Service tax refund claim allowed for consultancy services paid under reverse charge mechanism within Section 11B limitation period

CESTAT Bangalore allowed the appeal regarding a refund claim for service tax paid under reverse charge mechanism on consultancy services from abroad. The respondent deposited service tax, interest and penalty in December 2016 and January 2017, filing refund claim in October 2017 within the one-year limitation period under Section 11B of Central Excise Act, 1944. Though the lower authority held the claim time-barred due to lack of evidence that payments were made under protest, CESTAT found the tax was properly paid under relevant provisions without any mistake of law or constitutional invalidity, making refund mandatory under prescribed provisions.

---

---

Issues Involved:
1. Whether the refund claim was time-barred.
2. Whether the payment made by the respondent was a tax or a deposit.

Summary:

Issue 1: Whether the refund claim was time-barred

The respondent paid Service Tax amounting to Rs. 18,98,107/- along with interest and penalty u/s 78 through three challans dated 05.12.2016, 02.01.2017, and 27.12.2016. The original authority rejected the refund claim on the grounds of limitations, asserting that the tax was not paid under protest. The Commissioner (Appeals) held that the absence of a Final Audit Report (FAR) meant the payment should be treated as a 'deposit' and not as 'tax amount,' thus making Section 11(B) of the Central Excise Act, 1944, relating to limitation inapplicable. The Revenue contended that FAR is not mandatory and the payments should be treated as tax payments, making Section 11(B) applicable. The respondent argued that the refund claim was filed within the one-year time limit specified u/s 11(B) and that the amount was paid by mistake, thus not subject to limitation.

Issue 2: Whether the payment made by the respondent was a tax or a deposit

The Commissioner (Appeals) concluded that the amounts paid by the respondent should be treated as a 'deposit' towards tax, as the audit observations were not incorporated in the FAR. The Revenue argued that the audit observation communicated to the respondent was sufficient, and the payments should be treated as tax payments. The respondent maintained that the payment was made under a mistaken notion and should be refunded, citing various case laws supporting that limitation does not apply to amounts paid under a mistaken notion.

Judgment:

The Tribunal noted that the respondent paid the service tax based on audit observations and requested the closure of proceedings u/s 73(3) of the Finance Act, 1994. The Tribunal found that the respondent's claim of payment under protest was incorrect, and the issue of time bar stands settled as there was no appeal against this finding. The Tribunal held that the tax was paid under the service tax category and there was no declaration of unconstitutionality or mistake of law, thus the amount should be considered as tax. Consequently, the refund must be sanctioned as per the provisions specified u/s 11(B) of the Central Excise Act, 1944. The appeal by the Revenue was allowed.

(Order pronounced in Open Court on 21.05.2024.)

---