Whether Revenue can be allowed to withhold interest on the ground that appeal has been filed before Supreme Court but no stay has been obtained?

PJ/CASE LAW/2015-16/3094

Case:-TAHNEE HEIGHTS CO-OP. HOUSING SOCIETY LTD. VERSUS UNION OF INDIA

Citation:- 2015 (40) S.T.R. 453 (Bom.)

Issue:-Whether Revenue can be allowed to withhold interest on the ground that appeal has been filed before Supreme Court but no stay has been obtained?

Brief facts:- The petitioner was a co-operative housing society registered under the Maharashtra Co-operative Housing Societies Act, 1960. The petitioner had allotted units/flats to their members in a building which was owned by it. The members contributed certain sums and on monthly basis enabling the petitioner to maintain and repair the structures/building. The Commissioner of Service Tax determined that the amounts which were contributed and received by the petitioner were pursuant to the services rendered by it and therefore, Service Tax was liable to be paid.

The petitioner did not accept this position, paid the amount under protest, but later on there was adjudication in their favour. The petitioner lodged their refund claims. The petitioner received a show cause notice dated 28-3-2008 as to why this refund claim should not be rejected on the ground that the petitioner had defaulted in payment of Service Tax.

The petitioner replied and contested this position by pointing out that no Service Tax was liable to be paid under the category of ‘club’ or ‘association’ services as they were not providing any services. On 10-7-2009 the Order-in-Original was passed by the Assistant Commissioner of Service Tax, Mumbai, who rejected this refund claim aggregating to Rs. 93,00,365/- on the ground that the petitioner was liable to pay Service Tax under this category in terms of Section 65(25-a) of the Finance Act and the Service Tax amount was correctly paid by them on monthly charges received by them from their members. Thus, the society’s refund claims were rejected. An appeal against this order was also dismissed by the Commissioner (Appeals) by order dated 31-1-2011. Thereafter, the petitioner approached the Customs, Excise and Service Tax Appellate Tribunal against these orders and that Tribunal had allowed the petitioner’s appeal by order dated 18-12-2014 [2015 (38)S.T.R.407 (Tri.-Mum.)]. Following this success in the Tribunal, the petitioner’s claimed the amounts under the refund claims with interest.

From the record it appeared that the petitioner had been paid the principal sum but the claim of interest on the amount which was sought to be refunded had been refused, according to them, not for any other reason but only because of a communication of the department dated 22-6-2015 at Page 31. This communication stated that the matter was still under dispute as the Department had not accepted the CESTAT order and was in the process of filing appeal against the said order. Therefore, the request for payment of interest at this juncture was premature and could not be considered. An affidavit in reply had been filed reiterating this position and rather stating that after having received Rs. 93,00,365/-, the petitioner must wait till the outcome of the proceedings which had been initiated before the Hon’ble Supreme Court.

Appellant’s contention:- It was contended that the principal amount of Rs. 93,00,365/- had been received and this fact was sufficient to state that the Revenue had accepted the order of the Tribunal. And therefore, interest on the said amount should be paid.

Respondent’s contention:-Learned Counsel appearing on behalf of the Revenue, on instructions stated that the appeal against the order of CESTAT had been lodged by the Department/Revenue in the Supreme Court of India and was pending before the registry of that Court. The Department was taking steps to remove all office objections, get that appeal registered and, thereafter, placed before a Bench of Hon’ble Supreme Court of India.

Reasoning of judgement:- After hearing both sides and noting the request of the Revenue, they were mindful of the fact that some compliances and in procedural matters before the Supreme Court of India takes time. However, they did not find any justification and when the impugned order of the CESTAT was passed on 18-12-2014 and the appeal is indeed lodged in the Supreme Court of India, in the Revenue not taking any steps to comply with the procedural requirements. This only meant that the Revenue having complied with the Tribunal’s order and granted refund partially, had withheld the interest claim on a possible realisation that if this is also awarded and paid, the proceedings before the Supreme Court would be rendered infructuous. This could not be the legal position nor can the understanding of the parties be based on the same. The Revenue had ample time to obtain such interim order from the Supreme Court as was permissible in law so that it was relieved from the obligation to pay interest on the Principal sum. However, it had not taken any such steps and there were no interim prohibitory or restraint orders in Revenue’s favor.
In the above circumstances, they could dispose of this Writ Petition with a direction that the Revenue should take requisite steps in the pending proceedings before the Hon’ble Supreme Court within a period of two months from the date of receipt of copies of this order and if within this period it was unable to obtain any interim stay or restraint order in the aforesaid terms, then, it must release the sums outstanding and towards interest within a period of four weeks from the date of expiry of the above period. In other words, on expiry of two months if there was no order in favor of the Revenue of the aforesaid nature, then, the all amounts be refunded and paid to the petitioner within four weeks from the date the time stated above has expired. However, they clarified that their order and direction was without prejudice to the rights and contentions of both sides. Their order and directions did not preclude the Revenue from applying for interim stay or interim relief nor the petitioner had been prevented from arguing to the contrary.

Decision:- Petition disposed of.

Comment:- Where the order of the Tribunal had been passed in the favor of the assessee and where the Revenue had paid the principal amount, then there was no stand found in Revenue’s contention regarding the revenue not paying the amount of interest on the aforesaid principal amount. The revenue was therefore ordered to avail stay from the Hon’ble Supreme Court as the Revenue had appealed in the said court. It was also ordered that if the Revenue failed to avail such stay from the court within 2 months, then the aforesaid amount of interest would have to be repaid to the petitioner.

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PJ/CASE LAW/2015-16/3094

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