ST – Recovery of Interest - sub-section (1B) added to Section 73 w.e.f. 14.05.2015 is not clarificatory : CESTAT
By TIOL News Service
HYDERABAD, JUNE 07, 2017: THE appellant is a SEZ Unit and avails various input services. They claimed benefit of Notification No. 9/2009-ST as amended by 15/2009-STwhich grants refund of tax paid on services used in relation to the authorized operations.
They filed a refund claim of Rs.3,54,65,218/- which was sanctioned on 18.06.2010. Incidentally, this claim included the refund in respect of service tax paid under reverse charge mechanism . As this component of service tax was paid with delay, Revenue opined that the appellant should pay interest of Rs.30,05,219/- for the delay.
The appellant negated the stand of the department leading to another letter from the Revenue informing that on failure, proceedings will be initiated to recover the amount as per law.
Meanwhile, another refund claim for Rs.1.70crores came to be filed by the appellant. The original authority sanctioned the entire refund but appropriated the amount of interest allegedly due and gave a cheque for Rs.1,39,99,625/- only.
As the Commissioner(A) upheld this appropriation, the appellant is before the CESTAT.
The appellant submitted that the AA had proceeded to recover the amount of interest u/s 87 of the FA, 1994 but such proceedings can be initiated only when the amount due is determined u/s 73 of the FA, 1994 and since that has not been done, recovery of interest by appropriating from the sanctioned refund is against the law. Support is drawn from the judgments in IntasPharma Ltd. = 2013-TIOL-1091-CESTAT-AHM & Prashanthi = 2015-TIOL-1596-HC-KAR-ST.
The AR submitted that since service tax has been paid under self-assessment, the appellant is liable to pay the interest and there is no requirement to pass an adjudication order for determining the liability to pay interest. Ajanta Tubes Ltd. = 2007-TIOL-90-CESTAT-DEL & Kanhai Ram Thekedar = 2005-TIOL-76-SC-CT relied upon.
After considering the submissions, the CESTAT noted that a new sub-Section (1B) has been added to Section 73 by FA, 2015 w.e.f. 14.05.2015 and which reads:
| Sub-section (1B): Notwithstanding anything contained in sub-section (1), in a case where the amount of service tax payable has been self-assessed in the return furnished under sub-section (1) of Section 70, but not paid either in full or in part, the same shall be recovered along with interest thereon in any of the modes specified in Section 87, without service of notice under sub-Section (1) . |
It was further observed that the said Section has come into force only with effect from 14.05.2015 and being an amendment, the same is not a clarification.
Inasmuch as since the period in the present case is prior to 14.05.2015, it was incumbent upon the Department to issue a Show Cause Notice and initiate proceedings for the determination of the amount due and payable by the appellant before initiating recovery under Section 87 of Finance Act, 1994, the Bench added.
Extracting the decisions in the case of Prashanthi Vs. Union of India (supra) and in ICICI Bank Ltd. Vs. Union of India and Others -2015-TIOL-1164-HC-MUM-ST, the Bench concluded –
"…I hold that the Department cannot proceed to recover the interest under Section 87 without issuing a show cause notice and determination of the amount due and payable by the appellant as provided under sub-Section (1) of Section 73 of the Finance Act, 1994. Consequently, the recovery of Rs.30,05,219/- is against law and unjustified. The impugned order to the extent of appropriating Rs.30,05,219/- is set aside…."
The appeal was allowed with consequential reliefs.
(See 2017-TIOL-1905-CESTAT-HYD)
