Voluntary Service Tax Payment u/s 73(3) Constitutes Final Settlement, Not Mere Deposit: CESTAT Dismisses Refund Appeal [Read Order]

The Ahmedabad Bench of Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that voluntary payment of service tax under Section 73(3) of the Finance Act, 1994 amounts to a final settlement of proceedings.

Such payment cannot later be treated as a deposit or be challenged by seeking a refund. Accordingly, the refund claim was rightly rejected and the appeal dismissed.

The Appellant, Amplus Capital Advisors Pvt. Limited, filed an appeal which challenges the order dated 24.11.2021 passed by the Commissioner (Appeals) CGST Commissioner, Ahmedabad upholding the Order-in-Original dated 18.09.2020.

The Section 73(3) of the Finance Act, 1994 explained that: Recovery of Service Tax Not Levied or Paid or Short lived or Short-paid or Erroneously Refunded.

“Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the person chargeable with the service tax, or the person to whom such tax refund has erroneously been made, may pay the amount of such service tax, chargeable or erroneously refunded, on the basis of his own ascertainment thereof, or on the basis of tax ascertained by a Central Excise Officer before service of notice on him under sub-section (1) in respect of such service tax, and inform the ² [Central Excise Officer] of such payment in writing, who, on receipt of such information shall not serve any notice under sub-section (1) in respect of the amount so paid:

Provided that the ² [Central Excise Officer] may determine the amount of short payment of service tax or erroneously refunded service tax, if any, which in his opinion has not been paid by such person and, then, the ² [Central Excise Officer] shall proceed to recover such amount in the manner specified in this section, and the period of "one year" referred to in sub-section (1) shall be counted from the date of receipt of such information of payment.”

An enquiry was initiated against the appellant for receiving services from foreign providers during FY 2014-15 and 2015-16, allegedly liable to service tax under Reverse Charge Mechanism. The appellant voluntarily paid Rs. 3,46,342/- (including service tax, interest and penalty) on departmental advice to close the proceedings.

Subsequently, realizing that services from foreign providers located outside India were not taxable under Rule 3 of Place of Provision of Services Rules, 2012, the appellant filed a refund claim for Rs. 2,45,786/-.

The Assistant Commissioner rejected the refund on grounds of limitation and voluntary payment. The Commissioner (Appeals) upheld this rejection through order dated 24.11.2021, against which the present appeal was filed.

The Counsel for the Appellant, Amit Laddha, stated that no service tax was payable under Reverse Charge Mechanism during FY 2014-15 and 2015-16 on services received from foreign providers, as the place of provision was outside India. The payment made was merely a deposit, not service tax, hence limitation did not apply and refund was due.

Further, the Counsel relied on Delhi High Court’s ruling in Pavneet Oberoi vs. The Commissioner of Customs 2025-TIOL-1918-HC-DEL-CUS, arguing that oral waiver of Show Cause Notice violates principles of natural justice and mandatory statutory requirements. The appeal should be allowed and the impugned order set aside.

On the other hand, the Superintendent (AR) for the Respondent, Sunita Menon, reiterated the impugned order, stating that it was passed in accordance with Section 73(3) of the Finance Act, 1994 without any illegality. The appeal should be rejected and the Commissioner (Appeals)'s order upheld.

The Tribunal consisted of a Judicial member, Dr. Ajaya Krishna Vishvesha, heard and reviewed the matter filed by the appellant.

The Tribunal, after considering the submissions made, held that the impugned order was passed in accordance with Section 73(3) of the Finance Act, 1994 without any illegality. The appellant had voluntarily paid service tax with interest and penalty during a departmental inquiry and specifically requested closure of proceedings under Section 73(3), confirming the payment was voluntary.

Further, the Tribunal relied on Amar Engineering Company vs. Commissioner of CE & ST, Vadodara-1 – 2019 (28) GSTL 116 (Tri. Ahmd.), observing that once voluntary payment was made under Section 73(3) and intimated to the department, the matter stands concluded and neither party can reopen it. Subsequently seeking refund contradicts Section 73(3).

Accordingly, the Tribunal found no merit in the appeal, so it thus dismissed the appeal filed by the appellant and upheld the impugned order. The Order was pronounced in the open court on 18.12.2025.

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