Delhi HC: No limitation period applicable on refund of duty paid by mistake

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The National Institute of Public Finance and Policy is a registered society set up by the Ministry of Finance, Planning Commission, and by several State Govts. and distinguished academicians, as a center for research in public economics and policies. The assessee was levied service tax under a wrong impression on the functions or work undertaken or performed by it. Upon being informed by CBEC that its activities were non-taxable, assessee filed a refund claim for amounts deposited. Revenue processed part refund but disallowed balance claim of Rs. 11.50 lakhs (approx.) on the ground that the application was filed after a lapse of period of 1 year.

The assessee contended that when the amount in question was never payable – since there was no levy at all – the question of denying refund partially did not arise. It was further stated that the general principal of limitation would apply from the date of discovery of mistaken payment, hence, the refund claim was within stipulated limitation period. Relying on SC ruling in CCE, Kanpur vs. Krishna Carbon Paper Co. [1988 (37) ELT 480], Revenue submitted that the refund claim before a Departmental authority was to be made within the four corners of the statute and the period of limitation prescribed thereunder.

The question before Delhi HC was whether CESTAT had erred in holding that only part of the amount claimed by the assessee was refundable, while the other part was hit by limitation u/s 11(B) of Central Excise Act or Section 27(c) of the Customs Act 1962. Opining that “CESTAT clearly fell into error”, HC observed that Krishna Carbon Paper Co. was a case where principal duty was payable; excess amount had been paid on a mistaken notion with respect to the liability for excess production under a Notification, which was later discovered not to be correct. However, in present case, levy never applied – a fact conceded by no less than the authority of CBEC. Therefore, the general principle alluded to in Krishna Carbon Paper Co. would apply. Consequently, HC held that the assessee shall be entitled to refund of entire amount with proportionate interest.

Citation: TS-395-HC-2018(DEL)-ST