2023 (11) TMI 965 - HC - Service Tax

Amounts deposited under protest for service tax liability must be refunded when retained without lawful authority

The Hongkong and Shanghai Banking Corporation Ltd., Versus The Union of India, through the Secretary, Ministry of Finance, Department of Revenue, New Delhi., Assistant Commissioner, CGST & Central Excise (Legacy Refunds), Mumbai Central Commissionerate, Mumbai

The Bombay HC held that amounts deposited under protest by the petitioner for potential service tax liability on interchange income from October 2007 to ... Refund of amount retained without authority of law - Interchange income - amount deposited under protest - tax leviable or payable by the petitioner or not - period from October, 2007 to June, 2012 - Principles of unjust enrichment. The petitioner has contended that such amount was deposited by the petitioner with the respondents, to buy peace, in the event of any prospective demand towards service tax and interest on “interchange income”. HELD THAT:- When clearly such amounts were deposited by the petitioner under protest and categorically not accepting any liability to pay service tax on such count, the department was not precluded from taking an appropriate position at the relevant time, and/or surprisingly it was not advised to do so, to raise a demand against the petitioner in the manner known to law, in contesting the position taken by the petitioner by issuance of a show cause notice. In the absence of such steps being taken, the legal character of the deposit of the said amounts, as made by the petitioner with the department, would continue to remain as amounts deposited under protest and retained by the department not as a tax or under an authority in law. Such rejection of the refund application is squarely hit by the provisions of Article 265 of the Constitution, as the action of the department results in withholding/retaining amounts, not levied in accordance with law or collected under authority of law. Also it was not unjustified for the petitioner to invoke the writ jurisdiction of this Court and more particularly, when the petitioner contends violation of its rights under Article 265 read with provisions of Article 14 - There is nothing on record to suggest that in the event any recovery is initiated against the petitioner, the department would not be in a position to recover any lawful dues. The principles of law as enunciated in the decision of THE SALES TAX OFFICER, BANARAS AND OTHERS VERSUS KANHAIYA LAL MAKUND LAL SARAF AND OTHERS [1958 (9) TMI 57 - SUPREME COURT] are squarely applicable in the facts of the present case, inasmuch as, it was certainly on the basis of the audit objection and on a forfituous circumstance, that the petitioner may face a levy on the interchange income, the petitioner had deposited the amount in question under protest. However, this would not ipso facto mean that any deposit of the amount under protest would partake the character of a lawful levy, so as to bring about a legal consequence of the appropriation of amounts, so deposited as a levy. It would be too far-fetched for the department to take such position to retain the amounts. For such reason, even assuming that the deposit of the said amount is under a mistake of law, even in that event, the department would not have any authority to withhold the said amounts. The petitioner time and again had made its position clear pointing out to the department, that the said amounts were deposited/paid under protest. The petitioner had pursued its claim and that too by making a proper refund application - ex-facie the department has no authority to retain such amount. In fact, retaining such amount would amount to an unjust enrichment. Also, the case of the petitioner being hit by the case of unjust enrichment, is not the case of the department. It is well settled that once such amounts were deposited by the petitioner and were retained by the department without the authority in law, the claim of the petitioner for refund could not have been denied. In such circumstances, it was appropriate for the petitioner to invoke the jurisdiction of this Court under Article 226 of the Constitution praying for writ for directing refund of money illegally retained / withheld. The law in this regard is well settled. Thus, it is limpid that the respondents have retained the amounts in question without authority in law. Such amounts are required to be refunded to be petitioner along with interest - petition allowed. Issues Involved:1. Legality of retaining the amount deposited by the petitioner under protest.2. Petitioner's entitlement to a refund of the deposited amount.3. Impact of pending Supreme Court proceedings on the petitioner's case.Summary:1. Legality of Retaining the Amount Deposited by the Petitioner Under Protest:The petitioner challenged the retention of Rs. 56,19,84,075/- by the respondents, which was deposited under protest to buy peace in the event of any prospective demand towards service tax and interest on 'interchange income'. The petitioner argued that no show cause notice was issued for the period from October 2007 to June 2012, and thus the amount was retained without any authority in law. The court noted that the department did not undertake any exercise of ascertaining such liability or raising a demand against the petitioner, much less by issuing a show cause notice. The court held that the retention of the amount by the department was without authority in law and thus violated Article 265 of the Constitution of India.2. Petitioner's Entitlement to a Refund of the Deposited Amount:The petitioner filed an application for a refund of the amount along with interest, which was rejected by the department. The court observed that the amount was deposited under protest and without admitting any liability to pay service tax on interchange income. The court held that the department had no authority to retain the amounts deposited under protest, as they were not levied or collected in accordance with law. The court directed the respondents to refund the amount along with applicable interest within four weeks.3. Impact of Pending Supreme Court Proceedings on the Petitioner's Case:The court acknowledged that the issue of taxability of interchange income was pending before the Supreme Court in the case of Commissioner of GST and Central Excise vs. M/s. CITIBANK N.A. However, the court noted that the petitioner's case for a refund was independent of the pending Supreme Court proceedings, as no show cause notice was issued to the petitioner for the period in question. The court held that the petitioner's entitlement to a refund was not affected by the pending proceedings before the Supreme Court.Conclusion:The court allowed the petition, directing the respondents to refund the amount along with applicable interest within four weeks. The court emphasized that the retention of the amount by the department was without authority in law and violated the provisions of Article 265 of the Constitution of India.