued proposing a demand, interest, and penalty, which was confirmed by the original Adjudicating Authority. However, the Tribunal set aside the original order. The appellant filed a refund claim for the pre-deposit amount, which was sanctioned with interest. The Department appealed against the interest component, leading to the current appeal before the Tribunal. The appellant argued that the pre-deposit was unauthorizedly held by the Department and not a duty payment, thus entitled to interest. The Tribunal agreed, citing relevant case law and held the appellant entitled to interest at 12%.Issue 2: Applicability of Section 35FF Pre-Amendment or Post-AmendmentThe Tribunal analyzed the pre and post-amendment provisions of Section 35FF of the Central Excise Act. Pre-amendment, interest was payable if the refund was not sanctioned within three months. Post-amendment, interest was mandatory on the deposited amount. The Tribunal noted that the appellant's pre-deposit was made after the 2014 amendment, making the post-amendment Section 35FF applicable. The Commissioner (Appeals) erred in relying on the pre-amendment provision, leading to the decision to set aside the Order-in-Appeal.Issue 3: Rate of Interest on the Pre-Deposit AmountThe original Adjudicating Authority awarded interest at 5%, the lowest rate in the amended Section 35FF. The Tribunal, considering the compensatory nature of interest, increased the rate to 12% based on relevant case law. The Tribunal held that the appellant should be reasonably compensated from the date of payment, and the original Adjudicating Authority provided no justification for applying the lowest rate. Consequently, the Tribunal allowed the appeal, sanctioning the refund of the pre-deposit amount with interest at 12%.In conclusion, the Tribunal set aside the Order-in-Appeal, holding the appellant entitled to the refund of the pre-deposit amount with interest at 12%.