Service Tax Paid During Investigation Refundable Despite Section 102(3) Limitation When Department Drops Proceedings; Chhattisgarh High Court
Sanchayita Lahkar
The High Court of Chhattisgarh Division Bench of Justice Rajani Dubey and Justice Amitendra Kishore Prasad has held that service tax paid during investigation cannot be refused as refund solely because of the six-month limit in Section 102(3) of the Finance Act, 1994 when the department later closes the inquiry and accepts that no tax is payable. Deciding a tax appeal by a service tax assessee, the Bench set aside the authorities’ rejection of a refund claim of about ₹14.89 lakh, stating that money collected without a subsisting liability cannot be retained. The Court directed the revenue authorities to sanction the refund within a prescribed period in accordance with law.
The appellant, a registered service tax assessee, was subjected to investigation pursuant to summons issued under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. A calculation sheet accompanying the first summons alleged a service tax liability for the period April 2015 to December 2015. The Department also sought several documents relating to contract receipts, ledgers, R.A. bills, work orders, and Form 26AS. Prior correspondence from the Raipur Municipal Corporation clarified that the multi-level parking constructed by the appellant was meant for public welfare and not for commercial or industrial use.
A second summons was issued reiterating the requirement for documents. Upon scrutiny, the Department issued a closure letter stating that no discrepancy relating to service tax liability had been found. Before the investigation was closed, the appellant had deposited an amount during the inquiry and subsequently filed a refund application. The Department issued a show-cause notice asserting that the refund claim was time-barred under Section 102 of the Finance Act, 2016 and pointed to deficiencies in documentation. The Adjudicating Authority rejected the claim; the Commissioner (Appeals) affirmed the rejection; and the Tribunal dismissed the appellant’s further appeal, holding that the refund claim was barred by limitation.
The Court recorded that the appellant had deposited the amount during an ongoing investigation and not pursuant to assessment, and examined whether limitation under Section 102(3) barred the refund. The Court observed that “the filing of the refund claim immediately after the closure letter issued by the Department demonstrates prompt action on the part of the appellant.” It further noted that the closure letter itself “confirmed that no service tax liability arose.” The Court referred to judicial precedents on recovery of sums collected without authority of law and stated that “any amount collected during a tax investigation without proper adjudication of liability is liable to be refunded.” It recorded that Article 265 mandates that “no tax shall be collected except by authority of law” and noted that retaining such amount would “infringe his right under Article 300A of the Constitution of India.”
The Court stated that where tax is paid under mistaken notion, “mere payment made by the respondent will neither validate the nature of payment nor the nature of transaction.” It also observed: “When once there is lack of authority to collect such service tax by the appellant, it would not give them the authority to retain the amount paid by the petitioner, which was initially not payable by them.” With reference to the factual matrix, the Court recorded that the amount deposited was not legally due and therefore “procedural lapses, if any, cannot override the right of appellant to recover amounts paid under a bona fide belief of liability.”
The Court then examined authorities holding that amounts retained without statutory backing must be refunded. It recorded that “retaining such amount would amount to unjust enrichment” and stated that “the appellant acted in good faith and made the refund claim promptly following the closure of the departmental investigation.” It further observed that the authorities below had relied on Section 102(3) but that such reliance was “not justified in light of established judicial precedents emphasizing that limitation provisions should not be construed to defeat substantive rights or principles of natural justice.” It finally stated that allowing the refund “prevents unjust enrichment of the Government at the cost of the appellant.”
The Court directed that “the impugned order dated 22.03.2018 in appeal bearing No. BHO-EXCUS-002-AAP-525-2017-18 by the Commissioner (Appeals), Central Excise & Central Goods & Services Tax, Raipur (C.G.) and order dated 10.01.2025 transmitted on 21.01.2025 in Final Order No. FO/ST/A/50065/2025-ST[DB] by the Customs Excise and Service Tax Appellate Tribunal, Principal Bench, New Delhi are set-aside and it is declared that appellant is entitle for refund of the amount towards service tax. Accordingly, the appeal is therefore allowed, and the respondents are directed to sanction the refund within the stipulated timeframe.”
Advocates Representing the Parties
For the Appellant: Mr. Siddharth Dubey, Advocate
For the Respondents: Mr. Ashutosh Singh Kachhawaha, Advocate assisted by Mr. Shruti Parmar, Advocate
Case Title: Deepak Pandey v. Commissioner of Service Tax
Case Number: TAXC No. 153 of 2025
Bench: Justice Rajani Dubey, Justice Amitendra Kishore Prasad
