Gujarat High Court Revives YMCA's ₹9.39 Crore Service Tax Refund Claim Rejected As Time-Barred

The Gujarat High Court has recently set aside an order rejecting the Young Men's Christian Association's refund claim for financial years 2009-10 to 2012-13 as time-barred and directed the authorities to reconsider the claim on merits.

A division bench of Justice A.S. Supehia and Justice Vaibhavi D. Nanavati was hearing a petition challenging an order that denied refund of ₹9.39 crore claimed by the association for FYs 2009-10 to 2012-13 while allowing a refund claim of ₹26.66 lakh for FY 2013-14.

The association contended that the levy of service tax on services provided by incorporated clubs to their members had already been declared ultra vires by the Gujarat High Court in Sports Club of Gujarat Ltd. v. Union of India, a decision later affirmed by the Supreme Court in State of West Bengal v. Calcutta Club Ltd.

It argued that its refund claim for FYs 2009-10 to 2012-13 could not be rejected solely on the ground of limitation.

The Revenue opposed the petition, contending that the refund application had been filed beyond the prescribed period and relying on the Supreme Court's decision in Mafatlal Industries Ltd. v. Union of India.

Examining the issue, the High Court referred to the Supreme Court's ruling in Calcutta Club Ltd., which held:

“from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members' clubs in the incorporated form.”

Referring to the earlier declaration that the levy was ultra vires, the bench held that the association's refund claim for FYs 2009-10 to 2012-13 could not be rejected as time-barred.

The court further observed:

“the claim of refund of service tax paid under mistake of law cannot be frustrated on the ground of limitation as it would go against the mandate of Article 265 of the Constitution of India.”

Holding that the department's action in levying and collecting the service tax had already been declared ultra vires, the court quashed the order rejecting the refund claim for FYs 2009-10 to 2012-13.

The matter was remanded to the authorities for a fresh decision on merits, including the issue of interest on the refund claim. The court directed the authorities to take an appropriate decision within six weeks.