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Total Number of Subscribers: 1626 |
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Date:30th June 2010 |
Compiled by: M Sathya Kumar |
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The author, in this article, has examined threadbare the decision of a Single Member of the CESTAT, New Delhi Bench in case of CCE v. Manorath Builder (P.) Ltd. [2010] 25 stt 323, holding that the appellant before the CESTAT was not entitled to a refund of Rs. 2,14,808 paid as service tax voluntarily on a misunderstanding of the provisions of law, in respect of which even the Service Tax Department was not clear, on the ground that the claim for refund was made belatedly after a period of one year mentioned in section 11B of the Central Excise Act, 1944, as applied to service tax matters vide section 83 of the Finance Act, 1994. According to the author, the technical plea of ‘time bar’ ignoring the facts of the case is indicative of the desire of the Government to get unduly enriched and collect tax ignoring the mandate of article 265 of the Constitution. The author has given a very cogent and convincing ground for coming to the above-mentioned conclusion.
Introduction
There have been umpteen discussions on the concept of undue enrichment in the context of collection of excise duty, which led to the amendment of section 11B of the Central Excise Act, 1944, by the Central Excise & Customs Laws (Amendment) Act, 1991. In the statement of Objects and Reasons, the concept has been explained saying that the question of ‘unjust enrichment’ in case of goods subject to duty of excise or customs has been the subject-matter of discussion for quite sometime now. The concept of ‘unjust enrichment’, insofar as it relates to the said duties, is that any refund of these duties made to any manufacturer or importer, who may have initially paid these duties but had passed on the same to the buyers, would be in the nature of a windfall gain to such manufacturer or importer. The object of the amendment has been examined by the Andhra Pradesh High Court in the case of Laxmi Starch Ltd. v. Union of India 1993 (67) ELT 769. The High Court has observed :—
“19. The object of the amendment Act in amending the provisions of the Central Excise Act and the Customs Laws, is to regulate the refund of duty so as to prevent the unjust enrichment of middlemen like the manufacturers, producers, importers, etc., and in the event of duty being found refundable, to credit the same to the Consumer Welfare Fund and to utilize the same for the welfare of the consumers, in accordance with the Rules, to be framed by the Central Government, and to enable the person, who has borne the burden of incidence of duty ultimately to claim the refund of duty paid by him. . . .” (p. 783) As a result of amendment, sub-sections (2) to (5) of section 11B were substituted by new sub-sections bearing the same numbers.
Reverse situation of Government getting unduly enriched
A recent decision of the CESTAT, New Delhi Bench, in the case of CCE v. Manorath Builder (P.) Ltd. [2010] 25 STT 323 shows how the Government is insensitive towards itself getting unduly enriched by refusing refund of service tax paid by a person on a wrong understanding of the legal provisions. In the case before the CESTAT, the assessee had on its own obtained service tax registration sometime in the year 2006 by treating its activities as taxable to come within the category of ‘construction of residential complex’ and paid service tax during the period from March 4, 2006 to September 4, 2006. Subsequently, on the basis of Circular No. 96/7/2007-ST, dated August 23, 2007, it filed a refund application on September 13, 2007 claiming that it was only builder and not engaged in providing service of construction of residential complex to its clients. The adjudicating authority rejected the refund application of the assessee on the ground, inter alia, that it was time-barred. On appeal, the Commissioner (Appeals) allowed the refund application of the assessee holding that since no service tax was leviable, its refund claim was not time-barred inasmuch as the limitation period prescribed under section 11B would not be applicable in respect of the tax collected without the authority of law.
The Commissioner, Central Excise, filed appeal before the CESTAT, challenging the order of the Commissioner (Appeals). The CESTAT has reversed the order of the Commissioner (Appeals) saying that the assessee had on its own obtained service tax registration and paid service tax without any protest. It was only after issue of Circular No. 96/7/2007-ST, dated August 23, 2007 that it became aware that its activity was not taxable and it filed refund claim on September 13, 2007. The refund claim, had obviously, been filed after the expiry of period of one year from the date of payment of service tax.
The Delhi High Court in the case of Jumax Foam (P.) Ltd. v. Union of India 2003 (157) ELT 252, has held that even if some tax is collected by the authorities under the Act by misinterpreting or misapplying any of the rules, regulations or notifications or erroneous determination of relevant facts, the same may be called an illegal levy. However, for the refund of such amount, though illegally collected, a claim has to be necessarily preferred under and in accordance with the respective enactments before the authorities prescribed thereunder and within the period of limitation prescribed therein.
