Commissioner Of CGST And Cx Kolkata South Commissionerate vs. M/S Electrosteel Castings Limited

Held

The Court held that the appeal filed by the revenue under Section 35G of the Central Excise Act, 1944, was not maintainable. The Court reasoned that an appeal under Section 35G is maintainable only against an order passed 'in appeal' by the Tribunal under Section 35C, not against orders passed under Rule 41 of the CESTAT Rules, which are procedural and for implementation of final orders. Citing precedents from the Karnataka and Bombay High Courts, the Court found that orders under Rule 41 are not 'in appeal' and thus outside the High Court's appellate jurisdiction. Therefore, the appeal was incompetent. On merits, the Court found the revenue's case unsustainable. It held that laying water pipelines for potable water supply projects for state agencies does not constitute taxable commercial or industrial construction service, and the service tax paid was under a mistake of law, making Section 11B's limitations inapplicable. The Court affirmed that interest liability under Section 11BB commences automatically three months from the original refund application date (January 5, 2012, and March 20, 2012), not from the date of subsequent document submission or any appellate order. The Court also held that the 9% compensatory interest awarded by the Tribunal was just and equitable, not contrary to Notification No. 24/2014-C.E.(NT), as the deposit was made under a mistake of law. The Tribunal validly exercised its powers under Rule 41 to ensure its final order was not rendered otiose, and there was no suppression of facts by the respondent. All substantial questions of law were answered against the revenue and in favor of the assessee.

Facts

M/s. Electrosteel Casting Limited (respondent) paid service tax on laying water pipelines, believing it was taxable construction service. Upon advice, they filed two refund claims under Section 11B of the Central Excise Act, 1944, on January 5, 2012 (Rs. 15,23,691) and March 20, 2012 (Rs. 2,05,01,047). The second claim was returned as time-barred, and the first was rejected. Appeals to the Commissioner (Appeals) were rejected, but the Tribunal set aside these rejections on August 9, 2024, ordering refunds within one month. The revenue's High Court appeals were dismissed. Subsequently, the Assistant Commissioner sanctioned the principal refund of Rs. 2,25,24,738 on January 6, 2025, but no interest. The respondent then filed an appeal for interest before the Commissioner (Appeals) and a miscellaneous application before the Tribunal. On July 4, 2025, the Tribunal directed the refund sanctioning authority to pay 9% compensatory interest from three months after the original 2012 filing dates. The revenue has appealed this order.

Key Issues

The Court had to decide the following substantial questions of law: 1. Whether interest is payable under Section 11BB of the Central Excise Act, 1944, when the refund claim was sanctioned within three months from the receipt of all requisite documents, considering the explanation to Section 11BB. 2. Whether the Tribunal was justified in awarding interest at 9% per annum when the refund claim was sanctioned within three months from the receipt of all requisite documents. 3. If the answer to question 2 is affirmative, whether the Tribunal's direction to pay interest at 9% is contrary to Notification No. 24/2014-C.E.(NT) dated 12.08.2014. 4. Whether the Tribunal exceeded its jurisdiction by entertaining an appeal against the Assistant Commissioner's order dated January 6, 2025, contrary to Rule 9 of the CESTAT Rules and Section 35B of the Central Excise Act, 1944. 5. Whether the Tribunal's order is correct, considering the respondent's alleged suppression of facts regarding an appeal filed before the Commissioner (Appeals) for interest. 6. Whether an appeal under Section 35G of the Central Excise Act, 1944, is maintainable against an order passed by the CESTAT in a miscellaneous application under Rule 41 of the CESTAT Rules for issuing directions for payment of interest. Petitioner (Revenue) argued that the Tribunal lacked jurisdiction to pass the interim order directing interest payment under Rule 41, as the Assistant Commissioner's order was appealable under Section 85 of the Finance Act. They contended that the Tribunal became functus officio and could not modify its parent order. They also argued that interest was not payable as the refund was sanctioned within three months of receiving completed documents, and the Tribunal's order was an order passed under Section 11BB(2). They further argued that the 9% interest rate was contrary to Notification No. 24/2014-C.E.(NT). Respondent argued that the service tax was paid under a mistake of law and thus Section 11B's limitations did not apply. They contended that interest liability under Section 11BB commences automatically upon expiry of three months from the original refund application date, citing Ranbaxy Laboratories Ltd. They also argued that the 9% interest was compensatory and justified, and the Tribunal validly exercised its powers under Rule 41. They denied suppressing facts.