Refund of wrongly paid amount as Tax

[CA Akash Phophalia]

Introduction

Payment of tax is an inevitable feature of taxation laws so as the incorrect payment of tax. In the erstwhile taxation laws as well as in the present regime of indirect taxation law we can find provisions of refund of tax wrongly paid. However there arise situations where the assessee pays amount as tax and later on realizes that the amount so paid, as tax is not payable at all. On approaching department for refund of the amount paid incorrectly as tax due to mistake of law the period prescribed in the provisions of the then indirect taxation laws come into play. Many times refund is applied after the period of limitation as prescribed in the indirect tax laws resulting in rejection of such refund claims. Here we emphasizes on the difference in the incorrect payment of tax and incorrect payment of amount as tax due to mistake of law. It has been held in the various courts of law that where amount paid as tax due to mistake of law then the period of limitation as prescribed in the indirect tax laws is not applicable.

Period of limitation is not applicable

In M/S ARYAS GRAINS PVT LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX, RAIPUR [2019 (12) TMI 1092 – CESTAT NEW DELHI] it was held that the duty has been paid under the mistake of law as the appellant is engaged in transportation of agriculture products, which is rice, that is exempted by the Notification No.25/2012 dated 26.6.2012. The appellant has paid the service tax under the mistake of law, and therefore, in view of decisions passed under Parijat Construction vs. CCE, Nasik 2017 (10) TMI 659 - BOMBAY HIGH COURT and Ambiance Hospitality Pvt Ltd. vs. CCE, Delhi-IV, 2018 (12) TMI 1112 - CESTAT NEW DELHI the limitation prescribed under Section 11B of the Central Excise is not applicable in the case of refund of duty which has been paid under the mistake of law

Similarly, in SUNRISE SPICES LTD. (2 APPEALS) VERSUS C.C.E. & S.T., JAIPUR-I [2019 (4) TMI 481 - CESTAT NEW DELHI] it was held that just as an assessee cannot be permitted to evade payment of rightful tax, the authority which recovers the tax without any authority of law cannot be permitted to retain the said amount merely because the tax payer was not aware at the time that the recovery being made was without any authority of law. In such cases, there is an obligation on the part of the authority to refund the excess tax recovered from the party. However, subject to the course of statutory provision dealing with the refund. The Hon’ble Apex Court also in the case of Union of India vs. ITC Ltd. 1993 (7) TMI 363 - SUPREME COURT has held that where the duty has been paid under mistake, since the assessee was not guilty of any laches, he is entitled to claim the refund. The Hon'ble High court of Gujarat in the case of Oil and Natural Gas Corporation Ltd. vs. Union of India reported in 2017 (5) TMI 145 - GUJARAT HIGH COURT has held as under: -

"Merely because the provisions of the Central Excise Act, 1944 and the rules framed thereunder for collection and refund viz., the machinery provisions have been incorporated in the OID Act for collection and refund of the cess levied thereunder, it cannot be inferred that the Oil Cess imposed under the provisions of the OID Act assumes the character of central excise duty. The finding recorded by the adjudicating authority that the Oil Cess is in the nature of excise duty, is erroneous and contrary to the law laid down by this court in Commissioner v. Sahakari Khand Udyog Mandli Ltd. (supra).

It further held that the Hon'ble High Court of Bombay in the case of Parijat Construction vs. CCE, Nasik 2017 (10) TMI 659 - BOMBAY HIGH COURT has held as under: -

“4. We are of the view that the issue as to whether limitation prescribed under Section 11 B of the said Act applies to a refund claimed in respect of service tax paid under a mistake of law is no longer res integra. The two decisions of the Division Bench of this Court in Hindustan Cocoa (Supra) and Commissioner of Central Excise, Nagpur V/s. M/s. SGR Infratech Ltd. (Supra) are squarely applicable to the facts of the present case.”

Conclusion

Hence, the issue is no more res-integra. The decisions as mentioned above have clearly held that the limitation period prescribed under Section 11 B of the Central Excise Act is not applicable to the refund claims for service tax paid under mistake of law. As the Section 11 B is applicable only qua the deposit of duty of excise and where the amount is deposited under mistake i.e. due to non-leviability or exemption, the said payment cannot be clothed with the description of duty of excise.

Impact on Present Regime

The above-mentioned cases are pronounced in the erstwhile indirect taxation laws. However, the principle so pronounced shall be applicable in the present regime also. As the GST law is the new law and the assessee had made various unintentional mistakes in payment of amount as tax therefore the above stated decisions might be of great help to them.

REFUND OF AMOUNT DEPOSITED WITH REVENUE AUTHORITIES – WHETHER LIMITATION PERIOD APPLICABLE

Payment of duty is the liability of the responsible citizen. However, while carrying out its responsibility the assessee sometimes pays amount as tax or duty under the mistake of law. Such payment of amount as tax or duty is refundable to the assessee subject to the principle of unjust enrichment. The question here arises whether the amount so paid under the mistake of law tantamount to payment of tax and the limitation period as prescribed under the law is applicable to the said amount. In this article the author wish to discuss the same.

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CA Akash Phophalia

9799569294

[email protected]

Discussions to this article

[Alkesh Jani]

Shri

The article is really very informative and useful. First there are two types of refund under GST (1) where payment of tax is made by way of cash or by way of utilization of ITC and (2) Refund of unutilized ITC. There is very thin line between amount of Tax and any other amount. Any amount which is towards liability of tax, is tax paid, and rest is all other amount.

The Section 54 (1) clearly states that ..... refund of tax or any other amount...." time prescribe under law is applicable.

Now, where refund of ITC is concerned one can apply at the end of any Tax period (no time limit is prescribed) (Section 54 (3))

Thanks