Composite property sale and service tax: no levy without a workable valuation mechanism, with refund and interest upheld.

Refund claims for amounts paid under mistake of law are not barred by the service tax limitation period where the underlying transaction was never chargeable to service tax, and the claim was filed soon after the legal position was clarified. An objection that the petitioners failed to independently prove deposit of the collected amount with the Central Government was rejected as the record ultimately showed deposit and the revenue did not dispute it. Service tax could not be levied on the composite sale of constructed property with undivided land share because there was no workable machinery to isolate and value the service component; Rule 2A did not apply. Refund with interest followed.

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Issues: (i) Whether the refund claim was barred by limitation under the refund provision applicable to service tax claims; (ii) whether the petitioners were required to independently prove deposit of the collected amount with the Central Government before refund could be granted; (iii) whether service tax could be levied on the composite transaction of sale of constructed property with undivided share of land in the absence of a machinery provision for valuing the service component.

Issue (i): Whether the refund claim was barred by limitation under the refund provision applicable to service tax claims.

Analysis: The amount paid by the petitioners was treated as a payment made under mistake of law on a transaction not chargeable to service tax. Where the levy itself is not attracted, the amount paid does not assume the character of service tax for the purpose of applying the limitation period under the refund provision relied upon by the revenue. The claim was also made shortly after the legal position was clarified by the Delhi High Court decision relied upon by the petitioners.

Conclusion: The refund claim was not barred by limitation.

Issue (ii): Whether the petitioners were required to independently prove deposit of the collected amount with the Central Government before refund could be granted.

Analysis: The record showed that the revenue did not seek such proof from the petitioners at the outset, and the petitioners later produced material showing deposit of the collected amount. In any event, the respondents did not dispute the actual deposit once the material was placed on record. The objection was therefore factual and unsustainable.

Conclusion: The objection regarding non-production of proof of deposit was rejected.

Issue (iii): Whether service tax could be levied on the composite transaction of sale of constructed property with undivided share of land in the absence of a machinery provision for valuing the service component.

Analysis: The Court held that the levy on such a composite sale transaction could not be sustained because the governing law, as applicable to the transaction, did not provide a workable mechanism to isolate and value the service component from the land and goods component. Rule 2A of the Service Tax (Determination of Value) Rules, 2006 was confined to works contracts under clause (h) of the declared services provision and did not cover the present type of composite transaction. The view in GD Builders was held to be no longer good law in light of the Supreme Court decision in Larsen and Toubro, and the Delhi High Court reasoning in Suresh Kumar Bansal was accepted.

Conclusion: Service tax could not be levied and retained on the composite transaction in question.

Final Conclusion: The impugned refund rejection was unsustainable, and the petitioners were entitled to refund with interest on the amount collected without authority of law.

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