2020 (11) TMI 796 - HC - Service Tax

Recovery of Refund of service tax already granted - service tax paid under a mistake of law? - relevant date - Section 11B of the Central Excise Act - Business Auxiliary Service - HELD THAT - When a payment is made erroneously, the relevant date is the date of payment. However, when an order in original is passed imposing the liability and a payment is made in consequence of that, the relevant date is the date on which an appeal or revision from the order is allowed. In the present case, as is discernible from Annexure-B, a show cause notice was issued 06.11.2007, prior to which the assessee had made payments on 31.03.2007 and 23.05.2007. Hence the payments now sought for refund were made even prior to the show cause notice issued. The show cause notice culminated in, the order-in-original dated 02.03.2012, which obviously is with respect to the liability after 18.04.2006. This does not even indicate the assessee having paid the tax under protest earlier to the show cause notice; in which event, the second proviso to Section 11B makes inapplicable the limitation of one year from the relevant date, for filing an application for refund. The respondent-Revenue are restrained from recovering the amounts refunded since as of now the levy of service tax on the payment in lieu of foreign agency commission will not be leviable as 'Business Auxiliary service' prior to 18.04.2006 - appeal allowed in part.

Summary

Issues:
Refund of service tax under a mistake of law.

Analysis:
The case involved a dispute regarding the refund of service tax paid by an exporter for agency commission prior to 18.04.2006. The appellant contended that the service tax liability on taxable services provided by a non-resident assessee to a recipient in India arose only after 18.04.2006 as per a circular issued by the Central Board of Excise & Customs. The application for refund was filed within one year of the circular and the original order. However, the Department argued that the refund application should have been made within one year of the payment as per Section 11B of the Central Excise Act.

Section 11B provides for an application for refund before the expiry of the relevant date, which is defined in the Explanation (B) to Section 11B. The relevant date for refund is determined based on the circumstances of the payment. In cases where a payment is made erroneously, the relevant date is the date of payment. If a payment is made following an order imposing liability, the relevant date is the date on which an appeal or revision from the order is allowed.

In this case, the appellant had made payments prior to a show cause notice issued in 2007, and the order-in-original was dated 02.03.2012. The court noted that the payments for which a refund was sought were made before the show cause notice, indicating that the limitation of one year from the relevant date for filing a refund application did not apply. The court also considered previous decisions emphasizing that mistakes made by the assessee, whether on law or facts, can only be remedied under the statute.

While the court ruled in favor of the Revenue on the question of law, it recognized that the amounts had already been refunded to the assessee. Therefore, the Revenue was found to be incapable of recovering the refunded amounts as tax due. The court referred to a Supreme Court judgment highlighting that if income is not taxable under the relevant statute, it cannot be taxed based on estoppel or equitable doctrines. Consequently, the court partly allowed the appeal in favor of the Revenue but restrained the Revenue from recovering the refunded amounts, as the levy of service tax on the payment in lieu of foreign agency commission was not applicable as 'Business Auxiliary service' prior to 18.04.2006. The parties were directed to bear their respective costs.