Under-protest Service Tax payment covers subsequent payments; Rs.8,05,266 refundable with 12% p.a. interest from three months

CESTAT KOLKATA - AT allowed the appeal, holding that an "under protest" payment letter filed with the first contested Service Tax payment covered subsequent payments, so the second payment of Rs.8,05,266 was refundable. The Tribunal applied precedent to treat the subsequent payment as made under protest absent contrary Revenue evidence. Interest on the refund was awarded at 12% per annum from three months after the refund claim date until payment, following applicable authority on delay in refund processing. Appeal allowed.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a single protest letter filed by the taxpayer in relation to disputed liability covers subsequent payments made in the same dispute, thereby treating such subsequent payments as made "under protest".

2. Whether payments made during an investigation/audit and contested throughout are to be treated as payments "under protest" even absent express contemporaneous protest notation for each payment.

3. Whether the limitation bar under Section 11B (refund period) is attracted where the amounts paid did not constitute tax levied under authority of law but were payments/deposits made while liability was disputed.

4. Whether interest on the refunded amount is payable under Section 11BB and, if so, from which date and at what rate.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Scope and effect of a single protest letter covering subsequent payments

Legal framework: Principle of "payment under protest" as relevant to refund claims and limitation under the Central Excise / Service Tax refund regime; administrative practice requires demonstration of protest to treat payments as not voluntary.

Precedent Treatment: Followed prior tribunal decisions (e.g., Niphad SSK Ltd.) holding that once an "under protest" letter is filed, subsequent reversals/payments in the same dispute are covered from the date of protest; referenced Supreme Court dicta recognizing protest letters as evidence of non-acceptance of liability.

Interpretation and reasoning: The Court accepted that the initial protest letter dated before the first payment manifested the taxpayer's non-acceptance of the Revenue's view and that subsequent payments were made only after enquiries/investigation; absent any evidence from the Revenue showing that the subsequent payment was voluntary or made in the normal course, the initial protest must be taken to extend to later payments relating to the same dispute.

Ratio vs. Obiter: Ratio - a contemporaneous protest letter relating to a disputed liability applies to subsequent payments in the same dispute unless the Revenue adduces evidence that a later payment was voluntary. Obiter - none identified beyond application to the facts.

Conclusion: The single protest letter filed on 28.03.2006 covers the subsequent payment on 05.07.2006; the second payment must be treated as made under protest and thus not time-barred on that ground.

Issue 2: Treatment of payments made during investigation/audit as payments "under protest"

Legal framework: Principle that payment made while contesting liability, especially during investigation or audit, may be treated as payment under protest; doctrinal support from Supreme Court and tribunal jurisprudence addressing payments made while prosecution of dispute is on-going.

Precedent Treatment: Followed Supreme Court authority (Indian Cement and other cited Supreme Court dicta) and multiple tribunal decisions which hold that payments made during investigation or litigation and contested from inception are to be treated as payments under protest even if not expressly so annotated for each payment.

Interpretation and reasoning: The Court observed that the appellant was not a routine payer of Service Tax for such activity, payments were made only upon Revenue insistence during enquiries, and the appellant had contemporaneously expressed non-acceptance of liability. Where the matter was under investigation and the taxpayer showed intent to contest the levy, payment must be treated as under protest; absence of explicit protest for the second payment is not decisive.

Ratio vs. Obiter: Ratio - payments made during investigation/administrative enforcement and contested from the start are to be regarded as paid under protest; Obiter - examples and supporting case law reiterated but not necessary to decide beyond the facts.

Conclusion: The second payment, made during investigation and in the context of ongoing dispute, qualifies as payment under protest notwithstanding lack of a separate contemporaneous protest letter.

Issue 3: Applicability of Section 11B limitation where amounts paid lacked character of tax levied under authority of law

Legal framework: Section 11B (refund period) and its applicability where payments were not taxes collected under authority of law but deposits made while liability was disputed; principle that limitation bars under provisions applicable only to legally collected duties.

Precedent Treatment: Followed tribunal decisions and Supreme Court authority (UOI v. ITC and related tribunal orders) holding that where collection lacked authority of law or the amount is a deposit, the time bar in Section 11B cannot be applied to deny refund.

Interpretation and reasoning: The Court accepted submissions that Service Tax was not leviable during the impugned period and that the amounts were effectively deposits paid under protest; where tax was not due, Section 11B limitation cannot be invoked to defeat a refund claim of amounts paid without authority of law.

Ratio vs. Obiter: Ratio - Section 11B's time bar does not apply to amounts which do not have the character of duty collected under authority of law and which were deposited while liability was contested; Obiter - discussion of analogous authorities and principles on deposit vs. tax.

Conclusion: Section 11B limitation is not a bar to the refund of the amounts paid under protest which did not constitute legally due Service Tax for the period in question.

Issue 4: Entitlement to interest on refund and rate/date of commencement

Legal framework: Section 11BB provides for interest on delayed refunds; when Section 11B is held inapplicable (or refund is of deposit), tribunals and courts have awarded interest under analogous principles with reference to appropriate rates under notifications and case law.

Precedent Treatment: Followed tribunal decisions (including Parle Agro and other cited authorities) and Supreme Court guidance (Ranbaxy) awarding interest on refunds of amounts deposited during dispute, with courts/tribunals commonly fixing interest at around 12% where statutory rates vary and equitable considerations apply.

Interpretation and reasoning: The Court applied precedent to hold that interest is payable from three months after the date of filing the refund claim (allowing three months for processing) until the date of actual payment; adopting prior tribunal reasoning, a rate of 12% per annum was considered appropriate given variability of notification rates and comparative authority granting similar relief.

Ratio vs. Obiter: Ratio - interest is payable from three months after the refund claim date until payment; a 12% per annum rate is an appropriate exercise of discretion in these circumstances. Obiter - discussion of other rates in prior decisions and policy rationales.

Conclusion: Interest shall be paid on the refunded amount from three months after the refund claim (i.e., from 22.02.2008) until payment at the rate of 12% per annum; refund and interest to be paid within eight weeks of communication of the order.

Cross-references and operative outcome

1. Issues 1 and 2 are interrelated: the Court's conclusion that an initial protest covers subsequent payments is reinforced by the principle that payments made during investigation and contested from inception are to be treated as payments under protest.

2. Issue 3 supports Issues 1 and 2 by removing Section 11B limitation as a bar where the sums were deposits paid while liability was disputed and not taxes collected under authority of law.

3. Issue 4 provides the remedial consequence: refund of the disputed amount found to be paid under protest together with interest @12% p.a. from three months after the refund claim date until payment, payable within eight weeks.

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