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2025 (4) TMI 1341 - HC - Service TaxRefund of the wrongly paid service tax - rejection of claim for refund by applying Section 11B (1) of the Central Excise Act 1944 - HELD THAT - A perusal of the above provision shows that it deals with the claims for refund of service tax paid based on the exemptions provided under the Act of 1944. It does not deal with a situation where an assessee has paid the service tax under a mistaken impression of law or without realizing that a particular activity is exempted from service tax. In this regard it is apposite to refer to the judgment of the Hon ble Supreme Court in the case of Mafatlal Industries Limited vs. Union of India 1996 (12) TMI 50 - SUPREME COURT which laid down the parameters for entertaining an application under Section 11B of the Act of 1944. Conclusion - The limitation prescribed under Section 11B of the Act of 1944 would not strictly apply to a claim for refund of service tax wrongly paid and a writ petition under Article 226 of the Constitution of India is maintainable. In such an event the principles of restitution as provided under Section 72 of the Contract Act 1872 is applicable and the respondent No. 3 is bound to refund it notwithstanding the delay in filing the application for refund. The impugned order is set aside - petition allowed.
The core legal questions considered by the Court in this matter are:
1. Whether the limitation period prescribed under Section 11B(1) of the Central Excise Act, 1944, for claiming refund of service tax applies strictly in cases where the service tax was paid under a mistaken impression of law. 2. Whether the authorities below were correct in rejecting the refund claims and appeals on the ground of delay and limitation. 3. Whether a writ petition under Article 226 of the Constitution is maintainable for claiming refund of wrongly paid service tax beyond the statutory limitation period. 4. Whether the petitioner is entitled to refund of service tax paid on loading and unloading of chemical fertilizers, considering the exemption Notification No. 3/2013 dated 01.03.2013. Issue 1: Applicability and Interpretation of Limitation under Section 11B(1) of the Central Excise Act, 1944 The relevant legal framework is Section 11B(1) of the Central Excise Act, which mandates that any person claiming refund of duty and interest paid must apply to the Assistant or Deputy Commissioner within one year from the relevant date. The provision also allows that the limitation does not apply where duty was paid under protest. The Court noted that the impugned orders rejected the refund claims solely on the ground that the applications were filed beyond this one-year limitation period. The respondent authorities relied on binding precedents, including the Supreme Court's ruling in Singh Enterprises, which held that the Commissioner (Appeals) cannot condone delay beyond the prescribed period, and the strict construction of limitation under Section 85(3A) of the Finance Act, 1994. However, the petitioner argued that the service tax was paid under a mistaken impression of law and thus the limitation under Section 11B(1) should not apply rigidly. The petitioner relied on a coordinate bench decision and the Supreme Court's judgment in Mafatlal Industries Ltd. vs. Union of India, which classified refund claims into three categories, including claims based on mistake of law. The Court extensively referred to the Mafatlal judgment, which clarified that claims for refund of illegal or unauthorized levies, including those paid under mistake of law, are not strictly governed by the limitation period under Section 11B. The Supreme Court held that such claims can be pursued through writ petitions or suits invoking general law principles, including Section 72 of the Contract Act (principles of restitution), and are not barred by the statutory limitation if filed within the general limitation period applicable to suits or writs. The Court emphasized the principle that where a levy is outside the provisions of the Act or unauthorized, the limitation under Section 11B does not apply, and the aggrieved party can seek refund under Article 226 or civil suit within the general limitation period. Issue 2: Maintainability of Writ Petition and Application of Restitution Principles The Court held that the petitioner's writ petition under Article 226 is maintainable for claiming refund of service tax paid under a mistaken impression of law beyond the one-year limitation period of Section 11B. The Court reasoned that statutory limitation under Section 11B is not absolute and does not preclude equitable relief under the Constitution or general law. The Court applied the principle of restitution under Section 72 of the Contract Act, which mandates that a person who has paid money under a mistake of law is entitled to recover it. This principle supports the petitioner's claim for refund notwithstanding the delay in filing the statutory refund application. The Court rejected the respondents' argument that the limitation period must be strictly enforced even in cases of mistaken payment of service tax, holding that the statutory provision does not oust the jurisdiction of the High Court to grant relief in such cases. Issue 3: Examination of the Exemption Notification No. 3/2013 dated 01.03.2013 The petitioner claimed that the service tax paid related to services for loading and unloading chemical fertilizers, which should be exempt under Notification No. 3/2013 dated 01.03.2013, exempting transportation of chemical fertilizers by goods transportation agencies from service tax. The Court observed that the impugned orders did not explicitly consider whether the petitioner's services fell within the exemption notification. The Court directed the respondent authority to examine the petitioner's claim afresh in light of the exemption Notification and allow the refund if the exemption applies. This direction was subject to verification of the applicability of the exemption to the petitioner's services. Issue 4: Power of Respondent No. 2 to Condone Delay in Filing Appeals The respondent No. 2 had rejected the petitioner's appeals on the ground of delay, relying on the strict limitation under Section 85 of the Finance Act, 1994, and relevant Supreme Court precedents. The Court noted that the Commissioner (Appeals) has no power to condone delay beyond the stipulated period. However, given the Court's finding that the limitation under Section 11B does not strictly apply to claims based on mistake of law and that a writ petition is maintainable, the rejection of appeals on limitation grounds became immaterial. The Court set aside the impugned orders rejecting the appeals and refund claims on limitation grounds. Conclusions and Directions The Court concluded that:
Significant Holdings and Legal Reasoning: The Court quoted extensively from the Supreme Court's judgment in Mafatlal Industries Ltd., particularly paragraph 137, which states: "Applying the law laid down in the decisions aforesaid, it is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax can be made only in accordance with the provisions of the Act (Rule 11, Section 11B etc. as the case may be), and an action by way of suit or writ petition under Article 226 will not be maintainable under any circumstances. An action by way of suit or a petition under Article 226 of the constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without jurisdiction and/or claim refund, in cases covered by propositions No.(1), (3) (4) and (5) in Dulalbhai's case, as explained hereinabove, as one passed outside the Act and ultra vires. Such action will be governed by the general law and the procedure and period of limitation provided by the specific statute will have no application." This principle underpinned the Court's decision to allow the writ petition despite the delay in filing the refund claim under the statutory provision. The Court also established the principle that the limitation under Section 11B is not absolute and does not bar claims for refund of service tax paid under mistake of law, thereby preserving the jurisdiction of the High Court to grant equitable relief.
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