2009 (10) TMI 36 - HC - Service Tax

Refund - The petitioner received payment from a client in Sri Lanka on 27.5.2005 in US Dollars and the petitioner paid a sum of Rs.8,67,800/- on 4.7.2005 towards service tax. But after realising that the services rendered for the construction of a building in Sri Lanka, would not attract service tax, the petitioner made a claim for refund on 20.9.2006 - ), but the same was also rejected by an order dated 21.11.2008 on the ground that even if the tax was collected without the authority of law, a claim for refund cannot be entertained beyond the period specified in Section 11B of the Central Excise Act, 1944 held that claim of the petitioner for refund can be entertained by this Court, since there is no dispute about the fact that no service tax was payable by the petitioner and as a corollary, what was paid by them was not service tax - Therefore, even on merits, the petitioner is entitled to seek refund

Summary

Issues:
1. Claim for refund of service tax paid under a mistake of law on export of services.
2. Rejection of claim on the ground of limitation.
3. Disentitlement to claim refund due to collection of service tax from customers.

Analysis:

Issue 1: Claim for refund of service tax paid under a mistake of law on export of services
The petitioner sought a Mandamus to direct the respondent to refund service tax paid on export of services. The petitioner, a firm providing architectural services, received payment from a client in Sri Lanka and paid service tax. Subsequently, realizing that the services rendered did not attract service tax, the petitioner claimed a refund. The respondent rejected the claim as time-barred and not in the proper format. The petitioner appealed, arguing that the tax collected without legal authority should still allow for a refund.

Issue 2: Rejection of claim on the ground of limitation
The rejection of the claim was primarily based on the period of limitation prescribed in Section 11B of the Central Excise Act, 1944. The relevant date for the commencement of the limitation period was the date of payment of duty, which was beyond the date of the refund claim. The petitioner relied on legal precedents to argue for a refund despite the limitation, emphasizing the power of the court to order refunds for payments made under a mistake of law.

Issue 3: Disentitlement to claim refund due to collection of service tax from customers
The petitioner demonstrated that no service tax was collected from their customers, providing evidence through affidavits, email correspondence, and certificates of foreign inward remittance. The documents indicated that the petitioner did not attempt unjust enrichment by seeking a refund of service tax collected from customers. The court found that the petitioner was entitled to seek a refund, as there was no dispute that no service tax was payable, and what was paid was not service tax.

In conclusion, the court allowed the writ petition, directing the respondent to refund the amount to the petitioner within a specified timeframe. The decision was based on the lack of service tax liability, the absence of tax collection from customers, and the legal principles governing refunds for payments made under a mistake of law.