2014 (12) TMI 828 - AT - Service Tax

Denial of refund claim - Bar of limitation - Section 11B - Held that - appellants were not required to pay service tax but the appellants have paid the service tax erroneously and the same has not been disputed by the department. In that circumstances, as per the Circular 108/2/2009-S.T., dated 29-1-2009, the department is not legally allowed to calculate the service tax and if they do so, the same is unconstitutional. Merely a payment made by the appellant erroneously, does not authorize the department to retain the same. Therefore, the provisions of Section 11B of the Central Excise Act, 1944 are not applicable as held by the Hon ble High Court of Karnataka in the case of KVR Construction (2012 (7) TMI 22 - KARNATAKA HIGH COURT). Provisions of Section 11B of Central Excise Act, 1944 are not applicable. Therefore, the impugned orders are set aside - Decided in favour of assessee.

Summary

Issues:
Refund claim rejection based on Section 11B of the Central Excise Act, 1944.

Analysis:
The appellants contested the rejection of their refund claims by the learned Commissioner (Appeals) on the grounds of Section 11B of the Central Excise Act, 1944. The case involved the sale of residential flats to the appellants by a builder who had paid service tax on the flats. The appellants, as ultimate owners, were not liable to pay service tax as per Circular No. 108/2/2009-S.T. dated 29-1-2009. Despite this, they filed a refund claim which was initially sanctioned by the adjudicating authority but later rejected on appeal by the Revenue. The appellants argued that since they were not required to pay service tax, Section 11B should not apply to them, citing the decision of the Hon'ble High Court of Karnataka in the case of CCE v. KVR Construction - 2012 (26) S.T.R. 195 (Kar.).

The learned Advocate for the appellants relied on the KVR Construction case to support their contention that the provisions of Section 11B should not be applicable to them since they were not liable to pay service tax. On the other hand, the learned A.R. representing the Revenue reiterated the findings of the impugned order rejecting the refund claim. After hearing both sides and considering the submissions, it was observed that the appellants had paid the service tax erroneously, which was not disputed by the department. The Circular 108/2/2009-S.T. dated 29-1-2009 stated that the department was not legally allowed to calculate service tax in such cases, and any such calculation would be unconstitutional. Merely making an erroneous payment did not authorize the department to retain the amount. Therefore, it was held that the provisions of Section 11B of the Central Excise Act, 1944 were not applicable in this scenario, in line with the precedent set by the Hon'ble High Court of Karnataka in the KVR Construction case.

In conclusion, the Tribunal held that Section 11B of the Central Excise Act, 1944 was not applicable in this matter. Consequently, the impugned orders rejecting the refund claims were set aside, and the appeals were allowed with any consequential relief deemed necessary.