Interchange income service tax paid under protest treated as deposit; refund with interest ordered for unlawful retention

Amounts deposited under protest towards possible service tax on interchange income retained their character as a mere deposit, since the department neither issued a show cause notice nor raised a demand in accordance with law; hence, retention was not "tax" collected under authority of law and violated Article 265 (read with Article 14), applying the SC principle that payment under protest/mistake of law does not validate appropriation absent lawful levy. The department's rejection of refund was also unsustainable as unjust enrichment could not be invoked to justify retention where the State had no legal entitlement. The HC held writ jurisdiction was properly invoked and directed refund of the illegally retained amounts with interest; the petition was allowed.

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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.

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