2026 (1) TMI 1399 - HC - Service Tax

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 ... Refund of tax paid under mistake of law - prepublication and exporting such services out of India - Cenvat credit / input service - Reverse Charge Mechanism (RCM) - Re-credit and refund procedure - judicial discipline and binding effect of precedents - HELD THAT:- It is an admitted fact that already CESTAT vide its Final Order No.41582 of 2017 dated 10.08.2017 held that the appellant was indeed eligible input credit on the service tax paid by them under RCM basis on rent paid to Director. Therefore, based on the said order, the Original Authority has allowed the claim of refund. However, in these proceedings, the same CESTAT, in Appeal Nos.40789 and 40790 of 2019 had taken a contrary view. Therefore, the authorities were wrong in rejecting the legitimate claim by citing the procedural lapses and it was hit by limitation. The Tribunal ought to have followed the principal of final order passed in No.41548 / 2017 dated 10.08.2017 for the same appellant for the different period. Further, the authorities took a stand that the payments were only due from the Director and hence the same would not qualify as input service for the appellant and the authorities have merely passed the claim stating that the claim was not eligible for refund. It is well settled law that when the tax paid under mistake of law is bound to be refunded and cannot be rejected. This Court in a case of 3E Infotech v. Cestat Chennai [2018 (7) TMI 276 - MADRAS HIGH COURT] held that The application under Section 11B cannot be rejected on the ground that is barred by limitation, provided for under Section. The claim for return of money must be considered by the authorities”. Therefore, from the above judgments it is clear that the issue as to whether the limitation prescribed under Section 11B of Central Excise Act applies to a refund claimed in respect of service tax paid under a mistake of law is no longer res integra. Therefore, the Tribunal has erred in passing the impugned order merely rejecting the refund claim despite the fact that the tax was paid under mistake of law. Despite the interpretations of the authorities, the claim is eligible for refund. If it is considered an input service that is used by the appellant, the tax for the same has been rightly discharged by the appellant and hence must be granted credit as input service. Further, if the service tax has been rendered only to the Director in their individual capacity, the tax is not payable by the appellant as per law, it is liable to be refunded as it has been paid under mistake of law. Therefore, the Tribunal, by ignoring the precedents laid down by the higher Forums, passed the order, thereby it amounts to violation of the core principle of Judicial Disciple. Therefore, all the substantial questions of law are answered in favour of the appellant. Appeals allowed; the Tribunal's orders are set aside and the orders of the adjudicating authority sanctioning the refund are restored, on the ground that tax paid under a mistake of law and qualifying as input service is refundable and cannot be defeated by limitation or departure from binding precedents. 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.