Interest on Refund of Amount Treated as Pre-Deposit: Analysis of CESTAT Allahabad Ruling in Ashirwad Equipment Pvt. Ltd. Vs Commissioner of Central Excise & CGST

Background and Core Dispute

In Ashirwad Equipment Pvt. Ltd. Vs Commissioner of Central Excise & CGST (CESTAT Allahabad), the central issue was narrow but significant:

Whether the assessee was entitled to interest on refund of ₹8,37,939 which had effectively been treated as pre-deposit under Section 35F of the Central Excise Act, 1944, as made applicable to service tax through Section 83 of the **Finance Act, 1994, or whether interest could be allowed only on the separately identified statutory pre-deposit of ₹84,609`.

The refund of a total of ₹9,52,798 had already been granted following the assessee’s success before the CESTAT in its earlier appeal. However, the department sanctioned interest at 6% only on the amount of ₹84,609 and denied interest on ₹8,37,939, treating that portion merely as tax paid, not as pre-deposit.

The Tribunal was therefore called upon to determine:

  • How to legally characterise the deposits of ₹4,12,000 and ₹4,25,939 (aggregating to ₹8,37,939), and
  • Whether, once treated as pre-deposit for appeal purposes, those amounts attract interest under Section 35FF upon refund.

Chronology of Events

Departmental Proceedings and Initial Demand

  1. Investigation Period:

    • The department conducted an inquiry relating to the period 2008-09 to 2010-11.
    • It was alleged that the assessee had been providing mining services and supply of tangible goods taxable under Section 65(105)(zzzy) and Section 65(105)(zzzzj) respectively, without registration and without payment of service tax.

  2. Show Cause Notice:

    • A show cause notice dated 17.10.2013 was issued proposing a service tax demand of ₹8,36,086 under Section 73(1) of the Finance Act, 1994, along with interest and penalties.

  3. Order-in-Original:

    • Vide Order-in-Original No. (ST-168/2013)87 of 2015 dated 21.12.2015, the adjudicating authority:
      • Confirmed the service tax demand of ₹8,36,086,
      • Ordered interest under Section 75, and
      • Imposed penalties under Section 78 and under various sub-sections of Section 77 of the Act.

Deposits Made by the Assessee

  1. Voluntary Compliance Scheme and Deposits:

    • After issuance of the show cause notice, the assessee applied under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 on 23.12.2013, declaring an admitted liability of ₹8,37,939.
    • The assessee deposited this amount (₹8,37,939) through two challans dated 13.05.2015:
      • ₹4,12,000 (Challan No. 1011)
      • ₹4,25,939 (Challan No. 1028)
    • These payments were intimated to the adjudicating authority along with copies of challans.

  2. Appropriation of Deposits:

    • When the order-in-original dated 21.12.2015 was passed, the adjudicating authority appropriated the amount of ₹8,37,939 against the confirmed demand.

First Appeal before Commissioner (Appeals)

  1. Appeal to Commissioner (Appeals):

    • The assessee challenged the order-in-original before the Commissioner (Appeals), Allahabad.
    • Vide Order-in-Appeal No. 36/ST/Alld/2018 dated 11.01.2018, the Commissioner (Appeals) upheld the demand, interest and penalties with certain modifications.

  2. Treatment of Deposits as Pre-Deposit by Commissioner (Appeals):

    • In the appeal, the assessee clearly stated that:

      “It was also on record that we paid Rs 8,37,939/- on account of Service Tax but under protest…”

    • More crucially, the Commissioner (Appeals) recorded an explicit finding on compliance with Section 35F of the Central Excise Act, 1944 (as applied via Section 83):

      “... have filed the appeal on 16.03.2016, along with the pre-deposit required under Section 35F of the Central Excise Act, 1944 as made applicable to the Service Tax matters vide Section 83 of the Act.”

    • No separate deposit was made by the assessee after the order-in-original dated 21.12.2015, other than the amounts already paid vide challans dated 13.05.2015.

    • This meant the two challans of ₹4,12,000 and ₹4,25,939 (totalling ₹8,37,939) were treated as fulfilling the mandatory pre-deposit requirement under Section 35F.

    • The revenue did not challenge this finding by way of appeal.

Second Appeal before CESTAT and Final Relief on Merits

  1. Appeal to CESTAT on Taxability:

    • Aggrieved by the appellate order, the assessee approached the CESTAT, Allahabad.

    • At Sl. No. 14 of the appeal memorandum (Form ST-5), the assessee disclosed:

      • ₹84,609 as 10% of the demand, paid vide Challan No. 00127 dated 28.03.2018, and
      • The earlier amounts of ₹4,12,000 and ₹4,25,939 as part of the deposits.