2007 (2) TMI 595 - AT - Service Tax

Refund of Service tax paid in excess - Banking and Financial Services - Unjust enrichment - Order Of lower authority is erroneous - HELD THAT - The appellants initially paid service tax on the assumption that they are liable to pay the same. However, on discovery of the error, they refunded the service tax collected from their clients by way of issuance of credit notes and also cheques, then they filed refund claims with the competent authority. They produced the Chartered Accountant's certificate also. The issue is quite simple. As the appellants have returned the amount collected by way of service tax to their clients, it is evident that they only had borne the burden of service tax. When they applied for the refund of the amount to the department, they are rightly entitled for the same. But in the impugned order, the Commissioner has relied on the decision of the Tribunal rendered in the case of S. Kumar's 2003 (2) TMI 85 - CEGAT, NEW DELHI to deny the refund. As rightly pointed out by the learned Advocate in matters of service tax it is very easy to identify the service provider and the client and also to decide as to who has borne the tax incidence. Issue of credit note to the clients is also a form of payment, as held by the apex court in the case of Mohd. Ekram Khan Sons 2004 (7) TMI 341 - SUPREME COURT . Hence, the order of the Assistant Commissioner in sanctioning the refund is legal and proper. In other words, when the service provider has returned the service tax collected either by way of cheques or credit note, there cannot be any question of unjust enrichment. Therefore, the appeal is allowed.

Summary

Issues involved:
1. Refund of Service Tax under Section 11B of the Central Excise Act.
2. Application of unjust enrichment principle in the context of Service Tax refund.
3. Jurisdiction of the Commissioner to pass an Order-in-Original under Section 84 of the Finance Act, 1994.

Issue 1: Refund of Service Tax under Section 11B of the Central Excise Act:
The appellants initially paid Service Tax under the category of 'Scientific and Technical Consultancy' but later discovered they were not liable to pay the tax as per a trade notice. Subsequently, they filed 13 refund claims under Section 11B of the Central Excise Act. The Asst. Commissioner sanctioned the refund amount after confirming that the tax burden had not been transferred. However, the competent authority reviewed this decision and held that the refund was erroneous, leading the appellants to appeal to the Tribunal for relief.

Issue 2: Application of unjust enrichment principle in the context of Service Tax refund:
The main argument presented by the appellants was that the principle of unjust enrichment, as established by the Supreme Court in the Mafatlal case, did not apply in their situation. They contended that in matters of Service Tax, where the service provider and the client are clearly identifiable, the bar of unjust enrichment should not arise. The appellants demonstrated that they had refunded the Service Tax collected from clients through credit notes and cheques, indicating that they had borne the tax burden. The Tribunal agreed with this argument, emphasizing that the issuance of credit notes to clients constituted a valid form of payment, as supported by a Supreme Court decision. Consequently, the Tribunal allowed the appeal, ruling in favor of the appellants.

Issue 3: Jurisdiction of the Commissioner to pass an Order-in-Original under Section 84 of the Finance Act, 1994:
The appellants also raised a jurisdictional issue, asserting that the Commissioner exceeded his powers by passing an Order-in-Original under Section 84 of the Finance Act, 1994. They argued that the Commissioner did not specify the legal provision under which the order was issued, leading to a request for the order to be set aside. However, the Tribunal did not delve deeply into this issue in the judgment, focusing primarily on the refund and unjust enrichment aspects of the case.

In conclusion, the Tribunal allowed the appeal filed by the appellants against the Commissioner's decision to deny the refund of Service Tax. The judgment emphasized the clear identification of the tax burden borne by the appellants and the refund provided to clients through credit notes and cheques as valid forms of payment. The application of the unjust enrichment principle in the context of Service Tax refund was deemed inapplicable due to the identifiable nature of the service provider and the client. The jurisdictional concerns regarding the Commissioner's Order-in-Original under Section 84 of the Finance Act, 1994 were not extensively addressed in the judgment, with the focus primarily on the refund entitlement of the appellants.