Court Orders Refund of Improperly Collected Service Tax, Emphasizes Legality

The court allowed the writ applications, directing the respondents to refund the deducted service tax amounts and to refrain from collecting such tax in the future as long as the exemption remained valid. The court emphasized that tax collection must be authorized by law, and in this case, the respondents had no authority to collect service tax due to the exemption. The court ordered the refund of the entire service tax amount deducted from the petitioners' bills post the issuance of the exemption notification and restrained the respondents from collecting any such tax in the future.

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Issues:
Refund of service tax amount deducted from the bill, Direction to not deduct service tax in the future.

Analysis:
The petitioners sought a mandamus to refund the service tax amount deducted from their bills and to prevent future deductions. The petitioners argued that the deductions were contrary to the General Exemption provided in Notification No. 12/2012-Service Tax. They contended that the service tax deduction was impermissible as per the exemption granted by the Central Government. The petitioners executed various contracts for road construction and maintenance under the Road Construction Department of Bihar. The authorities had been deducting service tax at 12.36% despite the exemption notification. The respondents justified the deductions by stating that the Estimated Cost Value (ECV) included service tax at 12.36%, which was deducted from the bills. However, the petitioners argued that the tender documents did not mention the inclusion of service tax. The court emphasized that tax collection must be authorized by law, and in this case, the respondents had no authority to collect service tax due to the exemption. The court allowed the writ applications, directing the respondents to refund the deducted service tax amounts and to refrain from collecting such tax in the future as long as the exemption remained valid.

The court highlighted that under Article 265 of the Constitution of India, no tax can be levied or collected without the authority of law. The exemption notification clearly indicated that the respondents lacked the authority to collect service tax that was not leviable under the law. Therefore, the court ordered the refund of the entire service tax amount deducted from the petitioners' bills post the issuance of the exemption notification. Additionally, the respondents were restrained from collecting any such tax from the petitioners or other contractors in the future as long as the exemption was in force. The court disposed of the petition in line with a previous order and directed the respondents to consider a representation filed by the petitioners in light of the said order. No costs were awarded, and the petition was disposed of accordingly.

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