Retrospective validation and restitution upheld recovery of a refunded tax amount with statutory interest under the Finance Act.

Retrospective validating legislation can require repayment of a refund obtained under an earlier judicial ruling, because the benefit of the overruled position cannot be retained and restitution applies to the recipient. Section 117 of the Finance Act, 2000 was treated as a special, self-contained validating provision that independently authorised recovery of the refunded amount and interest at 24% per annum, without being governed by the general escaped-assessment machinery. The liability to pay interest arose from the validating provision itself and was not postponed by the later order under Section 84 of the Finance Act, 1994. Recovery of the refund with statutory interest was therefore sustained.

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Issues: (i) Whether service tax refunded to the applicant, though originally paid by TISCO, was recoverable from the applicant after the validating provision in the Finance Act, 2000 came into force; (ii) whether Section 117 of the Finance Act, 2000 applied to the refund and authorised recovery with interest at 24% per annum; (iii) whether interest could be demanded for the period prior to the order setting aside the refund under Section 84 of the Finance Act, 1994.

Issue (i): Whether service tax refunded to the applicant, though originally paid by TISCO, was recoverable from the applicant after the validating provision in the Finance Act, 2000 came into force.

Analysis: The liability to pay service tax was held to rest with the service recipient, TISCO, and the tax was in fact paid by it. The refund reached the applicant only because of the earlier judicial position and with TISCO's consent. Once the Finance Act, 2000 validated the levy retrospectively and restored the legal position, the benefit obtained under the overruled judgment could not be retained. The principle of restitution applied, and the person who had received the refund was bound to restore it.

Conclusion: The refund was rightly held recoverable from the applicant.

Issue (ii): Whether Section 117 of the Finance Act, 2000 applied to the refund and authorised recovery with interest at 24% per annum.

Analysis: Section 117 was treated as a special, self-contained validating provision enacted to meet the effect of the earlier Supreme Court decision. It operated independently of Section 73 of the Finance Act, 1994 and was not controlled by the provisions governing escaped assessment or notices to assessees. The statutory text expressly provided for recovery of the refunded amount and for interest at 24% per annum on non-payment within the prescribed period.

Conclusion: Section 117 applied, and recovery with interest at 24% per annum was upheld.

Issue (iii): Whether interest could be demanded for the period prior to the order setting aside the refund under Section 84 of the Finance Act, 1994.

Analysis: The liability to pay interest arose from Section 117 itself and not from the order passed under Section 84 of the Finance Act, 1994. The obligation was statutory and flowed from the validating enactment once the refunded amount became recoverable. The timing of the Section 84 order did not control or postpone that liability.

Conclusion: Interest was recoverable for the relevant period, and the objection was rejected.

Final Conclusion: The questions referred were answered against the applicant and the recovery of the refunded amount, together with statutory interest, was sustained on the basis of retrospective validation and restitution.

Ratio Decidendi: A refund obtained under a judicial decision that is later nullified by retrospective validating legislation becomes recoverable from the person who received it, and the accompanying statutory interest liability is governed by the validating provision itself.

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