2014 (9) TMI 1075 - AT - Service Tax

Refund of amount deposited under Reverse charge mechanism wrongly on export of services - nature of deposit - Held that - I hold that as no tax was legally payable, the amount paid is in the nature of deposit. The Hon ble Kerala High Court in the case of KVR Constructions 2012 (7) TMI 22 - KARNATAKA HIGH COURT have held, where Service Tax was mistakenly paid on construction service, department not disputing that it was not payable due to exemption notification, and that it was not passed on, the department did not have authority to collect. Mere payment of amount could not authorize the Department to regularize/validate and retain it. It was further held that refund could not be rejected on ground of limitation under Section 11B of Central Excise Act. In the facts herein, the ruling as aforementioned is squarely applicable. The appeal is allowed and the impugned order is set aside. The adjudicating authority is directed to disburse the refund within 30 days - appeal allowed - decided in favor of assessee.

Issues:
1. Classification of commission received as Business Auxiliary Service and export of service.
2. Eligibility for refund of service tax paid.
3. Application of time limitation for claiming refund.

Analysis:

Issue 1: Classification of commission received as Business Auxiliary Service and export of service
The appellant, a business procuring goods for a foreign principal, received commission in convertible foreign exchange. The appellant believed the commission was classifiable as Business Auxiliary Service and satisfied the conditions for export of service under Rule 3(1)(iii) of Export of Service Rules, 2005. The services were used in business, the recipient was outside India, payment was in foreign exchange, and the services were provided from India but used outside India. The appellant paid service tax on a conservative basis due to a doubt regarding the term "used outside India." However, a later circular clarified that benefits accruing outside India meant the services were used outside India, making the appellant not liable to pay service tax.

Issue 2: Eligibility for refund of service tax paid
The appellant applied for a refund of the service tax paid, which was rejected by the Deputy Commissioner and upheld by the Commissioner of Central Excise on the grounds of limitation. The tax was deposited on 29.3.2008, and the refund claim was made on 5.10.2008, beyond one year. The appellant argued that they were not legally liable to pay service tax, and the payment made was a deposit to the government, not related to service tax. They cited case laws to support their position and contended that the provisions for refund, time bar, and unjust enrichment did not apply to them.

Issue 3: Application of time limitation for claiming refund
The Revenue reiterated the findings of the lower authorities. However, the Tribunal held that as no tax was legally payable, the amount paid was a deposit. Referring to a ruling by the Hon'ble Kerala High Court in a similar case, where service tax was mistakenly paid and not passed on, the department was not authorized to collect or retain it. The Tribunal allowed the appeal, set aside the impugned order, and directed the adjudicating authority to disburse the refund within 30 days from the receipt of the order.

This judgment clarifies the classification of services for export, eligibility for refund of service tax, and the application of time limitations for claiming refunds, providing guidance on legal liabilities and procedural aspects in service tax matters.

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