Whether interest is refundable afterwards if the service tax liability is admitted?

PJ/Case Law /2016-17/3423

Case-SKODA AUTO INDIA PVT. LTD. VERSUS COMMISSIONER OF C. EX., AURANGABAD
Citation- 2012 (28) S.T.R. 391 (Tri. - Mumbai)
Brief Facts-The appellant is in appeal against the order of denial of refund claim of the interest for the delayed payment of service tax paid by them.
The facts in brief of the case are that the appellants are manufacturer of motor vehicles and entered into Technology Transfer Agreement with M/s. Skoda Auto A.S. for rendering technical assistance and training in supply, assembly and manufacture, testing and quality assurance of contractual products and to allow the appellant to use their trademark. In November, 2005 a show-cause notice was issued to the appellant for the demand of service tax under the category of ‘Intellectual Property Rights’ Services. During the pendency of the show-cause notice, the appellant paid a service tax of Rs. 5,43,01,368/- along with interest thereon of Rs. 58,79,424/-. After the decision of the Indian National Ship Owners Association v. Union of India - 2008-TIOL-633-HC-MUM-ST = 2009 (13) S.T.R. 235 (Bom.), the appellant filed a refund claim of the interest for the delayed payment of service tax paid in pursuant to the show-cause notice on 18-1-2006. The said refund claim of interest was rejected by both the lower authorities. Therefore, the appellant appeared before the Tribunal.
Appellant’s Contention-Shri Bharat Raichandani, learned Advocate appearing for the appellant submitted that the authorities have erred while rejecting their refund claim on the ground of limitation as well as on the ground that the order-in-original was not challenged.
He further submitted that in the case of Indian National Ship Owners Association v. Union of India (supra) the Hon’ble High Court of Bombay has held that the service tax is not leviable under Rule 2(l)(d)(iv) of Service Tax Rules, 1994 as the service has been provided by their service provider who is located outside India prior to 18-4-2006 when enactment of Section 66A of the Finance Act, 1994, was introduced. Therefore, prior to 18-4-2006, the appellants were not liable to pay the service tax, consequently are not liable to pay interest also. As the said issue of liability was settled by the Hon’ble High Court of Bombay in the case of Indian National Ship Owners Association v. Union of India (supra) which was confirmed by the Hon’ble Supreme Court, therefore, the appellants are entitled for refund of the service tax as well as the interest paid thereon from 11-12-2008 when the Hon’ble High Court of Bombay has decided the issue. The appellant did not file the refund claim of the service tax as the credit of the same has been taken by them. They have only filed refund claim of the interest which was not payable by them within one year of the decision of the Hon’ble High Court in the case of Indian National Ship Owners Association v. Union of India (supra). Therefore, the appellants are entitled for refund claim of service tax paid by them on limitation as well as on merits.
Respondent’s Contention-On the other hand, the learned A.R. reiterated the impugned order and submitted that they have filed a refund claim at least 3 years from the date of payment, therefore, they are not entitled for refund claim.
Reasoning Of Judgement-After hearing both sides, the Tribunal found that in this case the appellants paid service tax along with interest for the year 2006 itself and the same has been appropriated by way of adjudication. The appellants had taken the Cenvat credit of the service tax and filed refund claim on interest paid by them. Although the liability of service tax was not leviable as per the decision of the Indian National Ship Owners Association v. Union of India (supra) but the appellant did not take recourse of the claiming the refund of the service tax paid by them which implies that they have admitted their service tax liability. Once they have admitted their liability of service tax, the same should be paid along with interest as held by the Hon’ble Apex Court in the case CCE v. SKF India Ltd. - 2009 (239) E.L.T. 385 (S.C.). In the case of Vidyut Metallics Pvt. Ltd vide Order No. A/15/12/SMB/C-IV dated 10-2-2012, this Tribunal observed that the appellant has admitted their duty liability and paid thereof, therefore as per the decision of the Hon’ble Apex Court in the case SKF India Ltd. (supra), the interest is payable.
In view of these observations, the Tribunal held that as the appellants had admitted their service tax liability by not claiming the refund of the same and also taken the credit of the same, therefore interest on delayed payment is payable by the appellant. Accordingly, the refund claim is not maintainable.
In view of these findings, the appeal is dismissed by confirming the impugned order.
Decision- Appeal dismissed.
Comment- The gist of the case is that once the service tax liability is admitted, the same is to be paid along with interest as per the decision in SKF India Ltd. [2009 (239) E.L.T. 385 (S.C.)]. It was held that even if due to decision of Apex Court, it is found that no service tax was payable, then too, the assessee cannot be refunded the amount of interest paid by them because once the service tax liability has been accepted by them, interest is required to be paid by the assessee. Hence, it was held that interest was payable even if it is found that in reality no service tax was payable as the service tax demand was not contested by the assessee.
Prepared By - Praniti Lalwani

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PJ/Case Law /2016-17/3423

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