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2016 (7) TMI 424 - AT - Service TaxRefund - Excess payment of service tax - Unjust enrichment - Acceptance of credit notes - recipients were entitled to cenvat credit or not - Commissioner of Central Excise (Appeals), Mumbai-I that has credited the refund of service tax claimed by the appellant to the Consumer Welfare Fund. - Held that - Credit notes do not exist as inactive exhibits; the financial adjustment is manifested as entries in journals and ledger to impact the consideration made over and received for any goods supplied or service rendered. With credit notes being a conventional method of reflecting the change in consideration, and its authenticity not having been refuted, reliance has necessarily to be placed on the net effect that it has on the taxable transaction. Reversal of brokerage carries with it the reversal of tax collected along with the excess brokerage. We, therefore, need merely to ascertain if any of the cited decision prevent acceptance of credit note. The tax is structured entirely on the existence of documentation and alienation of credit or debit notes from this documentary flow by conferment of finality to one document that serves the cause of Revenue is not consistent with the basis of taxation in section 67 of Finance Act, 1994 viz. consideration for services rendered. The decisions cited by Revenue do not, therefore, serve to support the findings in the impugned order. The original authority had not sought to reject the claim for refund on the ground of lack of evidence that CENVAT credit, that the recipients were entitled to, had been reversed. Therefore, invoking of this ground in the impugned order is tantamount to travelling beyond the show cause notice. The manner in which credit is administered is not within the obligatory supervision of the provider of service or supplier of goods. The system is honor-driven by predicating the availment on supporting documentation with the onus of reversals placed squarely on the recipient. The issuance of credit note automatically curtails the entitlement and their existence suffices to enforce reversal in the course of scrutiny of returns or audit. In view of implicit reduction of entitlement to credit, with ample recourse for recovery under the Rules, assumption of having passed on the burden of tax fails to be a valid conjecture. The provisions of section 11B of Central Excise Act, 1944 cannot be stretched to fasten what is, essentially, the monitorial responsibility of tax authorities on to an assessee. The impugned order has erred in crediting the excess tax collected in the Consumer Welfare Fund - Refund allowed.
Issues Involved:
1. Refund of service tax paid in excess. 2. Application of the principle of unjust enrichment. 3. Validity of credit notes as evidence for refund claims. 4. Authority to deny refund based on self-assessment finality. 5. Travelling beyond the show cause notice by the appellate authority. Detailed Analysis: 1. Refund of Service Tax Paid in Excess: The appellant, a stock-broker, sought a refund of service tax paid on 'brokerage' for the period from April 2007 to July 2007, arguing that the tax was paid in excess due to lower brokerage rates agreed upon with clients. The refund sanctioning authority initially denied the claim, stating that the tax was computed and paid by self-assessment, which had attained finality and could not be challenged through a refund claim. The appellate authority, however, acknowledged the refund but credited it to the Consumer Welfare Fund, leading to the present appeal. 2. Application of the Principle of Unjust Enrichment: The primary contention was whether the tax burden had been passed on to the service recipients, invoking the principle of unjust enrichment. The appellate authority was not convinced that the credit notes issued by the appellant were sufficient to establish that the tax burden had not been passed on, thus crediting the refund to the Consumer Welfare Fund. The Tribunal, however, emphasized that the form of evidence for bearing the duty burden is not prescribed and that credit and debit notes are legally enforceable documents in commercial disputes. 3. Validity of Credit Notes as Evidence for Refund Claims: The Tribunal considered various precedents, including the decision in Shiva Analyticals (India) Ltd. v. CST and Union of India v. AK Spintex Ltd., which validated credit notes as evidence of payment and placed the onus on Revenue to prove the lack of authenticity of accounting documents. The Tribunal concluded that credit notes, being a conventional method of reflecting changes in consideration, should be accepted as evidence of not having passed on the tax burden, provided they are not refuted for authenticity. 4. Authority to Deny Refund Based on Self-Assessment Finality: The Tribunal noted that the refund sanctioning authority's denial based on the finality of self-assessment was not a valid ground, as the appellate authority had already confirmed the refund's eligibility. The Tribunal observed that the cited decisions related to the clearance of goods and were not applicable to the tax on services, which operates on different principles. 5. Travelling Beyond the Show Cause Notice by the Appellate Authority: The Tribunal found that the appellate authority had erred by invoking grounds for denial of the refund that were not part of the original show cause notice, specifically the issue of CENVAT credit reversal by the clients. The Tribunal highlighted that the mechanism for CENVAT credit is a privilege and an option for the recipient, and the issuance of credit notes should suffice to enforce the reversal of entitlement during audits or scrutiny of returns. Conclusion: The Tribunal modified the impugned order, directing that the refund be disbursed to the appellant instead of being credited to the Consumer Welfare Fund. The Tribunal emphasized that the principles of unjust enrichment must be grounded in statutory provisions and that credit notes, when not refuted for authenticity, should be accepted as valid evidence for refund claims. The Tribunal also underscored that the appellate authority should not travel beyond the scope of the show cause notice in denying refunds.
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