In a set back for the Union government, the Bombay High Court has directed the CGST & Central Excise (Legacy Refunds) to refund Rs 56.19 crore, plus interest, to HSBC for retaining the amount deposited “in protest” and not taking any steps to ascertain any tax liability against the bank.
“It is limpid that the respondents have retained the amounts in question without authority in law. Such amounts are required to be refunded to be petitioner along with interest,” a division bench of Justices Girish Kulkarni and Jitendra Jain said on November 8. The detailed judgment copy was made available on Thursday.
HSBC deposited Rs 56 crore to 'buy peace'
The Bombay High Court was hearing a plea filed by HSBC seeking direction to the CGST & Central Excise (Legacy Refunds) to refund its amount.
HSBC deposited Rs 56,19,84,075 to “buy peace”, in the event of any prospective demand towards service tax and interest on “interchange income”. It clarified that it is depositing the amount “under protest”.
The plea claimed that no show cause notice was issued to it in respect of an ‘interchange income’ for the period from October 2007 to June 2012. Seeking return of its amount, HSBC contended that the money was kept by the respondents “without any authority in law and not a tax as leviable or payable” by the bank.
Audit objections and unresolved matters
From August 27, 2012, to October 18, 2012, the authorities undertook an audit of HSBC’s books and records for audit for the period from March 2007 to April 2012. On October 22, 2012, the audit group raised objections for non-payment of service tax on the interchange income earned during the said period.
Although the objection was raised by the audit group, no demand was raised. Still HSBC deposited the amount under protest. Also, no show cause notice was issued in relation to appropriation of deposited amount.
HSBC then filed an application with the department seeking refund. As it did not receive any response, it approached the Appellate Authority which rejected its plea on March 30, 2021. Hence, the bank approached the high court.
The respondents opposed the plea contending that HSBC will have to approach the Commissioner (Appeals) challenging the rejection order of the appellate authority.
Court's directive on refund
The court noted that it was not disputed that the amount was deposited “under protest” and not under lawful demand raised by the respondents for any claim towards service tax. Although, the respondents continued to retain the amount, the department did not undertake any exercise to ascertain any liability against the petitioner.
“The department would need to demonstrate that it had authority in law to withhold/appropriate the amounts as deposited by the petitioner towards tax,” emphasised the bench.
Disagreeing with the respondents in retaining the amount, the HC said: “The stand taken by the department to retain the amount is only on the basis of a forfuitous circumstances, namely, the petitioner having voluntarily deposited the amount…”
The bench directed the authorities to refund the amount with interest within four weeks.
