Service Tax Refund Cannot Be Denied On Limitation When Deposit Was Made During Investigation: Chhattisgarh High Court

The Chhattisgarh High Court has held that service tax deposited during the course of investigation cannot be denied refund merely on the ground of limitation under Section 102(3) of the Finance Act, 1994, especially when the department itself later drops proceedings and acknowledges non-liability. The Division Bench of Justice Rajani Dubey and Justice Amitendra Kishore Prasad allowed a tax appeal filed by a service tax assessee challenging the rejection of a refund claim amounting to ₹14.89 Lakh. The appellant, a registered service tax assessee, was subjected to investigation in 2016 in respect of alleged service tax liability relating to a multi-level parking project executed for the Raipur Municipal Corporation. During the investigation, the department issued summons under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994, and alleged a provisional tax liability of over ₹57 Lakh for the period April to December 2015. In the course of investigation, the appellant deposited ₹14.89 lakh on 17 February 2016. Subsequently, after examining the records and obtaining clarification from the Raipur Municipal Corporation that the parking facility was intended for public welfare and not for commercial use, the department issued a closure letter dated 15 December 2016, stating that no service tax liability was found. Following this, the appellant filed a refund application on 9 February 2017. However, the refund was rejected by the adjudicating authority, Commissioner (Appeals), and later by the CESTAT on the ground that the claim was time-barred under Section 102(3) of the Finance Act, 1994, relying on the decision in MDP Infra (India) Pvt. Ltd. Before the High Court, the appellant contended that the amount was deposited during investigation without any assessment and that limitation could not run until the investigation was formally closed and non-liability was confirmed. It was also argued that retention of tax without authority of law violated Article 265 of the Constitution. The High Court agreed with the appellant and held that the payment made during investigation was not pursuant to any adjudication or assessment. The Bench observed that once the department itself acknowledged that no tax was payable, retention of the amount on technical grounds of limitation was unjustified. The Court noted that limitation provisions cannot be applied so rigidly as to defeat substantive rights, particularly where tax was collected without authority of law. Distinguishing the MDP Infra judgment, the Court held that the said decision applied to cases of tax paid pursuant to assessment or self-assessment, which was not the factual position in the present matter. The Bench further held that denial of refund in such circumstances would amount to unjust enrichment of the revenue and violate Article 265 of the Constitution. Accordingly, the High Court set aside the orders of the adjudicating authority, Commissioner (Appeals), and the CESTAT, and directed the department to sanction the refund of ₹14.89 lakh to the appellant within the stipulated time. Case Title: Deepak Pandey vs Commissioner Of Service Tax Service Tax Division Case No.: TAXC No. 153 of 2025 Date of Order: 05.12.2025 Counsel for Petitioner: Mr. Siddharth Dubey Counsel for Respondents: Mr. Ashutosh Singh Kachhawaha assisted by Mr. Shruti Parmar Click Here To Read/Download Order

Service Tax Refund Cannot Be Denied On Limitation When Deposit Was Made During Investigation: Chhattisgarh High Court

Manu Sharma

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