2021 (10) TMI 488 - HC - Service Tax

Refund claim - Applicability of time limitation on refund of service tax - assessee paid service tax on the LPC inadvertently for the period April 2009 to March 2011 - whether the amount paid by the assessee under a mistaken notion by the assessee was refundable? - section 11B of CEA - HELD THAT - Mere payment made will neither validate the nature of payment nor the nature of transaction. The same could not make it a service tax. When there is a lack of authority to collect such service tax not liable to be paid by the assessee, it would not give the Department the authority to retain the amount paid by the assessee. Therefore, mere nomenclature would not be an embargo on the right of the petitioner to demand refund of payment made under a mistaken notion. Indisputably, the exemption notification is not under consideration. If the payment made by a mistaken notion does not come within the realm of duty', Section 11B of the Act, 1944 would not be applicable. The arguments of the learned counsel for the Revenue that no material evidence was placed to show that in the account statement of invoice/bill, etc, it was shown that delayed payment charges was indicated separately, is wholly misconceived since the Commissioner of Service Tax (Appeals) has categorically held that the rejection of the claim by the adjudicating authority without considering the certification issued by the chartered accountant amounts to technical/procedural lapses which should not be a ground for rejection of refund. The period of limitation would not be applicable in the present case - Appeal allowed - decided in favor of appellant.

Summary

Issues:
Applicability of Section 11B of the Central Excise Act to a refund claim made by the assessee regarding service tax paid on Late Payment Charges (LPC).

Analysis:
The appeal before the Karnataka High Court involved the interpretation of Section 11B of the Central Excise Act, 1944, in relation to a refund claim made by the appellant-assessee for service tax paid on Late Payment Charges (LPC). The appellant, a private limited company engaged in providing taxable services, had inadvertently paid service tax on LPC from April 2009 to March 2011. Subsequently, upon a clarificatory Circular issued by the Central Board of Excise and Customs, the appellant sought a refund of the amount paid. However, the claim was rejected by the adjudicating authority, leading to appeals before the Commissioner of Service Tax (Appeals) and the Tribunal.

The main contention raised by the appellant was that the service tax paid on LPC was on a mistaken notion and not liable to be paid, as clarified by the Circular. The appellant argued that Section 11B of the Act, 1944, relating to claims for refund of duty, did not apply to the present case since the amount paid on LPC was not the duty payable under Section 3 of the Act. The appellant relied on a judgment of a co-ordinate Bench of the Court to support their position. The appellant also argued that a beneficial circular should be applied retrospectively, and the departmental clarification should have been extended to the entire period in question.

On the other hand, the Revenue contended that the claim for refund was hit by limitation and referred to a judgment of the High Court of M.P. to support their argument. The Revenue highlighted the Circular issued by the Central Board of Excise and Customs, emphasizing that service tax was chargeable on the gross amount charged by the service provider, and no evidence was presented by the appellant to overcome this requirement.

The Court analyzed the provisions of Section 11B of the Act, 1944, and the Circular issued by the Central Board of Excise and Customs. The Court referred to previous judgments, including the case of KVR Construction, to determine the applicability of Section 11B to the present case. The Court concluded that since the payment made by the appellant was under a mistaken notion and not a duty under the Act, Section 11B did not apply. The Court held that the rejection of the claim by the authorities was based on technical/procedural lapses and ordered the refund of the service tax paid on LPC for the period in question.

In the final order, the Court allowed the appeal, answered the substantial question of law in favor of the assessee, set aside the impugned orders, and directed the authorities to refund the amount claimed by the appellant within a specified timeframe, clarifying that no interest would be payable on the refund amount.