2025-VIL-1266-CHG-ST
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SERVICE TAX High Court Cases

Service Tax – Application of period of Limitation in refund of service tax paid on non-taxable service under mistake of law – Appellant-assessee, made a deposit of amount during an investigation by the Department even though the services rendered were exempt from service tax - Department subsequently issued a closure letter confirming that no tax liability existed. The appellant filed a refund application, which was rejected by the Adjudicating Authority and upheld by the Appellate Tribunal on the ground of limitation - Whether the appellant is entitled to the refund of the amount deposited despite the refund application being filed beyond the statutory six-month period – HELD - When the tax is paid under a mistake of law or without legal authority, the Department is duty-bound to refund the amount, irrespective of procedural technicalities. The limitation period prescribed under Section 102(3) of Finance Act, 1994 cannot be interpreted in a rigid manner to defeat the substantive right of the taxpayer, especially when the Department itself acknowledged the absence of any tax liability – The appellant acted promptly and filed the refund claim shortly after the closure of the investigation, which established the non-taxable nature of the services. Denying the refund would amount to unjust enrichment of the Government and violate the constitutional mandate under Article 265 that no tax shall be collected except by authority of law - The appellant’s claim for refund is legitimate, and it is both legally and equitably appropriate to allow the refund along with applicable interest, thereby upholding the principles of fairness, natural justice, and statutory entitlement – The impugned order is set aside and the appeal is allowed
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