Where Stay application against Order sanctioning refund claim has been rejected, there is no reason for Revenue to stop refund

During the period from September 10, 2004 to December 31, 2004, Madura Coats (P) Ltd. (the Petitioner) received certain services from abroad and paid Service tax thereon under reverse charge on January 25, 2005 on insistence of the Department.

Since the services received from abroad were not chargeable to Service tax under reverse charge prior to introduction of Section 66A of the Finance Act, 1994 (the Finance Act), the Petitioner applied for refund claim on September 26, 2005. The said refund claim was allowed by the Hon’ble Tribunal vide its Order dated June 17, 2009 which became final and binding.

Later, the Petitioner, armed with the order of the Hon’ble Tribunal, made yet another representation for refund of Rs. 15,16,992/-, whereupon the Department by letter dated August 27, 2009, directed the Petitioner to file a refund claim in Form R supported by documents. The Petitioner, by letter dated September 4, 2009, once again requested for the refund supported by documents. The Department by Order dated October 15, 2009, sanctioned the refund and credited it to the Consumer Welfare Fund on the premise of unjust enrichment. Aggrieved by this Order, the Petitioner preferred an appeal to the Commissioner (Appeals), which was allowed by Order dated December 28, 2011.

Thereafter, the Petitioner made several representations requesting for refund but the same were not responded by the Department. Nevertheless, the Department preferred an appeal before the Hon’ble CESTAT together with a Stay application. The Stay application was dismissed by Order dated September 10, 2012 but no refund was sanctioned to the Petitioner by the Department. It was argued by the Department that in the light of pendency of appeal before the Hon’ble CESTAT, the Petitioner must await the decision. Being aggrieved, the Petitioner filed a Petition before the Hon’ble High Court of Karnataka for a Writ of Mandamus directing the Department to effect payment of refund.

The Hon’ble High Court of Karnataka held that there was no reason for the Department not to effect refund. The question as to unjust enrichment is before the Tribunal and all arguments in that regard would be considered by the Tribunal. In the absence of any stay, the Department was directed to refund the amount to the Petitioner with interest at the rate of 12% per annum and not at 6% per annum as prescribed by Section 11BB of the Central Excise Act, 1944, as it is not a case of mere delay in refund.