Excess Service Tax Paid is not a Tax it is merely deposit of money and limitation u/s 11B of Central Excise Act, 1944 is not applicable:

The Service Tax refund is governed by Section 11B of Central Excise Act, 1944, in terms of Section 83 of Finance Act, 1994. The relevant section is reads as under:

Section 11B: Claim for refund of duty and interest, if any, paid on such duty.

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty may make an application for refund of such duty and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied by such documentary or other evidence (including the documents referred to in section 12A) as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person:

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) as substituted by that Act:

Provided further that the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.

In simple reading of above statutory provision, it may be noted that Tax/Duty paid can be claimed as refund within One Year from relevant date but in following cases this limitation period of one year is not applicable:

  • Tax/Duty paid which was not payable at all; and
  • Tax/Duty paid under protest.

The above interpretation is supported by following case laws in which court/tribunal held that assessee paid Tax/Duty which was not payable at all, the time limit does not apply:

The Hon’ble Madras High Court in case of M/s 3E Infotech Vs CESTAT, Chennai (2018 (18) G.S.T.L. 410 (Mad.) held that when Service Tax is paid by mistake a claim for refund cannot be barred by limitation, merely because the period of limitation under Section 11B had expired. Further, the claim of the respondent in refusing to return the amount would go against the mandate of Article 265 of the Constitution of India, which provides that no tax shall be levied or collected except by authority of law.

The Hon’ble CESTAT Chennai in case of Venkatraman Guhaprasad Vs Commissioner of GST & C. EX., Chennai [2020 (42) G.S.T.L. 124 (Tri. – Chennai)] held that the rejection of refund claim is unjustified. The impugned orders are set aside and the appeals are allowed with consequential benefits if any.

The Hon’ble Apex Court in the case of Commissioner of Central Excise, Bangalore v. KVR Constructions – 2018 (14) G.S.T.L. J70 (S.C.). The said decision arises out of an appeal filed by the department against the judgment of the Hon’ble High Court of  Karnataka [2012 (26) S.T.R. 195 (Kar.)], wherein it was held that the provisions of limitation under Section 11B of Central Excise Act, 1944 would not apply for  refund of service tax paid by mistake.

In Shravan Banarasilal Jejani – 2014 (35) S.T.R. 587 (Tri. – Mum.), the Tribunal had occasion to analyse a similar issue and held that erroneous payment of service tax has to be refunded to the applicant. The Hon’ble High Court of Bombay in Parijat Construction v. Commissioner of Central Excise – 2018 (359) E.L.T. 113 (Bom.) had also taken a similar view.

Hon’ble CESTAT in case of Tamilnadu Ex-Servicemen’s Corpn. Ltd. Vs. Commr. OF Gst & C. EX., Chennai [2020 (38) G.S.T.L. 98 (Tri. – Chennai)] held that deemed payment under protest – Filing of appeal itself indicates that payment was under protest – Even otherwise, limitation period cannot be invoked as Service Tax was paid under mistake of law – Refund not deniable.

Limitation period of Section 11B not applicable on Refund of Pre-deposit at the time of filing Appeal

The refund of tax/duty deposited under protest is specifically excluded for the purpose of time limit of One Year provided in this section. The CBEC has also clarified vide its Circular No. 984/ 08/ 2014-CX dated 16-09-2014 that refund of pre-deposit need not to be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944 or Section 27 of the Customs Act, 1962. The relevant portion of circular is reproduced below for ready reference:

Circular No. 984/08/2014-CX dated 16-09-2014

    1. Refund of pre-deposit:

5.1 Where the appeal is decided in favour of the party / assessee, he shall be entitled to refund of the amount deposited along with the interest at the prescribed rate from the date of making the deposit to the date of refund in terms of Section 35FF of the Central Excise Act, 1944 or Section 129EE of the Customs Act, 1962.

 5.2 Pre-deposit for filing appeal is not payment of duty. Hence, refund of pre-deposit need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act, 1944 or Section 27 of the Customs Act, 1962. Therefore, in all cases where the appellate authority has decided the matter in favour of the appellant, refund with interest should be paid to the appellant within 15 days of the receipt of the letter of the appellant seeking refund, irrespective of whether order of the appellate authority is proposed to be challenged by the Department or not.

From above Circular it is again clear that refund of mandatory pre-deposit is not subject to section 11B of the Act. The Circular issued by the Board is binding on the department and therefore the department need to issue refund with interest following the above Circular in the true spirit.

Further, it is settled law that the refund claim of duty deposited under protest cannot be rejected on the ground of time barred as per Section l1B of Central Excise Act, 1944 as the Tax/Duty paid while filing appeal to contest liability is payment under protest and refund thereof cannot be hit by normal limitation period. Following are the case laws in which tribunal pass the order in favour of asseessee:

  • Commr. OF C. EX., Madurai Versus Servalakshmi Paper and Boards Pvt. Ltd. 2011 (263) E.L.T. 476 (Tri. – Chennai)
  • Gujarat State Fertilizers & Chem. Ltd. Versus Commr. OF C. EX., Vadodara [1999 (105) E.L.T. 52 (Tribunal)]
  • C.C.E. & C, Bhubaneswar-I v. Konark Paper & Indus. Ltd. – 2002 (49) RLT 361 (CEGAT-Kol.)
  • Fluidomat Ltd. v. Commissioner of Central Excise, Indore – 2002 (139) E.L.T. 82 (Tri. – Del.)
  • CCE, Chennai-III v. Consul Consolidated P. Ltd. – [2002 (141) E.L.T. 792 (T)] 2002 (49) RLT 724 (CEGAT – Chennai)
  • CCE, Nagpur v. Abhidep Chemicals Pvt. Ltd. – [2002 (143) E.L.T. 70 (T)] 2002 (49) RLT 984 (CEGAT – Mum.)
  • M/s Jayanta Glass Indus. Pvt. Ltd. v. CCE, Calcutta-111 – 2002 (50) RLT 98 (CEGAT – Kol.)
  • I.T.C. Ltd. v. CCE, Patna – [2003 (155) E.L.T. 115 (T)] 2002 (51) RLT 356 (CEGAT – Kol.)
  • Commissioner of C.Ex., Nagpur v. Abhideep Chemicals Pvt. Ltd. Holding -2002 (143) E.L.T. 70 (Tri.- Mumbai)

Thus in view of above discussion, the Tax/Duty paid under protest; paid by mistaken and Pre-deposit for filing appeal is not payment of duty. Hence, the refund of the same need not be subjected to the process of refund of duty under Section 11B of the Central Excise Act.