2018 (8) TMI 614 - HC - Service Tax

Refund claim of service tax on services which were exempted with retrospective effect - Illegal action of CPWD in adjusting security deposit of the petitioner - unjust enrichment - Held that - In the execution of works contract for CPWD; as per the then prevailing law, the service tax was collected by the petitioner and deposited with the Government revenue. Subsequently, however, the law was amended by virtue of which, in relation to the construction carried out by the petitioner for CPWD, service tax was exempted with retrospective effect. It is undisputed position that such tax was not required to be paid. The amended provision also envisaged refund of service tax already paid, if application is filed within prescribed time - The appellant who had paid the excise duty to the manufacturer viz. M/s. Indian Oil Corporation Limited and BPCL in the instant case, had the necessary locus standi to file the application claiming the refund of the duty. In the present case, it was therefore upto the CPWD to apply for refund of the service tax which was paid as per the law prevailing at the relevant time, but which became refundable on account of retrospective amendment in the law. The CPWD instead of applying for refund, itself insisted that the petitioner must apply and when the petitioner s application for refund was rejected by the Assistant Commissioner of Service Tax, Ajmer, CPWD found a novel way to recover the same from the petitioner by utilizing the petitioner s security deposit, unpaid amounts of final bill and the petitioner s running bills of other contracts. These are wholly impermissible means of recovery. There is no iota of doubt that this Court has territorial jurisdiction to examine the legality of the action of CPWD - The orders passed by the Assistant Commissioner of Central Excise & Service Tax, Ajmer of course have a territorial origination outside the State, however, these two actions and orders are inter-linked and cannot be separated one from the other for testing the legality. The proceedings are placed back before the Assistant Commissioner of Central Excise & Service Tax, Central Excise& Service Tax Division, Ajmer Rajasthan . It would be open for the CPWD to join in the said application as a co-applicant. If so done by 30th June 2018, the competent authority shall decide such application on merits. We also hold that not the petitioner, but the CPWD can pursue the refund claim. Petition disposed off.

Summary

Issues Involved:
1. Non-release of security deposit by CPWD.
2. Retrospective exemption from service tax.
3. Application and rejection of service tax refund.
4. Principle of unjust enrichment.
5. Territorial jurisdiction of the High Court.

Issue-wise Detailed Analysis:

1. Non-release of Security Deposit by CPWD:
The petitioner, a construction contractor, faced grievances due to CPWD not releasing the security deposit. The petitioner had completed a construction contract for IIT Gandhinagar and deposited the required service tax. However, due to a retrospective amendment exempting such service tax, the petitioner sought a refund. CPWD, having reimbursed the service tax to the petitioner, demanded its return after the legislative amendment.

2. Retrospective Exemption from Service Tax:
Section 102 of the Finance Act, 1994, as amended in 2016, provided a retrospective exemption from service tax for certain government construction activities from April 1, 2015, to February 29, 2016. This amendment meant that the service tax paid by the petitioner for the construction of IIT Gandhinagar was not required.

3. Application and Rejection of Service Tax Refund:
The petitioner applied for a refund of ?66,68,294/- from the Service Tax Department. The Assistant Commissioner of Central Excise & Service Tax, Ajmer, rejected this application on November 25, 2016, on the grounds of unjust enrichment, despite acknowledging the refund's merit. The petitioner clarified that the refund was sought on behalf of CPWD and had no objection if paid directly to CPWD.

4. Principle of Unjust Enrichment:
The Assistant Commissioner rejected the refund citing unjust enrichment, arguing that the petitioner would benefit if the refund were granted. The court found this reasoning flawed since the petitioner had already clarified that the refund was meant for CPWD. The court referred to Supreme Court judgments, emphasizing that the ultimate consumer, in this case, CPWD, could claim the refund under Section 11-B of the Central Excise Act, 1944.

5. Territorial Jurisdiction of the High Court:
The respondents argued that the Gujarat High Court lacked jurisdiction as the service tax was deposited and the refund application was processed in Ajmer. The court rejected this argument, stating that the cause of action arose within its jurisdiction, as the contract was executed, and payments were made in Gujarat. The court held that it had jurisdiction to examine the legality of CPWD's actions and the Assistant Commissioner's order.

Judgment:
The court quashed the Assistant Commissioner's order regarding unjust enrichment, directing that the refund claim be reconsidered. CPWD was allowed to join as a co-applicant for the refund. The court also ordered CPWD to release the amounts adjusted from the petitioner's bills and security deposit with interest and prohibited CPWD from recovering the service tax component from the petitioner's other contracts.

Conclusion:
The court's decision addressed the unjust enrichment principle, clarified the rightful claimant for the refund, and ensured the petitioner's financial interests were protected against wrongful recovery by CPWD. The judgment also affirmed the court's jurisdiction in matters where significant parts of the cause of action occurred within its territory.