The Ahmedabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that a refund of Service Tax cannot be denied merely because the amount was deposited under a different Service Tax registration code when the entire amount had already reached the Government exchequer. 

The bench of Dr. Ajaya Krishna Vishvesha (Judicial Member) has ruled that the doctrine of unjust enrichment does not apply to amounts deposited during investigation when the underlying tax demand itself has been set aside. 

The controversy originated when Service Tax proceedings were initiated against the residential complex known as “Ashirwad Palace” in Surat on allegations that Service Tax was payable on maintenance charges collected from residents. During the investigation, an amount of ₹71.55 lakh was deposited with the department. Subsequently, the Commissioner (Appeals) allowed the assessee’s appeal on the basis of the principle of mutuality, holding that Service Tax was not leviable on the maintenance collections. 

Following the favourable appellate order, the housing society sought refund of the amount deposited during the investigation. However, the refund proceedings took a complicated turn when the department took the position that a substantial portion of the amount had been deposited under the name and registration code of “Ashirwad Palace Common Maintenance” rather than “Ashirwad Palace Building Maintenance.” 

The adjudicating authority sanctioned a refund of ₹36.11 lakh but rejected the balance ₹35.44 lakh, reasoning that the rejected amount had been deposited under a different Service Tax registration code and therefore could not be refunded to the claimant. The department simultaneously challenged the sanctioned portion of the refund on the ground of unjust enrichment. 

The Commissioner (Appeals) upheld the rejection of ₹35.44 lakh and also accepted the department’s appeal against the sanctioned refund, effectively depriving the assessee of the entire refund claim. Aggrieved by these orders, the society approached the Tribunal. 

The Tribunal was called upon to determine whether refund could be denied because the tax had been deposited under a different Service Tax registration code. Whether the doctrine of unjust enrichment could be invoked to deny refund of amounts deposited during investigation after the underlying Service Tax demand had been set aside. 

The Tribunal found that the department’s approach was inconsistent and legally unsustainable. It observed that while raising the demand and appropriating the amount, the department had treated “Ashirwad Palace” as a single entity. However, during refund proceedings, it attempted to treat the same establishment as two separate entities merely because different registration codes had been used. 

According to the Tribunal, once the entire amount of ₹71.55 lakh had admittedly been received by the Government, a refund could not be denied on the basis of technical or accounting distinctions. It emphasized that procedural errors relating to registration codes cannot defeat a substantive legal right to refund. 

The Bench relied upon the Gujarat High Court’s decision in Devang Papers Mills Pvt. Ltd., where it was held that duty deposited under an incorrect registration code cannot be denied credit or adjustment if the amount has already been credited to the Government account. 

The Tribunal also referred to several precedents, including Uday Raj Singh, Tata Meta Links Ltd., and Welspun Corporation Ltd., which recognize that payment of tax under an incorrect registration number is merely a procedural lapse. In such situations, the department is expected to make appropriate accounting adjustments rather than insist on fresh payment or deny refund. 

It noted that the Revenue had never disputed the fact that the entire amount had been deposited into the Government treasury. Therefore, denying refund merely because part of the payment was reflected under another registration code amounted to elevating form over substance. 

On the issue of unjust enrichment, the Tribunal delivered an equally important finding. It held that the amounts deposited during investigation were in the nature of pre-deposits made to safeguard the interests of the Revenue and could not be equated with tax collected from consumers and passed on to others. 

The Tribunal observed that once the Service Tax demand itself had been set aside on the principle of mutuality, there was no basis for concluding that the tax burden had been passed on to members of the housing society. Consequently, the doctrine of unjust enrichment could not be invoked to deny refund. 

The Bench further emphasized that retention of money by the State without authority of law would be contrary to Article 265 of the Constitution of India. 

The Tribunal also criticized the department for continuing to retain the money even after withdrawing its appeal against the earlier order that had held Service Tax to be inapplicable. It observed that the amount deposited during investigation ought to have been refunded with applicable interest once the dispute had been resolved in favour of the assessee. 

Allowing both appeals, the CESTAT set aside the orders of the Commissioner (Appeals) and directed the Revenue to refund the entire amount of ₹71,55,508 to the housing society. The Tribunal further ordered that the balance amount of ₹35,44,329, which had been denied earlier, must be refunded along with applicable interest under Section 35FF of the Central Excise Act, as applicable to Service Tax matters.

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