Chhattisgarh High Court Upholds Refund for Mistaken Service Tax Deposit

Court Overrules Limitation Argument, Directs Refund with Interest for Tax Paid Under Mistake of Law

In a significant ruling, the Chhattisgarh High Court has directed the Commissioner of Service Tax to refund Rs. 14,89,086/- to Deepak Pandey, which was deposited during an investigation but later found to be erroneously collected. The Division Bench, comprising Smt. Rajani Dubey and Amitendra Kishore Prasad, ruled that the refund claim could not be denied on the grounds of limitation when the payment was made under a mistake of law.

The court examined the appellant's contention that the service tax was deposited during an ongoing investigation, which concluded that the service rendered was exempt from tax. The appellant filed for a refund shortly after the investigation concluded, arguing that the limitation period should commence only from the date when the appellant became aware of the non-taxability. The court agreed with this argument, emphasizing that procedural stipulations should not defeat substantive rights.

The judgment highlights the court's stance that statutory provisions, such as Section 102(3) of the Finance Act, 1994, should not operate rigidly in circumstances where the taxpayer was unaware of the exemption due to ongoing investigations. Moreover, the court underscored that retaining the tax without legal backing contravenes Article 265 of the Constitution of India, which mandates that no tax shall be levied or collected except by authority of law.

The court's decision aligns with precedents from various High Courts and the Supreme Court, which have consistently ruled that amounts collected without legal authority must be refunded. The ruling further stresses that procedural technicalities should not overshadow the substantive right to a refund when the Department acknowledges that no tax liability exists.

The court ordered the refund to be processed along with applicable interest, thereby reinforcing the principles of fairness, natural justice, and statutory entitlement. This decision serves as a reminder to tax authorities to ensure adherence to legal mandates and procedural fairness in tax collection and refund processes.

Bottom Line:

Refund of service tax deposited during investigation cannot be denied on the ground of limitation if the payment was made under a mistake of law and the refund claim was filed within a reasonable period after closure of investigation.

Statutory provision(s): Finance Act, 1994 Section 102(3), Constitution of India, 1950 Article 265, Limitation Act, 1963 Section 17(1)(c)

Deepak Pandey v. Commissioner Of Service Tax Service Tax Division, (Chhattisgarh)(DB) : Law Finder Doc Id # 2819728