By TIOL News Service

ERNAKULAM, JULY 17, 2015: THE petitioner is a company engaged in providing retail financial services like share stock and share brokering, marketing of IPO of companies and mutual funds, corporate advisory services etc. The petitioner, for the payment received from the Bank of Muscat SAOG for the service rendered, remitted service tax amounting to Rs.1,72,339/- for the period from April 2012 to March 2013. They made an application for refund of service tax for the reason that they need not pay the same, since the recipient of such service was located outside India and the payment received was in convertible foreign exchange which qualifies as export of service. The application was submitted on 23/2/2015. The said application was rejected stating that it was filed beyond one year from the relevant date. The Petitioner challenge the same in this Writ Petition.

After hearing both sides, the High Court held:

It was found in the impugned order that the payment received by the petitioner is not chargeable to tax. Therefore, the payment made by the petitioner is purely by a mistake and not relatable to payment under service tax.

The counsel for the Department, relying on the judgment of the Supreme Court in Mafatlal Industries Ltd. and others v. Union of India and others - 2002-TIOL-54-SC-CX-CB would argue that even if the payment was made under a mistake, the refund can only be processed in terms of Section 11B of the Central Excise Act. In the above case, the Apex Court elaborately classified claim for refund into three groups or categories, vis-a-vis, (i) unconstitutional levy, (ii) illegal levy and (iii) mistake of law, and held that the remedies involved in all the three categories are the remedies provided under the Excise and Customs Act. None of the above categories would attract to the case in hand. In this case, the levy was purely on account of mistake of fact in understanding the law. The petitioner assumed that the transaction for which he has paid tax, is covered under the law. The law does not cover such transaction for payment of service tax. Therefore, it is not on account of any mistake of law but mistake of fact the service tax was paid. In that view of the matter it has no colour of tax for the purpose of levy by the Department. The distinguishing feature for attracting the provisions under Section 11B is that the levy should have the colour of validity when it was paid and only consequent upon interpretation of law or adjudication, the levy is liable to be ordered as refund. When payment was effected, if it has no colour of legality, Section 11B is not attracted.

The question of alternative remedy would arise if service tax is otherwise leviable under the Central Excise Act. Herein, in this case, there is no dispute with regard to the fact that no service tax is leviable for the service extended by the petitioner to the Muscat Bank SAOG. Thus, the writ petition is maintainable when the amount is arbitrarily withheld without any justification under law as the refund claimed by the petitioner is not relatable to Section 11B of the Central Excise Act.

Accordingly, the High Court allowed the Writ Petition.

(See 2015-TIOL-1602-HC-KERALA-ST)