Service Tax paid on RCM basis not to be Considered Deposits in Absence of FAR: CESTAT directs Refund Sanction u/s 11B of Excise Act

The Bangalore bench of CESTAT ruled that service tax paid under Reverse Charge Mechanism (RCM) for consultancy services should not be considered as a deposit in the absence of a Final Audit Report (FAR). The tribunal emphasized that the amount paid under the service tax category, in accordance with relevant provisions, must be regarded as tax. \r

This decision came in response to an appeal by P G Setty Construction, which had paid Rs. 18,98,107/- in service tax, interest, and penalty under protest, but was denied a refund by the original authority. The Commissioner (Appeals) had initially allowed the refund, stating that without an approved FAR, the payments should be treated as deposits. \r

However, the CESTAT overturned this decision, asserting that the payments were made in compliance with audit observations communicated to the respondent. As per Section 11B of the Central Excise Act, 1944, the tribunal directed the sanctioning of the refund, supporting the appellant's argument and ultimately allowing the appeal.