The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi Principal Bench, has held that interest on refund of a statutory pre-deposit under Section 35FF of the Central Excise Act, 1944 is payable for the entire period from the date of pre-deposit until the date of actual refund, even where the delay in obtaining the refund was attributable to the assessee itself.
The bench of P.V. Subba Rao (Technical Member) has observed that the inequity does not end with the rates of interest under section 11AA and 11BB of the Excise Act. Under section 11AA, the tax payer has to pay interest from the date on which the duty was due till the date of actual payment. Under section 11BB, the department has to pay interest only after 3 months from the date of the application for refund. The difference is much larger than 3 months as would appear at a first glance. There is a dispute and the disputed duty or tax was not paid by the assessee and a demand notice was issued under section 11A and the matter finally gets settled by High Court or Supreme Court after ten years in favour of the department.
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The dispute arose from a Service Tax demand that had been confirmed by the Commissioner through an order dated May 30, 2014. Vodafone Idea, formerly known as Idea Cellular Ltd., had made the prescribed pre-deposit on November 12, 2014 under Section 35F of the Central Excise Act, as applicable to service tax through Section 83 of the Finance Act, 1994.
The company initially lost its appeal before the Tribunal but subsequently succeeded before the High Court in CEAC No. 4/2018. The High Court delivered its judgment on October 31, 2018 in favour of the appellant.
However, the company did not immediately approach the department for refund. It sent a letter seeking refund of the pre-deposit along with interest only on April 1, 2024—more than five years after the High Court judgment.
The department thereafter refunded the pre-deposit by order dated May 31, 2024 and granted interest for 1,449 days, calculated from the date of pre-deposit until the date of the High Court judgment. It did not grant interest for the subsequent period of more than five years.
The central question before CESTAT was whether interest under Section 35FF of the Central Excise Act could be denied for the period during which the assessee itself failed to approach the department for refund after succeeding in litigation.
The appellant/assessee claimed interest for 3,498 days, covering the entire period from November 12, 2014, when the pre-deposit was made, until the date on which the refund was actually paid.
The Revenue, on the other hand, argued that the company should not be permitted to claim interest for the more than five-year period caused by its own failure to submit a letter along with the High Court judgment.
The department relied upon CBEC Circular No. 984/08/2014-CX dated September 16, 2014. According to the Tribunal’s order, the circular provides that no separate refund application is required for refund of a pre-deposit and that a simple letter accompanied by a copy of the appellate judgment would suffice.
The circular further contemplated that the refund should be granted within 15 days.
The Revenue therefore contended that since the appellant did not submit the required communication promptly after succeeding before the High Court, the delay was attributable entirely to the appellant.
The provision states that where an amount deposited under Section 35F is required to be refunded consequent upon an order of an appellate authority, interest is payable on such amount from the date of payment of the deposit until the date of refund at the notified rate.
The Tribunal found that the provision does not create an exception based on the reason for the delay between the date of pre-deposit and the date of refund.
Accordingly, even though the appellant had caused the intervening delay by failing to approach the department for more than five years, that fact could not be used to curtail the statutory period for which interest was payable.
The Tribunal acknowledged that it may appear unfair for the appellant to benefit from its own delay. However, it emphasized that tax law must be applied according to the statutory provision, irrespective of whether its application results in hardship or benefit to a taxpayer.
The Tribunal observed that Section 35FF mandates interest from the date of payment of the pre-deposit until its refund and does not make the entitlement dependent upon whether the intervening delay was caused by the department, the assessee or some other circumstance.
CESTAT compared Section 11AA, under which a taxpayer is required to pay interest on delayed payment of duty, with Section 11BB, which deals with interest payable by the department on delayed refunds.
The Tribunal noted that the two provisions do not operate on identical timelines. Under Section 11AA, interest payable by the taxpayer can run from the date the duty became due until actual payment. In contrast, under Section 11BB, departmental interest on refunds begins only after the statutory period following the refund application.
The Tribunal illustrated the potential difference by referring to a dispute that remains unresolved for several years. If a taxpayer ultimately loses the dispute and becomes liable for duty, interest may cover the entire period. Conversely, where tax has already been paid and the taxpayer eventually succeeds, interest under the refund mechanism may be governed by a different statutory starting point.
The Tribunal nevertheless reiterated that questions of fairness or equity cannot override the statutory language.
The Tribunal ultimately drew a direct conclusion from the language of Section 35FF.
According to the order, the provision requires interest to be paid from the date of pre-deposit until the date of refund, irrespective of the reason for the intervening delay or the person responsible for it.
Consequently, the fact that assessee awaited for more than five years after the High Court judgment before approaching the department did not extinguish or reduce its statutory entitlement to interest.
CESTAT directed consequential relief to the appellant, thereby extending the interest entitlement to the entire period between the original pre-deposit and the actual refund.
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