Unjust Enrichment Not Applicable To The Refund Of Penalty – CESTAT Delhi

The Hon’ble CESTAT Delhi vide its order dated 11th April 2022 in the matter of M/S Rajasthan Financial Corporation Versus Commissioner Of CGST, Jaipur in Service Tax Appeal No. 50007 of 2022 held that the bar of unjust enrichment is not applicable to the refund of penalty.

The Appellant preferred the appeal before the Hon’ble CESTAT, Delhi assailing the impugned order whereby the refund of the penalty deposited by the Appellant was rejected by the Ld. Commissioner (Appeals) on the ground of unjust enrichment.

Facts:

  • The proceedings were initiated against the Appellant with an issuance of Show Cause notice proposing demand of Service Tax under the category of ‘Banking and Financial Services’, subsequently on adjudication the demand was confirmed along with imposition of equivalent penalty and interest.
  • That for the subsequent period also proceedings were initiated and demand was confirmed along with imposition of penalty and levy of interest.
  • The Appellant paid the amount of penalty and challenged the order before the Ld. Commissioner (Appeals) who after considering the submissions made, dropped the penalty extending benefit of Section 80 to the Appellant, however for the rest of demand the Appellant’s appeal is pending before the same tribunal.
  • The revenue against the aforesaid order of ‘dropping penalty’ filed an appeal before the same tribunal which was dismissed vide its Final Order 52123-52124 of 2021 dated 24.12.2021.
  • Thereafter, the appellant filed the refund claim of the aforesaid amount of penalty deposited by them, which was initially rejected on the two grounds as follows:
  1. the penalty has been paid under the wrong head:
  2. they have failed to pass the bar of unjust enrichment.
  • On appeal being preferred against the said order the Ld. Commissioner (Appeals) conceded with all other aspects, however rejected the refund claim on the ground of unjust enrichment while passing the impugned order.

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