2026-VIL-1115-DEL-ST
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SERVICE TAX High Court Cases

Service Tax - Amounts deposited pursuant to interim orders of the High Court in a patent dispute - Respondent had a dispute with a foreign entity concerning use of patents and technologies - High Court in the suit directed the Respondent by interim orders to deposit an amount, which the Department treated as payment of royalty for service received from a foreign entity and proposed service tax, interest and penalties, whereas the parties later settled out of court, a sum was paid towards royalty, the suit was withdrawn, the deposited amount was released and IGST was paid on the settlement amount - Whether the amount deposited pursuant to interim orders of the Court is payment towards royalty exigible to service tax - HELD - The adjudicating authority held that the deposited amount was subject matter of decision by the Court in the suit, the question of taxability would have arisen only after the issue was decided, and upon withdrawal of the suit the interim orders directing deposit stood vacated, which findings were affirmed by the Tribunal - There was no vested right created in favour of the foreign entity to receive the deposited amount, which remained subject to the outcome of the suit, and at the stage of directing deposit the Court had not determined that the Respondent used the patents - The contention that the deposit was payment towards royalty is misconceived - The decision relied upon by the Appellant-Dept, that the true nature of payment and not its description determines taxability and that wrongly remitted sales tax would not absolve service tax liability, is not applicable as the nature of the payment was yet to be determined and it was not adjudicated that the payment related to taxable service - The royalty paid pursuant to the settlement was subjected to IGT under the regime applicable at the relevant time and the tax due was deposited on payment - The findings suffer from no factual or legal error or perversity, no substantial question of law arises – The Revenue appeal is dismissed
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