6 June 2011.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal.
2. These proceedings under Article 226 of the Constitution are directed against an order dated 18 March 2011 passed by the Deputy Commissioner of Service Tax – I, Division III, in so far as interest has been disallowed to the Petitioners on a claim for refund. The grievance of the Petitioners is that this is contrary to the express terms of Section 11 BB of the Central Excise Act 1944 and a finding of the Commissioner (Appeals) dated 15 October 2010.
3. The case of the Petitioners is that in anticipation of the import of intellectual property services, they had applied for and obtained service tax registration under Section 69 of the Finance Act 1994. The Petitioners had made an application to the Reserve Bank for the remittance of funds abroad, for a proposed acquisition of the registration of certain agro-chemical products in the U.S. In anticipation of the permission of the Reserve Bank for the remission of funds abroad the Petitioners deposited a sum of Rs.1.02 Crores under a TR 6 challan dated 31 March 2006. This was in the belief that on obtaining registration, service tax was liable to be paid by the Petitioners. However, the Petitioners did not receive permission from the Reserve Bank to remit the amount until 31 March 2006 as a result of which they could not acquire the registration of the said agro-chemical products in the U.S.
4. On 27 April 2006 the Petitioners filed a refund claim in the amount of Rs.1.02 Crores on the ground that no services were provided during the year. The Deputy Commissioner of Service Tax returned the refund claim on 9 June 2006 on the ground that the Petitioners had not produced documentary evidence to prove that they had entered into an agreement with their customers to whom the services were proposed to be provided and to whom payment was made and that the Petitioners had debited the amount in their account. Thereafter the Petitioners submitted a refund claim to the Deputy Commissioner of Service Tax on 13 July 2006. Together with the application the Petitioners inter alia submitted a certificate from the Chartered Accountant certifying that the amount of Rs.1.02 Crores in relation to which refund was claimed had been paid and that the incidence of such tax had not been passed on. By a notice to show cause dated 11 October 2006 the Petitioners were called upon to explain as to why the refund claim should not be rejected on the ground that they had failed to establish that the incidence of service tax had not been passed on by them. The Assistant Commissioner by an order dated 24 April 2007 rejected the refund claim of the Petitioners holding that the Petitioners had not furnished any documentary or concrete evidence as required under Section 11 B (1) of the Central Excise Act 1944 as made applicable to service tax to establish that the amount of service tax in respect of which the refund claim had been filed was collected from or paid by the assessee and that the incidence of such tax had not been passed on. The Petitioners challenged the order of the Assistant Commissioner in appeal. By an order dated 15 October 2010 the Commissioner (Appeals) came to the conclusion that the Petitioners had duly established that they had paid service tax. The finding of the adjudicating authority that no documentary evidence was filed was held to be unsustainable since the Petitioners had duly produced both the Profit and Loss Account and a certificate of the Chartered Accountant. Nonetheless the Petitioners were directed to produce all the documents before the adjudicating authority which was directed to decide the refund claim within one month along with interest under Section 11 BB.
5. On remand, the Deputy Commissioner sanctioned a refund in the amount of Rs.1.02 Crores but declined to grant interest under Section 11 BB. The reasons which have weighed with the Deputy Commissioner in declining to allow the claim for interest are as follows :
“In the said Order-in-Appeal, the Hon’ble Commissioner has directed that the adjudicating authority to decide the case within one month of the receipt of the document from the assessee and thereafter applicable interest will be payable under Section 11BB. Personal hearing in the matter was extended on 7.03.2011, 8.03.2011, 11.03.2011 or finally on 14.03.2011. I find that the assessee has submitted the documents on 22.10.2010 and chose to attend the personal hearing on 14.03.2011, during which they submitted the relevant documents like Profit and Loss Account, Chartered Accountants Certificate which are specified by Commissioner (A) to decide the applicability of the refund claim. Hence, the sanction of the claim is after extending natural justice and within time. Therefore the interest is not payable.”
6. Counsel appearing on behalf of the Petitioners submitted that once the claim for refund has been allowed, the entitlement of the Petitioners to interest under Section 11 BB as applicable to service tax is statutory. The Petitioners had as a matter of fact filed a certificate of the Chartered Accountant together with the refund application on 13 July 2006 and had thereafter by a letter dated 8 November 2006 also produced the Balance-sheet as of 31 March 2006. The Commissioner (Appeals) by the order dated 15 October 2010 had expressly entered a finding that the adjudicating authority had erred in coming to the conclusion that the Petitioners had not produced documentary evidence. In this view of the matter, it was submitted that the refund claim was duly complete in all respects; relevant documentary material had been produced and once the claim has been duly allowed in accordance with law, the entitlement to interest must follow as a matter of course.
7. On the other hand, it has been urged on behalf of the Respondents that (i) The Commissioner (Appeals) while remanding the proceedings had granted liberty to the Petitioners to produce all documents before the adjudicating authority and it is in that view of the matter that the Deputy Commissioner while recording that the Petitioners had submitted relevant documents at the personal hearing held that interest was not payable and; (ii) The order passed by the Deputy Commissioner declining to allow interest is an appellable order.
8. We are not impressed with the submission that the Petitioners should be relegated to pursuing a remedy of an appeal against the order of the Deputy Commissioner insofar as it declines the claim for interest. As a matter of fact, the Commissioner (Appeals) while remanding the proceedings had by an order dated 15 October 2010 directed the adjudicating authority to decide the refund claim “along with interest under Section 11 BB”. Section 11 BB postulates that if any duty ordered to be refunded under sub section (2) of Section 11 B to any applicant is not refunded within three months from the date of receipt of the application under sub section (1) of that section, the applicant shall be paid interest at the rate stipulated on such duty from the date immediately after the expiry of three months from the date of receipt of the application till the date of refund of such duty. The entitlement of the applicant, once the requisite conditions have been fulfilled follows as a matter of law and is a mandate of the statute. The record before the Court makes it clear that the application that was submitted by the Petitioners was together with the relevant documentary evidence. The finding of the adjudicating authority that the Petitioners had not submitted relevant documentary evidence has been reversed by the Commissioner (Appeals) and it has been found to be erroneous. As a matter of fact the Petitioners had together with the refund application enclosed a certificate of the Chartered Accountant and had thereafter by a letter dated 8 November 2006 also annexed a copy of the Balance-sheet as of 31 March 2006. Having regard these admitted facts, upon which there is no dispute, the reasons which weighed with the Deputy Commissioner in declining to grant interest are specious. The adjudicating authority has noted that the Petitioners submitted the documents on 22 October 2010; attended a personal hearing on 14 March 2011, during the course of which relevant documents to decide the refund claim were submitted. The fact that the Petitioners submitted relevant documents once again at the personal hearing upon remand does not detract from the fact that all the necessary documents were already submitted by the Petitioners in the first place before the adjudicating authority much prior to the order of remand. In that view of the matter, the adjudicating authority had no justification whatsoever in declining to allow the claim of interest which has a statutory character.
9. The Petition shall accordingly stand allowed and the order of the Deputy Commissioner, Service Tax I , Division III, Mumbai insofar as it declines to allow the claim for interest is set aside. The Petitioners would be entitled to interest as permissible under Section 11 BB after the expiry of a period of three months from the date of receipt of the application for refund.
Rule is made absolute in the aforesaid terms.
There shall be no order as to costs.
(Dr. D.Y. Chandrachud, J.)
(Anoop V. Mohta, J.)