The Customs, Excise & Service Tax Appellate Tribunal clarified that when service tax is paid by mistake of fact, the refund must attract interest at 12% per annum, overturning the lower authority's 6% rate and providing a clear benchmark for future refund disputes.
Background & Facts
The Dispute
M/s SAF Yeast Company Private Limited (the Appellant) challenged the Commissioner, CGST & Central Excise, Lucknow (the Respondent) on the quantum of interest payable on a refund of service tax amounting to Rs.1,35,72,925. The Appellant contended that the tax had been paid under a mistake of fact because the transporter was not covered under the Goods Transport Agency (GTA) service, as no consignment note was issued. Accordingly, the Appellant claimed entitlement to a 12% per annum interest rate on the refund.
Key Facts
- 30.08.2024: Commissioner (Appeals) allowed refund of Rs.1,35,72,925, recognizing the payment as a mistake of fact.
- 19.11.2024: Adjudicating Authority rejected the Appellant’s claim for interest on the refund.
- 15.01.2026: Commissioner (Appeals) upheld the rejection of interest, fixing interest at 6% per annum.
- 12.08.2026: Hearing of the appeal before the Tribunal.
- 14.08.2026: Tribunal delivered its decision, setting aside the 6% interest order and directing interest at 12%.
- The Appellant relied on Clause (21)(d) of Notification No.25/2012-ST (as amended by Notification No.03/2013-ST) which exempts ‘food stuff’ (including yeast) from service tax on GTA services.
- The Respondent argued that interest at 6% was applicable under Notification No.70/2014/Customs (N.T.) dated 12.08.2014, issued under Section 129EE of the Customs Act, 1962.
Procedural History
- 30.08.2024: Order-In-Appeal No.544-ST/APPL/LKO/2024 allowed refund of Rs.1,35,72,925.
- 19.11.2024: Order-In-Original (Bi,11/AC/ST/RFD/STP/SafYeast/2024) rejected interest claim.
- 15.01.2026: Order-In-Appeal No.06-ST/APPL/LKO/2026 upheld the 6% interest rejection.
- 12.08.2026: Appeal heard before the Tribunal (Members: P. K. Choudhary, Judicial; K. Anpazahkan, Technical).
- 14.08.2026: Tribunal delivered the present judgment.
Parties' Positions
- Appellant: Asserted that the tax was paid by mistake of fact, invoking the exemption under Notification No.25/2012-ST and seeking interest at 12% per annum, supported by several Tribunal and High Court precedents.
- Respondent: Maintained that interest should be limited to 6% per annum as per the 2014 Customs notification and that the refund had been made within three months, negating any claim for higher interest.
Relief Sought
The Appellant prayed for:
- Refund of Rs.1,35,72,925 with interest at 12% per annum from the date of deposit until actual payment of the refund;
- Set-aside of the order granting interest at 6%; and
- Costs of the appeal.
The Legal Issue
Whether, in a case where service tax has been paid by mistake of fact, the refund must attract interest at 12% per annum notwithstanding a statutory notification fixing interest at 6% for delayed refunds, and whether Section 11B of the Central Excise Act, 1944 applies to such a refund.
Arguments Presented
For the Appellant
- The Appellant argued that the payment was a mistake of fact, rendering the amount a ‘deposit’ that must be refunded with interest.
- Cited Clause (21)(d) of Notification No.25/2012-ST (as amended) to claim exemption from GTA service tax.
- Relied on Tribunal decisions in Gajendra Singh Sankhla (2025), M/s Meenu Builders (2025), Berger Paints India Ltd. (2026) and the Calcutta High Court decision in Rajendra Kumar Jain v. Commissioner of Customs (Port) (09.05.2024) which uniformly awarded 12% interest on such refunds.
- Emphasised that no statutory provision fixes the rate of interest for refunds of mistaken payments, and the Supreme Court in ITC Ltd. and the coordinated bench in Madura Coats Private Ltd. have endorsed a 12% rate until a specific provision is enacted.
