Amount Deposited As Service Tax If Refundable, Should Not Be Treated As Pre-Deposit U/S 35F Central Excise Act: CESTAT

“Section 11B provides for refund of duty or service tax. If an amount is already paid as duty or service tax, it is reckoned while computing if any further amount needs to be paid to meet the mandatory requirement of pre-deposit under section 35F. Merely because such adjustment is made, the amount paid as service tax or fine or penalty does not become pre-deposit under section 35F” stated the bench of P.V. Subba Rao (Technical Member).

Section 11B of Central Excise Act, 1944, covers situations where the duty becomes refundable as a consequence of an order or judgment by the Tribunal or any Court.

Section 35F of Central Excise Act, 1944, provides that the Tribunal or the Commissioner (Appeals) shall not entertain any appeal unless the appellant has deposited 7.5% of the duty.

In this case, the Revenue initiated an investigation against the assessee/appellant for suspected non-payment of service tax. During the course of investigation itself, the assessee had deposited some amount towards service tax.

Thereafter, a Show Cause Notice was issued which culminated in an order by the adjudicating authority confirming the demand and appropriating the amount deposited during the investigation towards this confirmed demand.

Aggrieved by the order, the assessee filed an appeal which was allowed by the tribunal and the demand of service tax by the lower authorities was set aside. Thereafter, the assessee requested for refund of the amount paid during the investigation which was appropriated by the lower authorities along with interest.

The Assistant commissioner sanctioned the refund treating the amount deposited by the assessee as a pre-deposit under section 35F of Central Excise Act, 1944.

The assessee filed an appeal before the Commissioner (Appeals) which was rejected. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal.

The issue before the Tribunal was how should an amount which has been deposited as service tax, but which subsequently became refundable, consequent upon an order of the tribunal or courts be treated. Will it be a service tax, pre-deposit or just a revenue deposit.

The bench further opined that what was paid by the assessee was service tax as determined by the lower authorities in the adjudication proceedings. 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.

In view of the above, the Tribunal allowed the appeal and remanded the matter to the Assistant Commissioner to examine and sanction refund under section 11B along with interest under section 11BB.

Case Title: M/s Essjay Telecom and IT Services Private Limited

Case Number: SERVICE TAX APPEAL NO. 50853 OF 2024

Counsel for Appellant/ Assessee: Pawan Arora

Counsel for Respondent/ Department: V. J. Saharan

Click Here To Read/Download The Order