2019 (4) TMI 134 - HC - Service Tax

High Court directs tax refund with interest, clarifies Section 11B on legal tax liabilities

The High Court ruled in favor of the petitioner, directing the refund of the tax amount with interest. The judgment clarified the applicability of Section ... Refund of service tax - service tax paid under mistake of fact - MESCOM ledger maintenance service - rejection on the ground of time limitation - Section 11B of the Central Excise Act, 1994 - Held that:- The settled principle of law is mere payment of tax made by the respondent under the mistaken notion would neither validate the nature of payment nor the nature of transaction. The controversy in the present case involves around the applicability of Section 11B of the Act to the facts of the present case - In the KVR Construction, [2012 (7) TMI 22 - KARNATAKA HIGH COURT], the Division Bench of this Court has categorically observed that when once there was no compulsion or duty cast to pay the service tax, the amount paid by petitioner under mistaken notion, would not be a duty or “service tax” payable in law. The petitioner has paid tax amount on a mistaken notion and the maintenance of books of MESCOM is not a taxable service, the department cannot get itself unjust enriched by relying on Section 11B of the Act. If the services are not coming within the ambit of taxable service as contemplated under the Act 1994, Section 11B of the Act is not applicable. Hence, respondent No.2 is directed to refund the tax amount to the petitioner. Petition disposed off. Issues:Challenge to order for refund of tax with interest.Analysis:The petitioner, a practicing Chartered Accountant, challenged an order seeking a refund of tax amounting to Rs. 2,31,139/- with interest. The petitioner rendered ledger maintenance services to MESCOM from July 2003 to September 2005 without collecting or paying any service tax as it was not considered a taxable service. The Assessing Authority levied service tax, but the Appellate Authority ruled in favor of the petitioner. The Revenue's appeal was withdrawn. The petitioner sought a refund, rejected by respondent No.2, citing Section 11B of the Central Excise Act, 1994. The petitioner argued that the taxes collected without legal authority violated Article 265 of the Constitution and cited a Division Bench judgment.The respondents justified the rejection, stating the refund claim was made after a 10-year lapse from the Appellate Authority's order. They argued that Section 11B applied and supported respondent No.2's decision. The High Court considered the arguments and reviewed the case's details. The finality of the ledger maintenance service's tax liability was established by the Appellate Authority's order and the Revenue's appeal withdrawal. The Revenue's claim that the refund should be considered under Section 11B was evaluated in light of a relevant Division Bench judgment.The Court emphasized that the mere payment of tax under a mistaken notion does not validate the nature of the payment or transaction. It referred to the applicability of Section 11B and cited a previous case to support its decision. The Court concluded that if the services did not fall under taxable services as per the Act, Section 11B did not apply. The department was directed to refund the tax amount to the petitioner. However, interest on the tax amount paid under a mistaken notion was denied. The Court quashed the order of respondent No.2 and directed the refund to be processed within eight weeks.In conclusion, the High Court ruled in favor of the petitioner, directing the refund of the tax amount with interest. The judgment clarified the applicability of Section 11B and emphasized the importance of legal tax liabilities in determining refund claims.