For the Respondent
- Submitted that Notification No.70/2014/Customs (N.T.) dated 12.08.2014, issued under Section 129EE of the Customs Act, fixes interest at 6% per annum for delayed refunds, and therefore the lower rate applies.
- Asserted that the refund had been made within three months of the application, negating any claim for additional interest.
- Contended that Section 11B of the Central Excise Act, 1944, which prescribes limitation periods, should apply, thereby precluding interest on the amount.
The Court's Analysis
The Tribunal first examined the nature of the payment. It accepted the Commissioner (Appeals)’ finding that the amount was paid by mistake of fact, thereby classifying it as a ‘deposit’ under the relevant provisions. The Tribunal reiterated that a deposit made under a mistake of fact must be refunded with interest, a principle consistently upheld by the Principal Bench of the Tribunal in Gajendra Singh Sankhla and Meenu Builders.
"When the amount is paid by mistake of fact, the said amount paid is considered as 'deposit' and the same has to be refunded along with interest."
The Tribunal then addressed the rate of interest. It noted that the Customs notification fixing a 6% rate applies to interest on delayed refunds of pre-deposits under Section 129EE of the Customs Act, but that the period in question preceded the notification and, more importantly, there is no specific statutory provision prescribing a rate for refunds of mistaken payments. Citing the Calcutta High Court’s decision in Rajendra Kumar Jain v. Commissioner of Customs (Port), the Tribunal held that in the absence of a statutory rate, the courts have consistently applied a 12% per annum rate, as also endorsed by the Supreme Court in ITC Ltd. and the coordinated bench in Madura Coats Private Ltd..
The Tribunal further considered the binding effect of High Court decisions on the Tribunal. While acknowledging the existence of divergent High Court rulings, it relied on the larger bench precedent in Atma Steels P. Ltd. v. Collector of Central Excise, Chandigarh that the Tribunal may adopt the view most appropriate to the facts when faced with conflicting High Court opinions. Given that the Calcutta High Court decision directly addressed the rate of interest on refunds of mistaken payments and was the only authority on point, the Tribunal deemed it binding for the present case.
Finally, the Tribunal rejected the respondent’s reliance on Section 11B of the Central Excise Act, observing that the provision deals with limitation periods for claims and does not preclude the award of interest on a refund that is recognized as a deposit.
In sum, the Tribunal concluded that the Appellant is entitled to interest at 12% per annum from the date of deposit until the date of actual refund, and that the impugned order granting interest at 6% is legally untenable.
The Verdict
The Tribunal set aside the order dated 15.01.2026 that sanctioned interest at 6% and allowed the Appellant’s claim for interest at 12% per annum on the refund of Rs.1,35,72,925. The interest is to accrue from the date of deposit of the mistaken tax payment until the date the refund is actually paid. Costs were awarded to the Appellant. The appeal is disposed of in favour of the Appellant.
What This Means For Similar Cases
Interest Rate Determination in Refunds
- In the absence of a specific statutory rate, tribunals will apply the 12% per annum rate endorsed by higher courts for refunds of amounts paid by mistake of fact.
- Practitioners should cite Rajendra Kumar Jain and Madura Coats when arguing for the higher rate, especially where the refund period predates the 2014 Customs notification.
Applicability of Section 11B
- Section 11B of the Central Excise Act governs limitation periods, not the quantum of interest on refunds classified as deposits.
- Lawyers should focus on the nature of the payment (mistake of fact) rather than limitation provisions when seeking interest.
Handling Conflicting High Court Precedents
- Tribunals may adopt the view of the jurisdictional High Court if it is the sole authority on the specific issue; otherwise, they retain discretion to follow the most appropriate precedent.
- Counsel should identify the controlling High Court decision within the tribunal’s territorial jurisdiction to strengthen their argument.
