2015 (7) TMI 635 - HC - Service Tax

Petitioner entitled to refund of mistakenly paid service tax; no alternative remedy under Section 11B applies

The HC held that the petitioner is entitled to a refund of the amount paid mistakenly as service tax since no service tax was leviable on the service ... Refund claim - challenging an order rejecting their claim for refund of the amount paid mistakenly as service tax - no service tax is leviable for the service - whether the petitioner is entitled for refund of the amount claimed after one year from the relevant date apart from the question relating to alternate remedy available to the petitioner. - Held that:- The question of alternative remedy would arise if service tax is otherwise leviable under the Central Excise Act. Herein, in this case, there is no dispute with regard to the fact that no service tax is leviable for the service extended by the petitioner to the Muscat Bank SAOG. Thus, the writ petition is maintainable when the amount is arbitrarily withheld without any justification under law as the refund claimed by the petitioner is not relatable to Section 11B of the Central Excise Act. Similar view was also taken by the Karnataka High Court in K.V.R. Constructions v. Commissioner of Central Excise (Appeals) and another [2009 (8) TMI 150 - KARNATAKA HIGH COURT] and by the Madras High Court in Natraj and Venkat Associates v. Asst.Commr. Of S.T., Chennai-II [2009 (10) TMI 36 - MADRAS HIGH COURT] - refund allowed - Decided in favour of assessee. ISSUES: Whether a refund claim for service tax paid mistakenly can be rejected on the ground of limitation under Section 11B(1) of the Central Excise Act, 1944.Whether Section 11B of the Central Excise Act applies to refund claims arising from mistaken payment of service tax where the service is not taxable.Whether the petitioner has an alternative remedy precluding the maintainability of a writ petition for refund of service tax paid mistakenly.Whether services rendered to a recipient located outside India and payment received in convertible foreign exchange qualify as export of service and are exempt from service tax. RULINGS / HOLDINGS: The refund claim was rejected as barred by limitation under Section 11B(1) since it was filed beyond one year from the relevant date; however, this limitation does not apply where the payment was made mistakenly for a service not chargeable to tax.Section 11B of the Central Excise Act is not attracted where the amount paid is not 'duty or service tax payable in law' but was paid under a mistaken notion, as the payment lacks the 'colour of legality' necessary to invoke Section 11B.The writ petition is maintainable because no alternative remedy exists when the tax was not leviable in law and the amount is withheld arbitrarily without justification.Services rendered to a recipient located outside the taxable territory, with payment received in convertible foreign exchange, qualify as export of service and are not chargeable to service tax under Section 66B and Place of Provision Rules, 2012. RATIONALE: The Court applied Section 11B of the Central Excise Act, 1944, as made applicable to service tax by Section 83 of the Finance Act, 1994, which prescribes a one-year limitation for refund claims of duty or service tax paid.The Court relied on the principle that Section 11B applies only where the payment has the 'colour of validity' at the time of payment, referencing authoritative precedent distinguishing between mistake of law and mistake of fact in refund claims.In interpreting the Place of Provision Rules, 2012, specifically Rule 3, the Court held that the location of the service recipient outside India makes the service an export, exempt from service tax under Section 66B.The Court recognized precedents from Karnataka and Madras High Courts supporting the proposition that mistaken payment of non-leviable service tax falls outside the scope of Section 11B and justifies writ relief due to lack of alternative remedy.