Refund denied after entire service tax demand was set aside cannot survive when the foundation notice is unsustainable.

Where a show cause notice is held unsustainable and the consequential service tax demand and proceedings are set aside in toto, the authorities cannot later split the demand and treat any part as surviving on limitation grounds. Once that order attains finality, denial of refund on the basis of a partially surviving demand is without legal basis. The refund claim was also filed before the Tribunal order and, in any event, within the limitation period under Section 11B. The refund denial was therefore unsustainable, and the assessee was entitled to refund with consequential relief.

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Issues: Whether refund of service tax deposited by the assessee could be denied in part on the ground that the claim was time-barred or that a portion of the demand survived, after the Tribunal had set aside the entire demand and held the show cause notice unsustainable.

Analysis: The Tribunal had earlier concluded that the show cause notice itself was not sustainable because the precondition for invoking the proviso to Section 73(1) of the Finance Act, 1994 was not met, and it had also set aside the consequential demand and proceedings in toto. Once that order attained finality, the lower authorities had no basis to treat any part of the demand as surviving or to re-examine the matter by splitting the demand into a portion allegedly within limitation. The refund application was also found to have been filed before the Tribunal order and, in any event, within the limitation period under Section 11B.

Conclusion: The denial of refund was unsustainable. The assessee was entitled to refund with consequential relief.

Final Conclusion: The Tribunal's prior order having nullified the entire demand and the proceedings, the authorities below could not retain any part of the amount or reject the refund on limitation grounds.

Ratio Decidendi: Where the foundation notice and the entire demand are held unsustainable and set aside in toto, the authorities cannot revive any part of the demand or deny refund by treating a portion as separately survivable on limitation grounds.

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