The limitation prescribed under section 11B made applicable to the service tax by virtue of section 83 of the Finance Act, 1994, would be applicable and since, in the instant case, there was no dispute about the fact that refund claim had been filed after the expiry of the limitation period of one year from the relevant date and the payment of service tax was without any protest, the refund claim had to be treated as time-barred. Therefore, the impugned order was liable to be set aside.
The Delhi High Court, deciding
the issue in the case of Jumax Foam (P.) Ltd. (supra) has
relied, inter alia, upon the Supreme Court’s decisions in the cases of
Mafatlal Industries Ltd. v. Union of India 1997 (89) ELT 247
and Asstt. Collector of Customs v. Anam Electrical Mfg. Co. 1997
(90) ELT 260, where the findings, according to the Delhi High Court, are that
even if the authorities under the Act have collected tax by misinterpreting
or misapplying the law for refund of the amount, a claim has necessarily to
be filed under the provisions of the Act within the limitation period
prescribed therein. Reliance has also been placed on the Letter No.
332/35/2006, dated August 1, 2006 to reject the claim for refund saying that
this is the case of collection of tax without any authority of law and,
hence, the limitation period under section 11B would not apply. For this,
reliance was placed on the High Court’s judgment in the case of Indo
Nippon Chemicals Co. Ltd. 2005 (185) ELT 19 (Guj.), which was relied upon
by the Commissioner (Appeals) in the impugned order-in-appeal. The Tribunal’s
order in the case of Hexacom (I) Ltd. v. CCE 2003 (156) ELT 357
(Trib. - Delhi) was mentioned to support the view that, if any, amount is
collected erroneously as representing service tax, which is not chargeable,
there is no bar to return such amount,and the provisions relating to refund
of service tax, including those relating to unjust enrichment, cannot have
any application to the return of the amount, in question. It was said that
the same view was taken by a Single Member Bench of Tribunal in the case of CCE
v. Indian Ispat Works (P.) Ltd. [2006] 7 STT 319 ( CESTAT).
An argument was also made from the side of the Central Excise Department by its counsel that since service tax was paid voluntarily and not under protest, the claim ought to have been filed within the limitation period of one year. Since the CESTAT has not made any comments in its decision on this issue, it could be presumed that this factor has also been taken into account in expressing the view against the appellant.
Appellant’s grounds for entertaining the claim for refund
It was said that this was the case of collection of tax without any authority of law and, hence, the limitation period under section 11B would not apply. For this reliance was placed on the High Court’s judgment in the case of Indo Nippon Chemicals Co. Ltd., (supra) which was relied upon by the Commissioner (Appeals) in the impugned order-in-appeal. The Tribunal’s order in the case of Hexacom (I) Ltd. (supra) was mentioned to support the view that, if any, amount is collected erroneously as representing service tax, which is not chargeable, there is no bar to return such amount and the provisions relating to refund of service tax, including those relating to unjust enrichment, cannot have any application to the return of the amount in question. It was said that same view was taken by a Single Member Bench of Tribunal in the case of Indian Ispat Works (P.) Ltd. (supra).
The Commissioner (Appeals) in his order made a very valid argument for giving refund. He has said in his order that the Ministry’s letter dated August 1, 2006 cannot be treated as public notice or circular available to all the assessees and that only on issue of the Board’s circular dated August 23, 2007 that the appellant became aware that its activity did not attract any service tax and only then it surrendered its registration and applied for refund. Hence, the appellant could not be said to be guilty of latches, i.e., not filing the claim for refund within one year as required under section 11B.
CESTAT’s decision
As stated earlier, the CESTAT has rejected the claim on the ground that the refund was not admissible as it was filed after the period of one year mentioned in section 11B as applied to service tax payments.
Analysis of the CESTAT’s order
5.1 Accepted position - The factual and legal position as accepted by the CESTAT in this case has been mentioned in para 3.1 of the order, which reads, thus :—
“There is no dispute about the fact that the respondent had, on their own, obtained service tax registration for payment of service tax on their activity by treating the same as taxable service under section 65(105)(zzzh), read with sections 65(30A) and 65(91A) and during the period from March, 2006 to September, 2006, the tax was paid by them without any protest. It is only after issue of the Board’s Circular on 23-8-2007 that they became aware that their activity is not taxable and they filed refund claim on 13-9-2007.”
Article by Mr. T.N. Pandey, a renowed professional in the field of service tax |
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