2026-VIL-212-MAD-ST
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SERVICE TAX High Court Cases

Service Tax – Refund of service tax paid under mistake of law, Judicial Precedents - Section 11B of the Central Excise Act, 1944, Rule 5 of CENVAT Credit Rules, 2004 - The appellant filed refund claims under Rule 5 of CCR 2004 for service tax paid by the Director of the company in individual capacity on renting of immovable property to the company – Refund claims were initially rejected on the ground that the appellant was not liable to pay under Reverse Charge Mechanism and hence the credit taken was wrong – Appellant subsequently took re-credit of the amounts and filed refund claims under Section 11B of the CEA, 1944. The refund claims were initially sanctioned by the lower Adjudicating Authority, but were later set aside by the Commissioner (Appeals) and the Tribunal - Whether the authorities were right in denying the refund claim of the tax amount that was paid due to a mistake of law - HELD - The tax was paid by the appellant under a mistake of law, and it is well-settled that when the payment of tax was due to a mistake of law, the refund of the same cannot be denied or disallowed - the Tribunal has erred in passing the impugned order rejecting the refund claim despite the fact that the tax was paid under mistake of law – Further, if it is considered an input service that is used by the appellant, the tax for the same has been rightly discharged by the appellant and hence must be granted credit as input service, and if the service tax has been rendered only to the Director in their individual capacity, the tax is not payable by the appellant as per law, it is liable to be refunded as it has been paid under mistake of law. The CESTAT had taken a contrary view in the present case, ignoring its own previous decision in the appellant's case for a different time period, where it had held that the appellant was eligible for input credit on the service tax paid under RCM on the rent paid to the Director. The lower authorities and the Tribunal were bound by the judicial precedents set by the higher courts and their failure to do so amounts to a violation of the core principle of judicial discipline - The orders by the CESTAT is set aside and the orders of the Adjudicating Authority sanctioning the refund claims of the appellant is restored – The appeals are allowed
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