2026-VIL-662-MAD-ST
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SERVICE TAX High Court Cases

Service Tax – Payment of service tax on profit derived from Foreign Exchange Transaction, suo motu adjustment of refund – Appellant paid service tax on the profit earned from foreign exchange transactions on the instructions of the audit team of the Department. Subsequently, upon verification, it was found that such profit cannot be levied with service tax - Appellant filed a refund claim which was rejected on the ground of limitation. The Appellant then suo motu adjusted the amount in the subsequent return, which led to the issuance of a demand order for service tax along with penalty - Whether the suo motu adjustment made by the Appellant of the erroneously paid service tax amount, after the refund claim was rejected on grounds of limitation, can be treated as an improper or impermissible process warranting penalty under the Finance Act, 1994 – HELD - When service tax has been paid by the Appellant solely on the instructions of the audit team and it is subsequently found that the profit from foreign exchange transactions is not liable to be taxed under Service Tax, the Respondent ought to have refunded the amount at the first instance. Having failed to do so, when the Appellant suo motu adjusts the amount, it cannot be termed as an improper or impermissible process for imposing penalty - The unjust enrichment of the Department cannot be approved on the ground of limitation or failure to prefer an appeal against the refund rejection order. The adjustment represents a technical error or mistake made without any mala fide intention, and therefore the penalty imposed cannot be sustained - The order of the Tribunal and the order-in-original are set aside and appeal is allowed
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