Refund Can’t Be Denied Merely Because Deposit Made During Investigation Was Not Marked ‘Under Protest’: CESTAT

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that an amount deposited during the course of investigation cannot be denied refund merely on the ground that the assessee did not comply with procedural formalities for marking the payment as “under protest.” The bench of S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) observed that payments made during investigation inherently carry an element of protest, especially where such amounts are deposited before any final determination of tax liability. An investigation had been initiated by the Directorate General of Central Excise Intelligence (DGCEI) concerning activities connected with transmission and distribution of electricity and related infrastructure services. During the pendency of the investigation, the assessee deposited an amount of ₹3.77 crore in installments between March and July 2011. The amount was stated to have been deposited under protest and without any admission of tax liability. Subsequently, a show cause notice was issued demanding service tax along with interest and penalties. However, during adjudication, the Commissioner dropped the entire demand after holding that the activities in question were covered under Notification No. 45/2010-ST dated July 20, 2010, which granted complete exemption from service tax to taxable services relating to transmission and distribution of electricity. Following this order, a refund claim for the deposited amount was filed and was sanctioned by the Assistant Commissioner. The Department challenged the refund order by arguing that the refund claim was barred by limitation under Section 11B of the Central Excise Act, as made applicable to service tax matters. It contended that the payment was not legally made “under protest” because mandatory procedural requirements had not been followed. The department argued that there had been no written intimation to the Superintendent, no acknowledgment, and no marking of challans or invoices as “under protest.” It further asserted that the refund claim was filed more than three years after the deposits and therefore exceeded the one-year statutory limitation period. On the other hand, the assessee argued that the amount deposited during investigation was not a tax payment but merely a deposit made before issuance of any show cause notice and before adjudication. It was argued that such amounts could not acquire the character of “tax” because there had been no determination of liability at that stage. The assessee also emphasized that once the demand itself had been completely dropped, retention of the amount by the Department would have no authority in law. The assessee further relied on Article 265 of the Constitution, which states that no tax can be levied or collected except by authority of law. It submitted that where tax liability itself was found to be non-existent, the Department could not continue to retain the amount on technical grounds such as limitation. The Tribunal found that the Commissioner (Appeals) had correctly observed that the deposits had indeed been made under protest. It noted that correspondence addressed to the investigating authorities clearly reflected that the amounts were deposited during an ongoing investigation and under protest. The Bench further observed that courts have consistently taken the view that payments made under compulsion during investigation proceedings inherently possess an element of protest even where the payment instruments themselves do not expressly mention “under protest.” The Tribunal also agreed that the refund application had been filed within the permissible period calculated from the date of receipt of the adjudication order dropping the demand. The Tribunal observed that the burden of the deposited amount had not been passed on to customers. It noted that an independent Chartered Accountant’s certificate and supporting declarations established that no service tax had been recovered from clients in relation to the disputed period. CESTAT found no infirmity in the appellate order and dismissed the department’s appeal, thereby upholding the refund granted to the assessee. Case Details Case Title: Commissioner of Service Tax, Delhi-IV Versus M/s Shyama Power India Ltd Citation: JURISHOUR-1425-CES-2026(CHAN) Case No.: Service Tax Appeal No. 60352 of 2016 Date: 26.05.2026 Counsel For Appellant: Amita Gupta, Authorized Representative Counsel For Respondent: Rakesh Sharma and Mr. R.K. Sharma, Advocates Click Here To Read Order Read More: Customs Dept. Can’t Enhance Import Value Solely on NIDB Data: CESTAT

Refund Can’t Be Denied Merely Because Deposit Made During Investigation Was Not Marked ‘Under Protest’: CESTAT

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