Refund of tax paid under mistake of law escapes limitation and unjust enrichment where liability was never legally due.

Service tax paid under a mistaken understanding of liability was treated as tax never legally due, because the foreign contractors had Indian establishments and had already discharged tax on the same transactions. On that basis, the refund was held not to be barred by the ordinary limitation for refund claims, since a payment made under mistake of law does not acquire the character of valid tax merely because it was remitted to the department. The objection of unjust enrichment also failed because the record did not show that the tax burden had been passed on to any buyer or other person. Refund with interest was accordingly stated to be payable.

---

---

Issues: (i) whether the refund claim arising from service tax paid under a mistaken understanding of liability was barred by the limitation prescribed for refund claims; (ii) whether the refund was defeated by the doctrine of unjust enrichment.

Issue (i): whether the refund claim arising from service tax paid under a mistaken understanding of liability was barred by the limitation prescribed for refund claims

Analysis: The amount had been paid both by the foreign service providers through their Indian establishments and by the service recipient, resulting in payment of tax twice on the same transactions. The liability of the foreign entities was examined with reference to Explanation 4 to Section 65B(44) of the Finance Act, 1994, and it was found that the contractors had establishments in India and had correctly discharged service tax. In those circumstances, the service recipient was not required to pay tax under reverse charge, and the amount paid by it was payment under mistake of law. Following the settled line of authority relied upon in the order, a sum that was never legally payable does not acquire the character of tax merely because it was remitted to the department, and the statutory limitation governing refund of duty or tax does not apply in such a case.

Conclusion: The refund claim was not barred by limitation and was maintainable.

Issue (ii): whether the refund was defeated by the doctrine of unjust enrichment

Analysis: The record showed that the appellant had accounted for the disputed amounts as tax paid and had kept them on hold pending the dispute. The pricing and sale arrangement for crude oil also did not show that service tax formed part of the sale value, and the material placed before the authority did not establish that the burden had been passed on to any buyer or other person. In the absence of proof of passing on the incidence, the statutory bar of unjust enrichment was not attracted.

Conclusion: The objection of unjust enrichment failed.

Final Conclusion: The appellant was entitled to refund of the amount paid under mistake of law together with interest, and the impugned rejection of refund could not be sustained.

Ratio Decidendi: Amounts paid towards a levy that was never legally payable are refundable without being confined by the ordinary refund limitation, and the bar of unjust enrichment applies only where the incidence of the payment has been passed on to another person.

---