'Ignoring Precedent Is Judicial Indiscipline': Madras High Court Restores Service Tax Refund

The Madras High Court has reiterated that service tax paid under a mistake of law must be refunded and that such a claim cannot be rejected on the ground of limitation, while setting aside orders of the Customs, Excise and Service Tax Appellate Tribunal, Chennai that had denied a refund to a software services exporter.

The Court said, “The Tribunal, by ignoring the precedents laid down by the higher Forums, passed the order, thereby it amounts to violation of the core principle of Judicial Discipline.”

A bench of Justice Anita Sumanth and Justice P. Dhanabal held that the Tribunal had erred in refusing the refund despite earlier decisions on the same issue and despite the tax having been paid under a mistaken understanding of the law.

The dispute involved Integra Software Services Pvt. Ltd., which provides software-enabled services for pre-publication work and exports those services outside India. Based on these exports, the company filed refund claims under the CENVAT Credit Rules. The rejected claims were for Rs. 4.27 lakh for the April–June 2014 period and Rs.6.33 lakh for the October–December 2014 period. Part of the claim related to service tax paid under reverse charge on rent paid for premises owned by a director in her individual capacity.

Tax authorities rejected the refund. They said the company was not liable to pay service tax on the transaction and therefore could not claim credit or refund.

The company pointed out that the tribunal itself had earlier ruled, for another period, that service tax paid on the same arrangement qualified as eligible input service. Acting on that ruling, the company took re-credit and filed refund claims under the Central Excise law. The adjudicating authority allowed the refunds.

The decision was later overturned. The tribunal held that the refund claims were not maintainable and were barred by limitation. The High Court noted that the refund claim was filed only after the Tribunal, in an earlier order, had asked the company to seek refund under Section 11B of the Central Excise Act. Section 11B prescribes a one-year limitation period for filing refund claims.

Disagreeing with the tribunal. It held that tax paid under a mistake of law stands on a different footing and cannot be denied a refund merely because of limitation. The bench said, “Despite the interpretations of the authorities, the claim is eligible for refund.”

The court added that if the service was treated as an input service, credit had to be granted. If the tax was not payable at all, the amount paid by mistake had to be returned.

The bench held that ignoring earlier binding decisions amounted to judicial indiscipline. The appeals were allowed. The tribunal's orders were set aside. The refund sanctioned by the adjudicating authority was restored.

For Petitioner: Advocate M. Sathya Kumar

For Respondent: Senior Standing Counsel, Rajnish Pathiyil