Refund of tax paid under protest requires proper adjudication; unilateral departmental communication cannot replace statutory determination.

Service tax paid under protest after the assessee disputed taxability could not be retained as an admitted liability without resort to the statutory adjudicatory process. Where the department alleges short levy, short payment, or non-levy, liability must be determined through the prescribed recovery machinery with an opportunity to contest the demand; a unilateral departmental letter cannot replace adjudication. Because no show cause notice or determination of liability was issued, the payment was treated as made under mistake, and the refund claim was maintainable. The rejection of refund was therefore set aside in favour of the assessee.

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Issues: Whether service tax paid under protest pursuant to departmental letters, without issuance of a show cause notice or determination under the recovery provisions, was refundable to the assessee.

Analysis: The amount was paid after the assessee disputed taxability and expressly marked protest. In such a situation, the department could not treat the payment as an admission of liability and retain the amount without initiating adjudication. Where tax is said to be short levied, short paid, or not levied, the proper course is determination under the statutory machinery, with an opportunity to contest the demand. A unilateral communication treating the payment as final acceptance of liability cannot substitute for adjudication. Since no show cause notice or determination of liability was made, the payment was treated as one made under mistake and the refund claim could not be rejected on the ground adopted by the department.

Conclusion: The refund claim was held to be maintainable and the rejection of refund was set aside in favour of the assessee.

Ratio Decidendi: Where tax is paid under protest in the face of a disputed demand, the department must determine liability through the statutory adjudicatory process before retaining the amount, and cannot treat the payment itself as conclusive proof of acceptance of liability.

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