Service tax paid under incorrect classification deemed refundable; limitation period found inapplicable.
In a significant ruling, the Madras High Court has ordered the refund of service tax erroneously paid under the wrong classification by M/s. Hardy Exploration & Production (India) Ltd. The Court, in its decision dated August 10, 2026, affirmed that service tax paid under the category of "Mining Services" instead of "Supply of Tangible Goods Service" is refundable, and the limitation under Section 11B of the Central Excise Act, 1944, is not applicable in cases involving a mistake of law.
The case arose when M/s. Hardy Exploration, involved in petroleum exploration activities, sought a refund for service tax collected and paid by M/s. Aban Offshore Ltd. under the "Mining Services" category for the period between June 1, 2007, and May 15, 2008. The tax was applicable only after May 16, 2008, under the "Supply of Tangible Goods Service" category. The Original Authority had rejected the claim citing the absence of classification dispute by the service provider and limitation issues, but this was overturned on appeal.
The Appellate Authority and the Tribunal subsequently ruled in favor of Hardy Exploration, declaring that the service was incorrectly classified and thus eligible for a refund. The Tribunal relied on precedent cases, including the Supreme Court's judgment in the Indian National Shipowners Association (INSA) case, which confirmed that the classification of such services should fall under "Supply of Tangible Goods Service."
The Court held that retaining taxes collected unconstitutionally violated Article 265 of the Indian Constitution, which prohibits the collection of tax without legal authority. It also dismissed the Revenue's arguments about the need for a civil suit or writ petition, affirming that appellate authorities have the jurisdiction to rectify such errors and grant refunds.
This decision reinforces the principle that taxpayers are entitled to refunds of taxes paid due to a mistake of law, and government departments cannot retain such collections on technical or procedural grounds.
Bottom Line :
Service tax erroneously paid under the wrong classification of "Mining Services" instead of "Supply of Tangible Goods Service" is refundable. Limitation under Section 11B of the Central Excise Act, 1944, does not apply to refunds based on a mistake of law.
Statutory provision(s): Article 265 of the Constitution of India, Section 11B of the Central Excise Act, 1944, Finance Act, 1994
