2019 (8) TMI 1592 - HC - Central Excise

Maintainability of appeal - appropriate Forum - Section 35G(1) of the Central Excise Act, 1944 - whether the issue relates to the determination of any question having a relation to the rate of duty of excise or to the value of goods for the purposes of assessment as would bar jurisdiction of this Court? HELD THAT - In the case at hand, the controversy does not relate to either classification of service availed/provided, nor the rate at which the service is availed/provided. Because the transmission charges are filed by the Petroleum and Natural Gas Regulatory Board. The controversy as to whether on the basis of the alleged credit note given by the service provider, M/s GAIL, the assessee is entitled for the refund de hors stipulations contained in Section 11B and Section 12B of 1944 Act - the preliminary objection qua sub-section (1) of Section 35G of 1944 Act that the appeal is not tenable is negatived. Also, the assertion of the Noticee that they have themselves borne the incidence of tax is not acceptable as not supported by documentary evidence, therefore, refund cannot be granted to the Noticee. The CESTAT has cryptically decided the appeal which is apparent from paragraphs 6 and 7 of the impugned order. By observing that since tariff is managed by the statutory body to be followed by the gas companies and the service tax payment is provisional and therefore with the determination of final rate, a right accrues in the assessee; therefore, the limitation is to be construed accordingly. Apparently, the Tribunal glossed over the fact that the M/s GAIL had not sought a provisional assessment and it was not its case that on final assessment that there is a determination that the service tax paid is on the higher side and therefore it should revert to the receiver of service. The Tribunal has grossly erred in law in holding that the claim for refund rejected for the reason being time barred, should be treated as within time and the claims are to be processed , which deserves to be and is hereby set aside - Even shifting the burden on the department to find out as to whether the assessee has not passed the burden of tax on the final consumer cannot be countenanced in the given facts of present case. The order passed by the Assistant Commissioner and its affirmation are upheld - Appeal allowed.

Issues Involved:

1. Maintainability of the appeal under Section 35G(1) of the Central Excise Act, 1944.
2. Limitation period under Section 11B of the Central Excise Act, 1944.
3. Proof of payment of service tax to the government account.
4. Passing of the tax burden to the customer (unjust enrichment).
5. Relevance of credit notes or adjustments post-clearance of goods.

Issue-wise Detailed Analysis:

1. Maintainability of the Appeal:
The court addressed the preliminary objection regarding the maintainability of the appeal under Section 35G(1) of the Central Excise Act, 1944. It was argued that the appeal should not be entertained as it relates to the determination of the rate of duty or the value of goods for assessment. However, the court found that the issue at hand did not pertain to the classification of services or the rate at which the service was provided but rather to the entitlement of refund based on credit notes and compliance with Sections 11B and 12B of the Act. Thus, the preliminary objection was negated, and the appeal was deemed maintainable.

2. Limitation Period under Section 11B:
The court examined whether the limitation period prescribed under Section 11B of the Central Excise Act, 1944, was applicable. The assessee argued that the service tax was paid on a provisional basis and should be considered within the limitation period upon final determination by the Petroleum and Natural Gas Regulatory Board. However, the court referred to precedents, including the Supreme Court's decision in Allied Photographics India Ltd., which emphasized that refund claims must comply with the limitation period under Section 11B unless paid under protest or provisional assessment. Since M/s GAIL did not opt for provisional assessment, the court held that the limitation period was applicable, and the refund claim was time-barred.

3. Proof of Payment of Service Tax:
The court scrutinized the requirement for documentary evidence of service tax payment to the government account. The assessee contended that they were not obliged to produce original challans as the primary obligation was on M/s GAIL. The court, however, emphasized that the claimant must substantiate their refund claim with proper documentary evidence. The burden of proof lies with the claimant to demonstrate that the service tax was paid to the government, which the assessee failed to do. Thus, the lack of documentary proof was a valid reason for rejecting the refund claim.

4. Passing of the Tax Burden (Unjust Enrichment):
The court evaluated whether the assessee had passed the tax burden to the ultimate buyer, invoking the principle of unjust enrichment. The assessee provided a Chartered Accountant's certificate claiming that the service tax amount was shown as receivables and not passed on. However, the court referred to the Supreme Court's judgment in Solar Pesticides India, which held that the burden of proof lies with the claimant to show that the tax incidence was not passed on. The court found that the assessee did not provide sufficient documentary evidence to prove this, and thus, the refund claim was rightly rejected on grounds of unjust enrichment.

5. Relevance of Credit Notes or Adjustments Post-Clearance:
The court addressed the relevance of making adjustments, such as issuing credit notes, after the clearance of goods. It was argued that such adjustments should not affect the refund claim. However, the court referred to the Supreme Court's decision in MRF Ltd., which held that subsequent price reductions or adjustments do not impact the liability to pay excise duty at the time of clearance. The court concluded that the issuance of credit notes post-clearance was irrelevant to the refund claim, and the burden of service tax payment had already been passed on to the buyers.

Conclusion:
The court set aside the CESTAT's order, which had allowed the refund claim, and upheld the orders of the Assistant Commissioner and the Commissioner (Appeals) rejecting the refund claim. The substantial questions of law were answered against the assessee, and the appeal was allowed, reinforcing the principles of limitation, proof of payment, and unjust enrichment in refund claims.

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