In a significant judgment of ICICI Bank Limited, Maharashtra v/s Union of India, through the Secretary, Ministry of Finance, New Delhi & Others., the High Court addressed the prolonged inaction by revenue authorities in adjudicating refund applications and a show cause notice concerning a service tax dispute. The case arose from a petition filed under Article 226 of the Constitution of India, where the petitioner, a prominent banking institution, sought a writ of mandamus for the refund of Rs. 333.08 crore deposited "under protest" for the period April 2007 to June 2017, related to service tax on "interchange fees." The petitioner also sought quashing of a show cause notice dated May 11, 2015, issued by the authorities.
Background of the Dispute:
The petitioner, registered under Chapter V of the Finance Act, 1994, is a bank engaged in credit card issuance. A dispute arose regarding the applicability of service tax on interchange fees earned by the issuing bank. Amid this debate, payments were made "under protest" from October 2012 to June 2017, aggregating Rs. 333.08 crore. Refund applications for this amount were filed on November 5, 2019.
Meanwhile, the authorities issued a show cause notice on May 11, 2015, demanding Rs. 82.26 crore as service tax on interchange fees and proposing to adjust this amount against the protested payments. Despite several follow-ups, adjudication on both the refund claims and the show cause notice was delayed for years, prompting the petitioner to approach the Court.
Arguments by the Parties:
Senior Advocate Mr. Shroff, representing the petitioner, argued that the inordinate delay in adjudicating the show cause notice rendered it stale. He emphasized that the issue of service tax on interchange fees was conclusively decided by the Supreme Court in Commissioner of GST and Central Excise vs. Citi Bank (2021), leaving no room for further adjudication. Citing a similar decision in the Hongkong and Shanghai Banking Corporation Ltd. vs. Union of India case, he urged the Court to direct the refund of the protested amount.
On the other hand, counsel for the respondents opposed the quashing of the show cause notice, arguing that the petitioner had itself requested adjudication of the notice through multiple communications, the latest being in April 2023. The respondents assured the Court that they would adjudicate the pending issues within four weeks.
Court's Observations and Directions:
The Court expressed strong disapproval of the respondents' inaction, stating that delays in adjudicating refund claims and show cause notices negatively impact businesses, particularly banks, by straining their working capital. The Court emphasized that such delays harm the country’s business-friendly image and contradict the government’s “Ease of Doing Business” initiative.
On the prayer to quash the show cause notice, the Court noted that the petitioner had repeatedly sought its adjudication, even after the Supreme Court's decision in the Citi Bank case. Consequently, the Court held that quashing the notice at this stage would be inappropriate. However, it left open the issue of delayed adjudication for the petitioner to raise before the adjudicating authority.
Regarding the refund applications, the Court refrained from issuing a direct order for a refund, reasoning that the refund claims were intertwined with the adjudication of the show cause notice. Instead, the Court directed the authorities to adjudicate both the refund claims and the show cause notice together within eight weeks and to grant refunds, if eligible, within two weeks of such adjudication.
The Court underscored the need for authorities to adopt a non-adversarial approach in tax matters, especially when judicial precedents favor the taxpayer. It cautioned against unjustly denying refunds or raising frivolous demands, particularly in high-stake cases.
Distinguishing HSBC Case:
The Court distinguished the facts of this case from the HSBC decision cited by the petitioner. In the HSBC case, the appellate authority had already ruled in favor of the taxpayer, and no further proceedings were initiated by the revenue authorities. The Court clarified that the present case involved pending adjudication of a show cause notice, making it inappropriate to rely on the HSBC precedent for directing an immediate refund.
Conclusion and Final Order:
The Court issued the following directives:
- Adjudication of the show cause notice dated May 11, 2015, along with its corrigendum, within eight weeks from the date of the order.
- Processing of the refund applications filed on November 5, 2019, within the same timeframe.
- Grant of eligible refunds, if any, along with applicable interest, within two weeks after adjudication of both the show cause notice and the refund applications.
The Court concluded by reaffirming that tax proceedings should be non-adversarial and ruled in favor of expeditious disposal of pending matters to uphold business confidence and economic stability.
This judgment serves as a reminder of the importance of timely resolution of tax disputes and highlights the Court's role in ensuring administrative accountability in such matters.
FINANCE ACT, 1977
