Excess Service Tax Paid Due to Error Treated as Deposit, Not Tax: CESTAT sets aside Rejection of Refund Claim [Read Order]

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) New Delhi has held that excess service tax paid due to inadvertent error partakes the character of deposit and not tax and therefore, refund claims cannot be rejected on the ground of limitation under Section 11B of the Central Excise Act, 1944.

The appellant McCann Erickson (India) Pvt. Ltd. a firm providing advertising services, had settled their liabilities for the Service Tax under the Finance Act, 1994. But because of non-settlement of previously paid tax and bookkeeping mistakes from December 2016 to May 2017, extra Service Tax in the sum of ₹2.93 crore was paid. The assessee had applied for a refund of the excess in January 2020 which was denied by the Department since it was barred under Section 11B.

The assessee claimed that no tax had been paid but rather there was a mistake of law in paying deposit and therefore provisions of limitation do not apply. The following judicial precedents were cited: Union of India vs. ITC Ltd. and KVR Construction stating that payments without lawful authority cannot be retained by the Department.

On the other hand, it was argued by the revenue department that a refund being a statutory right, limitations apply, and the assessee’s failure to correct returns timely renders the self-assessment conclusive.

The Tribunal observed that Section 11B applies only to refund of duty or tax legally leviable. Any amount paid in excess without a taxable event lacks the character of tax. Relying on consistent judicial precedents the Bench held that such payments are in the nature of deposits and cannot be subjected to limitation.

It further emphasized that retention of such amounts by the Department would violate Article 265 of the Constitution, which mandates that no tax shall be collected except by authority of law.

The Tribunal comprising a Division Bench comprising Dr. Rachna Gupta (Judicial Member) and Hemambika R.Priya (Technical Member) allowed the appeal and set aside the impugned order rejecting the refund claim of ₹2.93 crore.

Accordingly, It held that the limitation prescribed under Section 11B would not apply to amounts paid mistakenly without any legal liability. The assessee was held entitled to refund along with applicable interest.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates