The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has held that the tax department could not impose fresh penalties while deciding the appellant’s claim for a refund of its ₹2 crore pre-deposit.
The bench of Somesh Arora (Judicial Member) and Sanjiv Srivastava (Technical Member) directed the department to recalculate the refund after taking account of a subsequent Supreme Court order that set aside the remaining disputed service tax demand for event management services.
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The bench sent the matter back to the original authority to calculate both the refundable amount and any interest due. It directed the authority to decide the matter within three months of receiving its order, pronounced on September 25, 2026.
The appellant/assessee had challenged a 2014 order confirming service tax demands, interest and penalties against it. During that appeal, CESTAT directed the company to deposit ₹2 crore. In August 2017, the tribunal set aside demands relating to management consultancy and business support services, but sustained the event management services demand for the period within the normal limitation period.
The assessee then sought a refund of the pre-deposit. In a June 2019 order, the refund authority sanctioned ₹41,00,195 while adjusting the balance against a confirmed tax demand of ₹60,56,180, interest of ₹69,11,436 and penalty of ₹29,32,189. The dispute over the interest and penalty adjustments led to further proceedings and, ultimately, the present appeal.
The assessee argued that penalties could not be imposed or recovered through proceedings meant to refund its pre-deposit. It also claimed interest on the refundable amount. The company informed CESTAT that the Supreme Court, by an order dated January 16, 2026, had subsequently set aside the service tax demand concerning event management services.
CESTAT found that penalties had already been addressed in the earlier appeal against the tax demand. It held that the department could not use the later refund proceedings to initiate a fresh penalty exercise contrary to the outcome of that appeal.
“The penalty proceedings initiated against the appellant in respect of refund claim made for refund of the pre-deposit go contrary to settled principles of judicial discipline,” the tribunal observed. It found no basis for imposing those penalties and adjusting them against the refund.
The bench further noted that the Supreme Court had set aside the event management services demand that CESTAT had earlier sustained. Amounts deposited against that demand therefore also had to be considered when calculating HT Media’s refund. The tribunal did not fix a final refundable sum; it directed the original authority to work it out from the appellate orders.
CESTAT held that the version of Section 35FF of the Central Excise Act applicable before the August 2014 amendment governs this pre-deposit. HT Media had filed its underlying appeal before that amendment, even though it made the deposit later. The date of deposit alone did not bring the case under the amended provision, which provides for interest from the date of payment.
Under the applicable earlier provision, interest arises if a refund due following an appellate order is not paid within three months of the order’s communication to the adjudicating authority. CESTAT said part of the refund became due following its August 2017 order, while a further part became due following the Supreme Court’s order. The original authority must determine the relevant amounts and dates, then calculate any interest accordingly.
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