2025 (1) TMI 1261 - AT - Service Tax

Appellant entitled to 12% interest on Rs.12 crore refund, adjustment against unconfirmed demand during appeal impermissible

M/s Indus Towers Limited Versus Commissioner of Central Excise, Central Goods and Service Tax, Gurugram

CESTAT Chandigarh allowed the appeal, holding that the appellant was entitled to interest at 12% per annum on the refund amount of Rs.12,00,00,000 from ... Entitlement to interest on the refund of Rs.12,00,00,000/- from the date of deposit until the date of refund - Rate at which the interest is to be computed - Adjustment of the amount Rs.64,73,631/- from the total refund sanctioned to the appellant. Entitlement of interest on the amount of Rs.12,00,00,000/- from the date of deposit till the date of refund - HELD THAT:- This issue is no more res integra as the same has been decided by the Hon’ble Apex Court in the case of Sandvik Asia Limited vs. Commissioner of Income Tax [2006 (1) TMI 55 - SUPREME COURT], which has been followed by the jurisdictional High Court of Punjab & Haryana in the case of COMMISSIONER OF CENTRAL EXCISE, PANCHKULA VERSUS RIBA TEXTILES LTD. [2022 (5) TMI 1531 - PUNJAB AND HARYANA HIGH COURT], wherein the Hon'ble High Court has upheld the order of the Tribunal granting interest on refund to the assessee computable from the date of payment till the date of refund @12% per annum. It is pertinent to note that the review application filed by the Revenue against this judgment has also been rejected by the Hon'ble Punjab & Haryana High Court - the Hon'ble Punjab & Haryana High Court in the case of Sunrise Immigration Consultants Private Limited vs. Union of India [2023 (4) TMI 504 - CESTAT CHANDIGARH], after relying upon the decision in the case of Riba Textiles Limited, has re-affirmed that the petitioner was entitled to refund of the amount deposited during investigation along with interest @12% computable from the date of deposit of the amount till the date of refund. Rate at which the interest is to be computed - HELD THAT:- The Tribunal as well as various Courts in catena of decisions have consistently held that interest is payable from the date of deposit till the date of refund @12% per annum. In this regard, we may refer to the decision of the Tribunal in the case of Indore Treasure Market City Pvt. Ltd. [2024 (5) TMI 367 - MADHYA PRADESH HIGH COURT] wherein the Tribunal after considering the various decisions of the Courts, has held that the assessee is entitled for interest on the amount of refund sanctioned @12% to be calculated from the date of payment till the date of disbursement - the appellant is entitled to receive interest on the amount deposited during investigation from the date of deposit of the amount till the date of its refund at the rate of 12% per annum. Adjustment of the amount Rs.64,73,631/- from the total refund sanctioned to the appellant - HELD THAT:- The Adjudicating Authority has committed an error because the said demand was not confirmed by the Appellate Authority rather the said demand was set aside by the Appellate Authority in the case of Bharti Infratel Ltd. [2022 (9) TMI 1339 - CESTAT NEW DELHI]. It is also found that in the case of Kisan Irrigations & Infrastructure Ltd. [2016 (7) TMI 429 - CESTAT NEW DELHI], the Tribunal has held that adjustment of refund against a confirmed demand during the pendency of an appeal amounts to coercive recovery and is not permissible under the law. Further, adjustment of demand confirmed by the Bharti OIO against the refund due to the appellant could not have been made prior to the Bharti OIO attaining finality. Further, the demand confirmed against Bharti Infratel Ltd was subsequently dropped vide Bharti OIA dated 13.03.2023; copy of the same has also been placed in the appeal paper-book - the amount adjusted from the total refund sanctioned to the appellant is refundable to the appellant at the rate of 12% per annum computed from the date of deposit till the date of its refund. Conclusion - i) The appellant is entitled to interest on the full refund amount from the date of deposit until the date of refund at a rate of 12% per annum. ii) The amount adjusted from the total refund sanctioned to the appellant is refundable to the appellant at the rate of 12% per annum computed from the date of deposit till the date of its refund. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:1. Whether the appellant is entitled to interest on the refund of Rs.12,00,00,000/- from the date of deposit until the date of refund.2. What is the appropriate rate of interest applicable to the refund amountRs.3. Whether the adjustment of Rs.64,73,631/- from the total refund sanctioned to the appellant was permissible, given the status of the demand in a separate case.ISSUE-WISE DETAILED ANALYSISEntitlement to Interest on RefundThe legal framework surrounding the entitlement to interest on refunds involves principles established in prior judicial decisions, particularly the Supreme Court's ruling in Sandvik Asia Limited vs. Commissioner of Income Tax. The Court has consistently held that amounts paid under protest during investigations are refundable with interest from the date of deposit until the date of refund. This principle was reaffirmed by the Punjab & Haryana High Court in Riba Textiles Limited and applied in subsequent cases.The Court interpreted these precedents to mean that the appellant is entitled to interest on the entire period from deposit to refund. The evidence showed that the amount was deposited under protest, aligning with the conditions set by previous judgments. Competing arguments from the Revenue, suggesting the application of different statutory provisions such as Section 35F and Section 35FF of the Central Excise Act, were considered but ultimately found unpersuasive in altering the established legal principle.Rate of InterestThe appellant argued for an interest rate of 12% per annum, citing various precedents where courts, including the jurisdictional High Court, had applied this rate to similar cases. The Tribunal's interpretation aligned with these precedents, particularly the decisions in Indore Treasure Market City Pvt Ltd and Raghuveer Metal Industries Ltd, which established 12% as the appropriate rate. The Court found no compelling reason to deviate from this standard, despite the Revenue's argument for a lower rate of 6%.Adjustment of Rs.64,73,631/-The adjustment of Rs.64,73,631/- from the refund was scrutinized under the legal framework that prohibits coercive recovery during the pendency of an appeal, as outlined in the Tribunal's decision in Kisan Irrigations & Infrastructure Ltd. The evidence showed that the demand related to this amount was not confirmed by the Appellate Authority and was subsequently dropped, making the adjustment improper. The Court concluded that the appellant is entitled to a refund of this amount, with interest at 12% per annum from the date of deposit.SIGNIFICANT HOLDINGSThe Court held that the appellant is entitled to interest on the full refund amount from the date of deposit until the date of refund at a rate of 12% per annum. This decision is based on established legal principles from the Supreme Court and various High Courts, which view such interest as compensation for the retention of funds without legal authority.In addressing the adjustment of Rs.64,73,631/-, the Court held that such actions are impermissible when the related demand is under appeal and not final. The Tribunal's previous decisions reinforced this position, emphasizing that adjustments in such contexts amount to coercive recovery.The final determination was to set aside the impugned order and allow the appellant's appeal, granting the requested interest and refund adjustments.