CESTAT: Service Tax, Fine, or Penalty Not Considered Pre-Deposit For Filing Appeal
Pranav B Prem
The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has ruled that service tax, fine, or penalty cannot be considered as a pre-deposit for the purpose of filing an appeal under Section 35F of the Central Excise Act, 1944. The case, M/s Essjay Telecommunications and IT Services Private Ltd. v. Commissioner of Central Tax & CGST, Central Excise, Delhi, was presided over by P.V. Subba Rao (Technical Member). The appellant challenged an Order-in-Appeal passed by the Commissioner (Appeals), which rejected their plea for a higher interest rate of 12% instead of 6% for the amount refunded under Section 35FF of the Central Excise Act, 1944.
Background of the Case
The dispute arose when the Revenue initiated an investigation against M/s Essjay Telecommunications and IT Services Private Ltd. for alleged non-payment of service tax. During the investigation, the appellant deposited a certain amount towards service tax. Subsequently, a Show Cause Notice (SCN) was issued, leading to an order by the adjudicating authority confirming the demand and appropriating the amount deposited during the investigation against the confirmed liability. However, upon appeal, CESTAT set aside the demand, making the amount refundable to the appellant. The Assistant Commissioner treated the amount as a pre-deposit under Section 35F and sanctioned a refund along with 6% interest, as provided under Section 35FF. The appellant, however, claimed that the amount was a mere revenue deposit and not a statutory pre-deposit and thus sought a higher interest rate of 12%.
Key Issues for Consideration
The Tribunal examined the following core questions:
Whether the amount deposited during the investigation, later appropriated by the adjudicating authority and subsequently refunded upon the Tribunal's decision, should be treated as service tax, pre-deposit, or a revenue deposit.
Whether the appellant is entitled to interest at 12% under equitable principles, or if the interest should be limited to 6% under Section 35FF of the Central Excise Act, 1944.
Tribunal's Observations and Rationale
The Tribunal clarified the distinction between refunds under Section 11B and those under Section 35F of the Central Excise Act, 1944: "The distinction between refund of pre-deposit made under Section 35F and duty or service tax paid under Section 11B is that the pre-deposit under Section 35F can be a percentage of duty, fine or penalty. It must be deposited as a pre-condition for filing an appeal. If the pre-deposit is not made, there will be no right of appeal to the person aggrieved by the order. Section 11B, on the other hand, provides for refund of duty or service tax."
The Tribunal emphasized that simply because an amount paid during the investigation is adjusted against a pre-deposit requirement, it does not automatically become a pre-deposit under Section 35F. The nature of the payment remains service tax unless otherwise classified. "Merely because such adjustment is made, the amount paid as service tax or fine or penalty does not become pre-deposit under Section 35F."
The Tribunal also referred to the Supreme Court’s decision in ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV, where it was held that refund proceedings are akin to execution proceedings, and a refund cannot be granted unless the assessment itself is modified through a valid appellate process. "The refund proceedings are in the nature of execution for refunding the amount. It is not an assessment or re-assessment proceeding at all."
The Tribunal concluded that the amount paid by the appellant was service tax, which became refundable due to the Tribunal’s decision. Hence, the refund must be governed by Section 11B, and the relevant date for calculating interest under Section 11BB is the date of the Tribunal’s order. "If there was no further order, nothing would have been refundable. However, the order of the adjudicating authority was modified by this Tribunal setting aside the demand. Therefore, the service tax became refundable as per section 11B and the relevant date for the purpose was the date of the order of the Tribunal."
Decision of the Tribunal
The Tribunal set aside the Commissioner (Appeals) order and remanded the matter to the Assistant Commissioner with clear directions to reconsider the refund under Section 11B along with interest under Section 11BB, rather than applying Section 35FF. "I remand the matter to the Assistant Commissioner to examine and sanction refund under section 11B along with interest under section 11BB. I make it clear that the appellant had already made an application in the form of a letter which was processed and no new application is required."
Appearance
Present for the Appellant: Shri Pawan Arora, Advocate
Present for the Respondent: Shri V. J. Saharan, Authorised Representative
Cause Title: M/S Essjay Telecom And It Services Private Limited Versus Commissioner Of Central Tax & Cgst-, Central Exicse-Delhi
Case No: Service Tax Appeal No. 50853 Of 2024
Coram: Hon'ble Mr. P.V. Subba Rao [Member (Technical)]
[Read/Download order]
