The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Allahabad Regional Bench, has held that an assessee is entitled to interest at 12% on the refund of an amount paid as Service Tax by mistake of fact, directing that such interest be calculated from the date of deposit until the date on which the refund is actually paid.
The bench of P. K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) has observed that where the jurisdictional High Court has expressed a view on a particular question of law, authorities within that jurisdiction are required to follow that view. Where there is no jurisdictional High Court decision and conflicting decisions exist elsewhere, the Tribunal has greater judicial freedom to consider the competing views and adopt the view it considers appropriate.
The dispute arose from Service Tax paid by the appellant in relation to Goods Transport Agency (GTA) services received by it. The appellant contended that no Service Tax was payable because the transporter had not issued a consignment note and, therefore, the services did not fall within the taxable category of GTA services.
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The appellant further relied upon Clause 21(d) of Notification No. 25/2012-ST dated June 20, 2012, as amended by Notification No. 03/2013-ST dated March 1, 2013, under which specified transportation services relating to food stuff were exempt from Service Tax. The appellant claimed that yeast fell within the scope of “food stuff” for purposes of the exemption.
According to the appellant, the Service Tax had consequently been paid under a mistake of law/fact, even though there was no tax liability.
The earlier proceedings had already resulted in a finding favourable to the appellant.
The Commissioner (Appeals), through Order-in-Appeal dated August 30, 2024, allowed a refund of ₹1,35,72,925. The appellate authority also held that the amount paid by the appellant under the mistake could not be treated as Service Tax and, consequently, the limitation provisions under Section 11B of the Central Excise Act, 1944 were not applicable to that amount.
Following the order, the appellant filed its refund claim. However, while sanctioning the refund, the adjudicating authority rejected the appellant’s claim for interest. The Commissioner (Appeals) subsequently upheld that rejection through the impugned order dated January 15, 2026.
The limited dispute before CESTAT was therefore not about the entitlement to the refund itself, but about the rate and period of interest payable on the refunded amount.
Before the Tribunal, the appellant argued that once the department itself had accepted that the amount was paid by mistake of fact, the amount effectively constituted a deposit rather than tax.
On that basis, the appellant submitted that the refund ought to carry interest at 12%, particularly since several Tribunal decisions had granted interest at that rate in cases involving amounts deposited mistakenly or during investigation.
The appellant relied, among other decisions, on the CESTAT New Delhi ruling in Gajendra Singh Sankhla, I.P. Singh Construction Co. and P.S. Builders v. Commissioner of CGST, Jodhpur, reported at 2025 (5) TMI 482. Reliance was also placed on Meenu Builders, Nahar Singh, Rajendra Kumar Jain, and Harisons Industries.
The Revenue opposed the interest claim.
Its principal contention was that the refund had been paid to the appellant within three months from the date of the refund application. On that basis, the department argued that no interest was payable to the appellant.
The Tribunal, however, did not accept the Revenue’s position.
The Tribunal identified the central issue as whether interest was payable on the refund of an amount that had been paid by mistake of fact.
A significant factor was that the Commissioner (Appeals), in the earlier order dated August 30, 2024, had already held that the appellant had made the payment by mistake of fact.
CESTAT observed that where an amount is paid by mistake of fact, the amount is to be regarded as a “deposit”, and such amount has to be refunded along with interest.
The Tribunal then examined earlier decisions dealing with the rate of interest applicable to such refunds.
The Tribunal placed particular reliance on the decision of the CESTAT Principal Bench, New Delhi, in Gajendra Singh Sankhla & Others, where the Tribunal had considered whether an amount paid by mistake attracted the limitation provisions under Section 11B and what rate of interest was applicable.
In that case, the Tribunal had allowed interest at 12% on the refunded amount. CESTAT Allahabad noted that the same approach had subsequently been followed in Meenu Builders.
The Allahabad Bench also referred to the Tribunal’s decision in Berger Paints India Ltd., which had considered the rate of interest applicable to delayed refunds of amounts deposited during investigation.
An important part of the Tribunal’s reasoning was its reliance on the decision of the Calcutta High Court in Rajendra Kumar Jain v. Commissioner of Customs (Port), Kolkata & Others, dated May 9, 2024.
The High Court had dealt with a situation where an amount deposited during investigation was subsequently refunded, and the department had paid interest at 6%.
The High Court held that, in the absence of a statutory provision prescribing the applicable rate of interest for the relevant period, interest at 12% was payable on the delayed refund.
CESTAT Allahabad took note of this principle while determining the appropriate rate applicable to the refund in the present case.
The order also discusses an important principle concerning the effect of High Court judgments on CESTAT proceedings.
The Tribunal referred to the Larger Bench decision in Collector of Central Excise, Chandigarh v. Kashmir Conductors, which examined how the Tribunal should approach conflicting decisions of different High Courts.
The order further notes that where only one High Court has expressed a view on a disputed question of interpretation, the Tribunal cannot simply disregard that decision.
Applying the principles emerging from the earlier decisions, the Tribunal concluded that the appellant’s case was squarely covered by the ratio of the decisions relied upon.
CESTAT specifically held that the appellant was eligible for interest at 12% from the date of deposit of the amount until the date of payment of the refund.
The Tribunal therefore rejected the position underlying the impugned order and allowed the appeal on the issue of interest.
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