Service Tax Refund Can't Be Denied Over Wrong Registration Code After Payment: CESTAT Ahmedabad

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, has held that "technical book keeping errors" cannot defeat a refund claim where the money has already reached the government exchequer.

The tribunal directed the department to refund ₹71.55 lakh to a Surat housing society after finding that the Revenue had treated the residential complex as a single entity while raising the service tax demand but sought to treat it as separate entities while considering the refund.

A single-member tribunal of Judicial Member Dr Ajaya Krishna Vishvesha allowed appeals filed by Purushottam Nagar Cooperative Housing Society Ltd Vibhag 14. The tribunal set aside two appellate orders that had denied part of the refund claim and accepted the department's objection based on unjust enrichment.

"Technical book keeping errors cannot override the substantive statutory right of the assessee to claim refund of an amount which has been wrongly held to be not payable," the tribunal observed.

The dispute arose after a service tax demand against Ashirwad Palace, a residential complex in Surat, was set aside on the principle of mutuality. Following that decision, the housing society sought a refund of ₹71.55 lakh deposited during the investigation.

While the adjudicating authority sanctioned ₹36.11 lakh, it rejected the remaining ₹35.44 lakh on the ground that the amount had been deposited under the name of Ashirwad Palace Common Maintenance rather than Ashirwad Palace Building Maintenance. The department also challenged the sanctioned refund, contending that it was barred by unjust enrichment.

The housing society argued that the department had itself treated Ashirwad Palace as a single entity while issuing the service tax demand and seeking appropriation of the amounts deposited during the investigation. Since the entire amount had reached the government account, the use of different registration codes could not be relied upon to deny the refund.

It also contended that the amounts deposited during the investigation were in the nature of pre-deposits and that the doctrine of unjust enrichment did not apply once the underlying demand had been set aside.

Accepting those submissions, the tribunal noted that the entire ₹71.55 lakh had reached the government exchequer and that this fact was undisputed. It held that the department could not treat Ashirwad Palace as a single entity for demand and recovery purposes but as separate entities while considering the refund claim.

Referring to the Gujarat High Court's ruling in Devang Papers Mills Pvt Ltd and other decisions, the tribunal observed that payment under an incorrect registration code was a procedural defect that could not defeat a substantive refund claim once the money had reached the government's account.

"Thus, the rejection of Rs. 35,44,329/- on artificial technical grounds is unsustainable and violate the law laid down by Hon'ble Gujarat High Court in Devang Papers Mills Pvt Ltd case," the tribunal observed.

Addressing the department's objection based on unjust enrichment, the tribunal held that the amounts deposited during the investigation were in the nature of pre-deposits. Once the service tax demand was set aside, the retained amount lost the character of tax and could not be retained by the State without authority of law.

"Once the underlying demand is set aside on merits as happened in this case vide Order-in-Appeal dated 30.09.2014, based on precedents of Hon'ble Supreme Court, the retained money lost any color of tax. The state cannot retain money of assessee without authority of law as per Article 265 of the Constitution of India," the tribunal held.

Allowing the appeals, the tribunal directed the department to refund the entire ₹71.55 lakh to the housing society. It also ordered payment of applicable interest on the unpaid balance of ₹35.44 lakh from the date of the refund application until realization.

For Appellant: Advocate S. Suriyanarayan

For Respondent: Himanshu Nachane, Superintendent (AR)