Refund of service tax paid under mistake of law affirmed; input service credit and prior refund orders to be restored.

Refund of service tax paid under mistake of law relating to prepublication/exported services and reverse charge input services is payable; authorities must restore recredit and refund previously sanctioned. The commentary explains that limitation rules do not bar refund where tax was paid under a mistake of law, and that contrary tribunal departures from an earlier final order were erroneous; therefore precedent and judicial discipline require restoration of adjudicating authority refunds. If tax was paid for services actually used by the taxpayer as input service it must be credited; if paid for a director personally it remains refundable as mistake of law.

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Issues: (i) Whether refund of tax paid due to a mistake of law can be denied; (ii) Whether the authorities were right to deny refund by ignoring binding precedents of higher Courts and Tribunals; (iii) Whether failure to follow judicial precedents amounts to judicial indiscipline.

Issue (i): Whether refund of an amount of tax paid due to a mistake of law is maintainable.

Analysis: The impugned orders rejected the refund claims on the ground that the appellant was not liable under RCM and that the claim was time-barred. Earlier orders for a different period had held the tax paid under RCM on rent paid to a director qualified as input service and refundable. Authorities and Tribunal took contrary views for the present periods despite the tax having been paid under a mistake of law. Established precedents recognise refund where tax was paid under a mistake of law and require consideration of such claims notwithstanding limitation objections in appropriate circumstances.

Conclusion: Refund is maintainable in respect of tax paid under a mistake of law; the denial of refund on that ground is not sustainable.

Issue (ii): Whether the authorities were justified in denying refund by ignoring higher Court and Tribunal precedents.

Analysis: A prior final order for the same assessee and the same legal question had held the tax to be eligible as input service and refundable. The later Tribunal order declined refund for the present periods, citing limitation and liability under RCM, without following the earlier binding view. The statutory provisions and precedent permit revival of claims and consideration of refund under Section 11B where appropriate.

Conclusion: The authorities and Tribunal erred in disregarding binding precedents; the prior sanction of refund should be restored.

Issue (iii): Whether not following judicial precedents constitutes judicial indiscipline warranting interference.

Analysis: The decision under challenge departed from an earlier final order on an identical legal question for the same appellant without adequate justification. Consistent application of binding precedent is required to maintain judicial discipline and predictable adjudication of statutory refund claims.

Conclusion: The departure from binding precedent amounts to judicial indiscipline; interference is warranted to restore the earlier refund sanction.

Final Conclusion: The appeals are allowed, the Tribunal orders setting aside the refund sanction are set aside, and the refund orders of the adjudicating authority are restored; the legal effect is that refund sanctioned previously is reinstated for the amounts determined to have been paid under mistake of law.

Ratio Decidendi: Tax paid under a mistake of law is refundable and a tribunal or authority must follow binding precedents when they resolve the same legal question; limitation under Section 11B does not automatically bar refund claims properly founded on a mistake of law.

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