Tax Paid During Probe Must Be Refunded Once No Liability Found: Chhattisgarh High Court Allows Service Tax Refund

A Division Bench of Justice Rajani Dubey and Justice Amitendra Kishore Prasad was hearing an appeal challenging CESTAT's order that denied refund of ₹14.89 lakh deposited by the assessee during an ongoing service tax investigation.

The assessee, a registered service tax provider, was subjected to an investigation by the department and was issued summons alleging service tax liability in relation to a multi-level parking project.

During the investigation, the assessee deposited ₹14.89 lakh. Subsequently, the Raipur Municipal Corporation clarified that the parking facility was meant for public welfare and not for commercial use. Based on this clarification, the department formally closed the investigation, recording that no service tax liability arose.

After the investigation was dropped, the assessee filed a refund application seeking return of the amount deposited. However, the refund was rejected by the adjudicating authority and later by the Commissioner (Appeals) and CESTAT on the ground that it was filed beyond the six-month limitation period prescribed under Section 102(3) of the Finance Act, 1994.

The High Court held that the authorities were not justified in rejecting the refund solely on the ground of limitation. The Bench noted that the amount was deposited during an investigation and not pursuant to any assessment or adjudication of liability. Once the department itself concluded that no service tax was payable, it had no authority to retain the amount.

The Bench observed that limitation provisions under Section 102(3) could not be applied rigidly in circumstances where the assessee could not have asserted a refund claim until the investigation was formally closed. It emphasized that procedural requirements cannot defeat a substantive right to refund when tax has been collected without authority of law.

The Court held that no tax can be levied or collected except by authority of law, and any amount collected without legal backing must be refunded. Retention of such amounts by the department would amount to unjust enrichment.

In view of the above, the High Court set aside the orders passed by the Commissioner (Appeals) and CESTAT, declared that the assessee was entitled to refund of the service tax amount deposited during investigation and directed the authorities to sanction the refund in accordance with law .

Case Title: Deepak Pandey Vs. Commissioner of Service Tax Service Tax Division

Case No.: TAXC No. 153 of 2025

Appearance for Appellant: Mr. Siddharth Dubey

Appearance for Respondent: Mr. Ashutosh Singh Kacchawaha, Mr. Shruti Parmar