2024 (8) TMI 1151 - HC - Service Tax

Refund of the amount deposited twice as service tax - relevant date for time limitation - whether one year period would be determined mechanically or from the date of knowledge of mistake of wrong deposit? - HELD THAT - Section 11B of the Act, 1944 was made applicable to service tax by Section 83 of the Finance Act, 1994. In the present case, service tax has been paid twice and the service provider has claimed the said amount from the appellant company which cannot be passed on since the appellant company itself has deposited the amount with the state exchequers. It is a case of dual payment. The other party namely TDS Management has not moved any application for refund. In the circumstances, the refund of the appellant-company cannot be denied solely on account of delay which has actually not occurred as it is from the date of knowledge. The respondents are directed to refund the amount of Rs. 4,46,187/- deposited by the appellant-company along with interest. The refund shall be released within six months from today - appeal allowed.

Summary

Issues:
1. Refund of service tax deposited twice.
2. Applicability of limitation period for refund under Section 11B of the Act, 1944.
3. Interpretation of the relevant date for filing a refund claim.
4. Consideration of the date of knowledge of the mistake in depositing the tax.

Analysis:

The appellant, a government undertaking engaged in power transmission, sought a refund of service tax deposited twice. The appellant had deposited service tax for services provided by a management consultant, which was also paid by the consultant. The appellant filed a refund application upon discovering the double payment, but it was rejected as time-barred by the authorities. The issue revolved around the application of Section 11B of the Act, 1944, concerning the time limit for refund claims.

The appellant argued that the limitation period should not apply to erroneously deposited amounts, contending that the one-year limit under Section 11B does not cover mistaken payments. The appellant emphasized that the refund application was filed promptly upon discovering the error. The appellant cited judgments from various high courts supporting their position that the limitation period should not apply to erroneous payments.

Conversely, the respondent relied on the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India to argue against refunding erroneously deposited amounts under Section 11B. The respondent cited multiple judgments to support their contention that erroneous payments are not refundable under the law.

The court analyzed Section 11B and noted that the appellant's claim for refund was based on the erroneous double payment of service tax. The court emphasized that the date of knowledge of the mistake should be considered the starting point for the limitation period, not the date of deposit. Referring to constitutional principles, the court highlighted that taxes should not be collected illegally, emphasizing the need to rectify erroneous payments.

The court distinguished the present case from Mafatlal Industries, emphasizing that the erroneous payment was not passed on to a third party. Given that the appellant had promptly filed the refund application upon discovering the mistake, the court ruled in favor of the appellant. The court directed the respondents to refund the erroneously deposited amount along with interest within six months.

In conclusion, the court allowed the appeal, emphasizing the importance of considering the date of knowledge of the mistake in refund cases involving erroneous tax payments. The court's decision underscored the need to rectify illegal collections and directed the refund of the erroneously deposited amount to the appellant.