2025 (5) TMI 574 - AT - Service Tax

Service tax refund granted for payment made under mistake of law, time limits inapplicable

M/s Meenu Builders Versus The Commissioner of Central Excise, Central Goods & Service Tax, Jaipur And M/s Nahar Singh Versus The Commissioner of Central Excise, Central Goods & Service Tax, Jaipur

M/s Meenu Builders Versus The Commissioner of Central Excise, Central Goods & Service Tax, Jaipur And M/s Nahar Singh Versus The Commissioner of Central ... The core legal questions considered by the Tribunal in these appeals revolve around the entitlement to refund of service tax paid by the appellants and the service recipient under the reverse charge mechanism, the applicability of limitation under Section 11B of the Central Excise Act, 1944, the issue of unjust enrichment, and the rate of interest payable on delayed refunds.First, the Tribunal examined whether the appellants were entitled to refund of the 50% service tax paid by the service recipient (Rajasthan Housing Board) under the reverse charge mechanism, given that the appellants had paid service tax on their own portion and the Board had deducted and deposited the other 50% with the Revenue. Second, the Tribunal considered the question of whether the refund claims were barred by limitation under Section 11B of the Central Excise Act, 1944, and whether the doctrine of unjust enrichment applied. Third, the Tribunal analyzed the entitlement to interest on the refund and the applicable rate of interest.Regarding the first issue, the Tribunal noted that the show cause notice itself recorded that the Rajasthan Housing Board had deducted 50% of the service tax from the payments to the appellants and deposited the same with the Government under the reverse charge mechanism. The Revenue's contention that the appellants failed to produce documentary evidence of this payment was found to be untenable given the acknowledgment in the show cause notice. The Tribunal held that since it was a fact on record that the service recipient had discharged its tax liability, the appellants were entitled to the refund of the 50% service tax paid by the service recipient.On the second issue concerning limitation and unjust enrichment, the Tribunal relied extensively on judicial precedents, particularly the decision of the Hon'ble Karnataka High Court in Commissioner of Central Excise v. KVR Construction and its affirmation by the Hon'ble Supreme Court. These authorities held that where service tax is paid by mistake of law-i.e., on services that are exempt or not liable to tax-the refund claim is not governed by the limitation period prescribed under Section 11B of the Central Excise Act. The Tribunal emphasized that the appellants had paid service tax on exempted services by mistake, and thus the refund claims could not be rejected as time-barred. Further, the doctrine of unjust enrichment was not applicable because the appellants had produced work orders and evidence showing that the service tax was included in the contract price and that the service recipient had deducted and paid its share of service tax. The Tribunal also noted that the appellants had not passed on the burden of service tax to any other party, a key consideration in unjust enrichment analysis.The Tribunal also examined the applicability of Section 11B, which requires refund claims to be filed within one year from the relevant date and accompanied by documentary evidence that the duty was paid and not passed on to others. It was held that Section 11B applies only to claims for refund of duty of excise and not to amounts paid under mistake of law where the levy itself was unauthorized or illegal. The Tribunal cited the classification of refund claims into three categories from the Supreme Court's jurisprudence, noting that claims based on mistake of law fall outside the strict confines of Section 11B and can be pursued through writ petitions or suits. This reasoning was supported by further judicial pronouncements from the Hon'ble High Court of Tripura and other decisions emphasizing that mere payment of an amount under a mistaken belief does not validate the levy or bar refund claims beyond statutory limitation periods.On the third issue of interest, the Tribunal considered whether interest on delayed refunds should be granted and at what rate. The Revenue relied on decisions favoring interest at 6% per annum under Section 11BB of the Act, which governs interest on refunds under Section 11B. However, since the Tribunal held that Section 11B was not applicable, the provisions of Section 11BB and the related notifications prescribing 6% interest were also inapplicable. Instead, the Tribunal relied on recent decisions, including a Final Order in Indus Towers Limited, which granted interest at 12% per annum on delayed refunds where the service tax was paid by mistake of law. Accordingly, the Tribunal held that the appellants were entitled to interest at 12% per annum on the refund amount from the date of payment until realization.In addressing competing arguments, the Tribunal rejected the Revenue's reliance on decisions such as Mafatlal Industries Ltd. and Triumph International (India) Pvt. Ltd., which were distinguished on facts. Mafatlal dealt with refund claims under Section 11B for duties paid where exemption was initially denied but later granted, whereas the present case involved payment of service tax on exempted services by mistake of law. The Tribunal underscored that the KVR Construction decision, upheld by the Supreme Court, superseded the applicability of Mafatlal in such contexts. The Tribunal also found that the Revenue's argument on unjust enrichment was not supported by the evidence and that the appellants had complied with procedural requirements by producing work orders and payment records.The Tribunal further noted procedural aspects, such as the late filing of Cross Objections by the Revenue without condonation of delay, and accordingly dismissed the Cross Objections as time barred. The Tribunal also observed that the defect memo issued to the Revenue regarding the format and verification of the Cross Objections was technical and had been cured, allowing the Cross Objections to be taken on record for consideration.The significant holdings of the Tribunal include the following:'It is a fact on record that service recipient paid the 50% of the service tax in that circumstances I hold that appellant is entitled for 50% of the service tax paid by the service recipient.''The time limit prescribed under Section 11B of the Central Excise Act, 1944 is not applicable to the facts of the case as held by the Hon'ble Karnataka High Court in the case of Commissioner of Central Excise versus KVR Construction.''Mere payment of amount would not make it a 'service tax' payable by them. When once there is lack of authority to demand 'service tax' from the respondent company, the department lacks authority to levy and collect such amount.''Where the levy is unconstitutional or illegal or not exigible in law and paid by mistake of law, the refund claim is not governed by Section 11B and can be pursued through writ petition or suit.''As provision of Section 11B are not applicable to the facts of the present case, in that circumstances, determining the rate of interest under Section 11BB of the Act is not applicable.''The appellant are entitled interest @ 12% on delayed refunds.'In conclusion, the Tribunal allowed the appeals, directing refund of the entire service tax paid by the appellants and the service recipient under the reverse charge mechanism, along with interest at 12% per annum. The Cross Objections filed by the Revenue were dismissed. The Tribunal's decision affirms the principle that service tax paid under a mistake of law on exempted services is refundable beyond the limitation period prescribed under Section 11B, that the doctrine of unjust enrichment does not bar such refund where the tax burden was not passed on, and that interest on delayed refunds in such cases is payable at 12% per annum.