Service tax paid under mistake of law is refundable outside Section 11B, with 12% interest.

The appellant manufactured yeast, which it claimed was exempt from service tax on GTA services under Notification No. 25/2012-ST, as amended by Notification No. 03/2013-ST, because yeast was “food stuff.”

It had nevertheless paid service tax under reverse charge for 2013–14 and 2014–15 and sought a refund of ₹36,92,166, asserting that the payments were made under a mistake of law.

The Commissioner (Appeals) accepted the appellant’s eligibility for the exemption but rejected the refund because the appellant had not claimed it in its ST-3 returns.

The appellant appealed to the Tribunal, also claiming interest at 12% per annum.

Whether the service tax paid by the appellant under a mistake of law was refundable, notwithstanding the limitation and procedural requirements under Section 11B of the Central Excise Act, 1944.

Whether the appellant was entitled to interest on the refundable amount and, if so, at what rate.

Section 11B of the Central Excise Act, 1944 governs refunds of duty or tax, but does not apply to amounts paid under a mistake of law where no tax was legally due; such amounts are deposits rather than duty or service tax.

Article 265 of the Constitution prohibits the levy or collection of tax without authority of law.

Notification No. 25/2012-ST, as amended by Notification No. 03/2013-ST, provided the relevant exemption for GTA services concerning food stuff.

The Tribunal relied on Commissioner of Central Excise (Appeals), Bangalore v. KVR Construction (2012 (7) TMI 22, Karnataka High Court), which held that Section 11B does not govern recovery of amounts paid when no tax was payable.

For interest, the Tribunal relied on CESTAT decisions treating interest on such delayed refunds as payable at 12% per annum, including a prior decision in the appellant’s own case.

The Commissioner (Appeals) had not disputed that the appellant qualified for the GTA exemption; the Tribunal therefore found that the service tax paid for the disputed periods was not legally due and had been paid under a mistake of law.

Applying KVR Construction, it held that the payment was a revenue deposit, not tax, and therefore fell outside Section 11B; the appellant’s failure to claim the exemption in its ST-3 returns did not justify the Revenue’s retention of the amount.

Since retaining a payment collected without authority of law would conflict with Article 265, the refund was due.

On interest, the Tribunal followed authorities allowing 12% per annum on delayed refunds of amounts paid under a mistake of law, including its decision in the appellant’s own case.

The refund and interest were to be sanctioned and disbursed within three months of receipt of the order.