The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad, has directed the department to refund ₹36,92,166 paid mistakenly as service tax on exempt transportation services, along with interest at 12% per annum from the dates of the respective deposits until the refund is made.

The bench of P.K. Choudhary (Judicial Member) has observed that an admitted entitlement to exemption could not be denied merely because the taxpayer had failed to claim it in its service tax returns. Where tax was not payable in law, the amount deposited under a mistaken belief could not be retained by the Revenue.

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The company manufactures yeast falling under Chapter Sub-heading 21022000 of the Central Excise Tariff Act, 1985. Its product enjoyed an unconditional central excise duty exemption under Notification No. 03/2006-CE, subsequently superseded by Notification No. 12/2012-CE.

The company was also registered for payment of service tax under the reverse charge mechanism on Goods Transport Agency (GTA) services and manpower recruitment agency services received by it.

The dispute concerned service tax paid on transportation services during 2013–14 and 2014–15. The company maintained that the payments had been made under a mistake of law, although the services were exempt.

It relied on Entry 21(d) of Notification No. 25/2012-ST dated June 20, 2012, as amended by Notification No. 03/2013-ST dated March 1, 2013. The amended entry exempted GTA services relating to transportation of foodstuff, which included the company’s product, yeast.

Another aspect of the refund claim concerned transporters who had not issued consignment notes and consequently were not covered by the GTA service category. That issue had already been decided in the company’s favour and was outside the scope of the present appeal.

The Commissioner (Appeals) rejected the disputed refund of ₹36,92,166 on the ground that the company had continued to self-assess and pay service tax without claiming the exemption in its periodical ST-3 returns.

The appellate authority reasoned that the burden of establishing eligibility for an exemption rested on the beneficiary. It considered that the company should have claimed the notification’s benefit when assessing its liability and filing its returns.

Invoking the principle that ignorance of law is no excuse, the authority concluded that the company’s failure to claim the exemption at the self-assessment stage could not be condoned through a subsequent refund claim.

The company challenged that conclusion before the Tribunal, seeking both the refund and interest at 12% per annum from the dates of payment.

The Tribunal noted that the Commissioner (Appeals) had not disputed the company’s substantive eligibility for exemption on the GTA services received during the relevant period.

The rejection instead rested on the company’s failure to mention and claim the exemption in its returns.

On these facts, the Tribunal concluded that the company had paid service tax under reverse charge even though the amount was not legally payable. The payments were therefore made under a mistake of law.

The Tribunal framed two issues for determination: whether the mistakenly paid amount was refundable, and whether the company was entitled to interest and at what rate.

Both issues were decided in the company’s favour.

Applying that reasoning, the Tribunal held that the mistaken payment was refundable and that the statutory refund restrictions under Section 11B of the Central Excise Act, 1944, did not govern such a deposit.

It also relied on its decision in Jagdish Saran v. Commissioner, Service Tax, Lucknow, which addressed refunds of amounts paid under a mistaken understanding of the law and the inapplicability of Section 11B’s limitation to such deposits.

The Tribunal further invoked Article 265 of the Constitution, holding that the Revenue had no authority to retain an amount paid when no tax was legally due.

The Tribunal separately examined the company’s claim for interest at 12% per annum.

It relied on earlier decisions involving service tax mistakenly paid on non-taxable or exempt construction activities, including Gajendra Singh Sankhla, Meenu Builders, Nahar Singh, Jeet Construction Co. and C.D. Construction Company.

Those decisions treated the amounts as revenue deposits and awarded interest at 12%, proceeding on the basis that Sections 11B and 11BB did not apply to the facts before them.

The Tribunal also referred to Berger Paints India Ltd. v. Commissioner of Customs and the decisions concerning Madura Coats cited in that ruling.

Additionally, it noted that a Division Bench had considered interest at 12% in the company’s own earlier case through Final Order No. 70288/2026 dated August 14, 2026.

Finding the cited reasoning applicable, the Tribunal held that the company was entitled to interest at 12% from the date of each deposit until actual payment of the refund.

The Tribunal set aside Order-in-Appeal and directed the department to refund ₹36,92,166 with interest at 12% per annum.

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