2019 (9) TMI 1343 - HC - Service Tax

Consulting Engineering Services - receipt of certain services in the realm of testing, valuation and consulting engineering from abroad, stretching between the period 01.04.2005 to 17.04.2005 - validity of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 - HELD THAT - here the collection of the tax is itself without the authority of law, then the refund of tax collected thus, is also not bound by the rigour of that law. The provisions of Section 11 B and the rigour/procedure thereof would not be applicable or attracted to the present case. Admittedly, the petitioner has suo motu, complied with the provisions of Rule 2(i)(d)(iv) and having done so, the petitioner should not be expected to suffer on account of compliance - this writ petition should succeed and the amount of tax remitted be refunded to the petitioner within a period of four weeks from date of receipt of a copy of this order. The collection of tax in terms of Rule 2(i)(d)(iv) prior to insertion of Section 66(A) is sans the authority of law. The petitioner is, without question, entitled to the refund sought for by it in this regard - the levy of interest would be justified for the period post the judgment of the Supreme Court dated 14.12.2009, confirming the position that the charge under Rule 2(i)(d)(iv) prior to the enactment of Section 66(A) is unconstitutional. Interest is awarded at the rate of 6% per annum from 05.05.2010 till date of payment - petition allowed in part.

Summary

Issues:
1. Challenge to the validity of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994.
2. Claim for refund of tax paid under Rule 2(1)(d)(iv) prior to the introduction of Section 66(A) of the Finance Act, 1994.
3. Interpretation of the authority of law regarding the imposition of service tax on service recipients.
4. Jurisdiction of tax authorities to collect tax from service recipients prior to statutory amendments.
5. Application of Section 11-B of the Central Excise Act, 1944 to the refund claim.
6. Entitlement to interest on the refunded amount.

Detailed Analysis:

1. The challenge to the validity of Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 was based on the absence of a corresponding statutory provision authorizing the imposition of service tax on service recipients. The Bombay High Court held that prior to the enactment of Section 66(A) of the Finance Act, 1994, there was no legal basis for taxing service recipients for services received from non-resident service providers. The Court declared the Rule invalid for the period before 18.04.2006.

2. The petitioner sought a refund of the tax paid under Rule 2(1)(d)(iv) for services received between 01.04.2005 to 17.04.2005. The original authority rejected the claim, but the Commissioner (Appeals) reversed this decision. However, the Customs Central Excise and Service Tax Appellate Tribunal (CESTAT) overturned the Commissioner's order, stating that the levy was without the authority of law but not unconstitutional. The Division Bench of the High Court dismissed the petitioner's appeal, suggesting that the remedy for a refund lay in a suit or writ petition.

3. The Court emphasized that tax authorities had no jurisdiction to collect tax from service recipients before the statutory amendment on 18.04.2006. The Tribunal's conclusion that the levy was without authority of law but not unconstitutional was upheld, and the petitioner was advised to seek relief through a suit or writ petition within the limitation period.

4. The Court ruled that the refund claim was not bound by the rigour of Section 11-B of the Central Excise Act, 1944, as the tax collection itself was without the authority of law. The petitioner's compliance with Rule 2(1)(d)(iv) should not result in undue hardship, and the tax amount remitted was ordered to be refunded within four weeks.

5. Interest on the refunded amount was awarded at a rate of 6% per annum from 05.05.2010 till the date of payment, considering the period post the Supreme Court's judgment confirming the unconstitutionality of the tax charge under Rule 2(1)(d)(iv) before the enactment of Section 66(A) of the Finance Act, 1994.

In conclusion, the Court allowed the writ petition, entitling the petitioner to a refund of the tax paid under Rule 2(1)(d)(iv) and awarded interest on the refunded amount.