CESTAT Mumbai Awards ₹50,000 Costs After Holding Department Harassed Taxpayer Over ₹33,373 Pre-Deposit Refund

The Mumbai bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has imposed ₹50,000 as compensatory litigation costs on the Department after observing that proceedings over the refund of a mandatory pre-deposit of ₹33,373 appeared to have been unnecessarily initiated and were meant to harass a genuine taxpayer.

The tribunal directed the Department to refund the pre-deposit along with statutory interest.

A single-member tribunal of Judicial Member Dr. Suvendu Kumar Pati dismissed the Revenue's appeal and upheld the Commissioner (Appeals)' order directing refund of the pre-deposit with interest.

The tribunal observed, “The entire exercise made in these proceedings by the Department for a meager amount of Rs. 33,373/- appears to have been made to cause harassment to the Assessee/Respondent who has suffered undue hardship and financial burden for such a protected litigation that must have caused severe mental agony to the Respondent.”

The dispute arose from a Service Tax demand raised against Toyo Engineering India Pvt. Ltd. While challenging the demand before the Commissioner (Appeals), the company deposited ₹33,373, equivalent to 7.5% of the disputed amount, as the mandatory pre-deposit required for the appeal.

The Commissioner (Appeals) later allowed the appeal and set aside the demand.

After succeeding in the appeal, the company sought a refund of the pre-deposit with interest. The refund sanctioning authority rejected the claim because the payment had been made through a DRC-03 payment form prescribed for GST matters, instead of the prescribed Service Tax challan.

Before the tribunal, the Revenue argued that the refund could not be granted because the mandatory pre-deposit had been made using the wrong payment form.

Toyo Engineering India contended that the amount had admittedly reached the Government account. It also relied on the Board's circular dated September 16, 2014, which requires refund of pre-deposits with interest when an assessee succeeds in appeal.

The tribunal agreed with the company. It held that the validity of the pre-deposit had already been accepted when the Commissioner (Appeals) admitted the appeal. Once the appeal had been entertained and later decided in the company's favour, the Department could not refuse the refund merely because the payment had been made through a DRC-03 payment form. The tribunal also noted that the amount had reached the Government treasury.

The tribunal observed, “The legality of pre-deposit is supposed to be scrutinized by the Commissioner (Appeals) at the time of admission of appeal who never disputed such deposit nor even raised any objection regarding payment made through any improper challan, if any.”

The tribunal further noted that the Board had, through a series of circulars, instructed field formations to promptly refund pre-deposits once an appeal is decided in favour of an assessee.

It observed that the refund sanctioning authority failed to follow those instructions despite being aware of the applicable Board circular. The tribunal also referred to decisions of the Bombay High Court, the Delhi High Court, and the Supreme Court while rejecting the Department's objection to the mode of payment.

Dismissing the Revenue's appeal, the tribunal confirmed the Commissioner (Appeals)' order directing refund of the pre-deposit with interest within two months.

It also directed payment of ₹50,000 as compensatory litigation costs within the same period. The tribunal further observed that the interest paid on the refund may be recovered from the officer who failed to comply with the Board's circular dated December 8, 2004

For Appellant: Shri Arun Bhaskar, Superintendent, Authorised Representative

For Respondent: Shri Jalpesh Vora, Chartered Accountant