2018 (8) TMI 1858 - AT - Service Tax

Refund claim - reverse charge mechanism - principles of unjust enrichment - sales commission paid to the foreign service provider - refund for the period post 18.04.2006 was rejected on the ground that during this period the service tax was payable under reverse charge mechanism in respect of services received from overseas - HELD THAT - E ven though the service tax was paid under reverse charge mechanism, there is no escape from the provision of Section 11B wherein the test of unjust-enrichment is necessary before sanction of refund. Therefore the provisions of unjust-enrichment is applicable. As regards the fact whether incidence of refund amount has been passed on or otherwise, the ld. Counsel submits that they have not produced the books of accounts to prove that there is no unjust-enrichment. Therefore, in the interest of justice, one opportunity granted to the appellant to produce their books of accounts to the original adjudicating authority who shall, after verification of the books establish that whether the incidence of service tax refund has been passed on or otherwise and thereafter process the refund. Appeal allowed by way of remand.

Summary

Issues:
Unjust-enrichment in the context of service tax paid under reverse charge mechanism.

Analysis:
The appellant paid service tax on sales commission to a foreign service provider under reverse charge mechanism for the period July 2004 to September 2006 and later filed a refund claim upon realizing that service tax was not payable. The refund for the period post 18.04.2006 was rejected due to service tax being payable under reverse charge mechanism for services received from overseas during that time. Although the refund for the period ending 17.04.2006 was sanctioned, it was credited to the Consumer Welfare Fund on the grounds of unjust-enrichment. The Commissioner (Appeal) upheld the original adjudicating authority's decision, leading to the current appeal.

The appellant's representative argued that the main issue at hand was unjust-enrichment. They contended that unjust-enrichment only applies if payment is received for services, and since the incidence of service tax payment was not passed on, unjust-enrichment should not be applicable. Additionally, they claimed that the appellant had consistently maintained that unjust-enrichment provisions did not apply, which is why the books of accounts were neither submitted nor verified by the department. The representative requested an opportunity to produce the books of account to demonstrate that the incidence of service tax paid for the refund was not transferred to any other party.

The Revenue's representative reiterated the findings of the impugned order, supporting the decision based on unjust-enrichment provisions. After considering both sides' arguments, the Tribunal concluded that the crucial issue was whether unjust-enrichment applied to service tax paid under reverse charge mechanism. Despite the payment being made under reverse charge, the Tribunal highlighted the necessity of complying with Section 11B, which mandates the test of unjust-enrichment before refund approval. Therefore, the Tribunal found unjust-enrichment applicable in this case. The appellant's failure to provide the books of accounts to prove the absence of unjust-enrichment led the Tribunal to grant an opportunity for the appellant to submit these records to the original adjudicating authority. The authority would then verify the books to determine whether the incidence of service tax refund had been passed on or not, subsequently processing the refund accordingly.

Consequently, the Tribunal set aside the impugned order and remanded the matter to the Adjudicating Authority for issuing a fresh order, emphasizing the importance of establishing the absence of unjust-enrichment before refund approval.