CESTAT New Delhi Grants Rs 2.93 Crore Refund To McCann Erickson, Says Refund Of Excess Service Tax Not Time-Barred

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi has held that the Government cannot deny refund of excess service tax paid by mistake merely on the ground that the refund claim was filed after the limitation period, observing that amounts not legally payable as tax cannot be retained by the authorities.

A coram of Judicial Member Dr. Rachna Gupta and Technical Member Hemambika R. Priya said that where tax is paid without any legal liability, such payment does not assume the character of service tax and therefore would not be governed by the limitation prescribed under Section 11B of the Central Excise Act, 1944.

“In the present case, we find that the excess payment of service tax is an admitted fact, and this amount deposited in excess was by an inadvertent error, which the Government cannot retain or withhold. Such claim, therefore, would not fall within legal parameters of Section 11B of the Act. .”

The tribunal allowed the appeal and set aside the rejection of its refund claim of Rs 2.93 crore.

The taxpayer, engaged in providing advertising agency services, was discharging service tax on a monthly basis. However, during the period from December 2016 to May 2017, it paid excess service tax after failing to adjust previously paid amounts and also made additional cash payments in March and April 2017, which were not adjusted against future liabilities.

The appellant, engaged in providing advertising services, had paid service tax on a monthly basis. However, during the period December 2016 to April 2017, it inadvertently paid excess service tax due to non-adjustment of earlier payments and additional cash deposits.

A refund application was subsequently filed in January 2020. The Department issued a show cause notice and rejected the claim as time-barred under Section 11B. This view was upheld by the Commissioner (Appeals), leading to the present appeal.

Whether a refund of excess service tax paid by mistake is subject to the one-year limitation under Section 11B of the Central Excise Act.

The Tribunal held that Section 11B applies only to refund of "tax," which is legally payable. Where an amount is paid by mistake and is not required to be paid in law, it does not assume the character of tax.

It observed that such excess payment is in the nature of a deposit, and the government cannot retain amounts collected without authority of law.

The Tribunal further relied on settled precedents holding that amounts paid under mistake of law are refundable and limitation under Section 11B would not apply in such cases.

Allowing the appeal, the Tribunal held that retention of excess service tax would be without authority of law. It set aside the impugned order and directed grant of refund along with applicable interest.

For Appellant: Advocate Mihir Deshmukh, 

For Respondent: Shashank Yadav and Shri Rakesh Kumar, Authorised Representative