2023 (9) TMI 1252 - HC - Central Excise

Refund of Service Tax - refund claim was filed beyond the time limit prescribed under Section 11B of the Central Excise Act, 1944 - HELD THAT - Similar is the view which has been taken by the Bombay High Court in Parijat Construction vs. Commissioner of Central Excise, Nashik 2017 (10) TMI 659 - BOMBAY HIGH COURT . It would thus appear that High Courts across the board have taken a consistent view that where once it is found that the assessee was not liable to be subjected to a service tax, it would not be bound by the limitation as prescribed under Section 11B of the Act. This would also appear to appeal to reason since undisputedly and in terms of Article 265 of the Constitution, the Union can only levy a tax which is authorized by law. Since it is conceded before us that the respondent was not liable to pay any service tax, it would be wholly unjust to permit the Union to retain monies which were not liable to be collected or were authorized by law. This only leaves to deal with the issue of unjust enrichment. It is noted that the Order-in-Original dated 24 July 2020 while dealing with the aforesaid aspect has held in favour of the assessee solely on the ground that since service tax was not liable to be deposited, the question of unjust enrichment would not be applicable. As noted, the Appellate Authority in appeal against this order did not deal with the issue of unjust enrichment in its order dated 26 March 2021. However, prior to the passing of the CESTAT s impugned order dated 09 January 2020, when the matter reached the desk of the Appellate Authority against the Adjudicating Authority s order dated 17 October 2014, it was noted that the assessee had not submitted any documentary evidence to establish that the incidence of tax had not been passed on. CESTAT, however, has completely failed to allude to this aspect of the matter. In view of the above, while its decision is liable to be upheld, the assessee would be obliged to place adequate material before the concerned Assessing Authority, establishing that the incidence of service tax was not passed on. This since the issue of unjust enrichment and the burden so placed on the assessee is found in the principal provision of Section 11B of the Act itself. It was informed at the conclusion of the hearing that the refund has already been granted along with interest. In that view of the matter, let appropriate material be placed for the consideration and satisfaction of the competent Assessing Authority by the respondent. Appeal of Revenue dismissed.

Summary

Issues Involved:
1. Limitation under Section 11B of the Central Excise Act, 1944.
2. Doctrine of Unjust Enrichment.

Summary:

1. Limitation under Section 11B of the Central Excise Act, 1944:
The Department of Central Excise and Service Tax appealed against the CESTAT's order granting a refund of service tax to the respondent, which had been deposited by mistake. The Deputy Commissioner initially rejected the refund claim as time-barred under Section 11B of the Act. The Appellate Authority upheld this decision, citing the Supreme Court's judgment in Mafatlal Industries Ltd. However, the CESTAT ruled in favor of the respondent, noting that the limitation period should start from the date the mistake was discovered, not from the date of payment. This view aligns with multiple High Court decisions, including those in National Institute of Public Finance and Policy vs. Commissioner of Service Tax and Alar Infrastructures Private Limited vs. Commissioner of Central Excise, Delhi-I. The courts consistently held that if service tax was paid by mistake, the limitation period under Section 11B would not apply, and the general principle of limitation from the date of discovery of the mistake would be relevant.

2. Doctrine of Unjust Enrichment:
The Appellate Authority also noted that the respondent's refund claim was hit by the principle of unjust enrichment as they had not provided documentary evidence to show that the tax incidence was not passed on to the ultimate consumer. The Order-in-Original dated 24 July 2020, however, held that the principle of unjust enrichment was not applicable as the service tax was not liable to be deposited. The CESTAT did not address this issue adequately. The High Court upheld the CESTAT's decision but required the respondent to provide adequate material to the Assessing Authority to establish that the incidence of service tax was not passed on, as mandated by Section 11B of the Act.

Conclusion:
The appeal by the Department was dismissed, affirming the CESTAT's decision but with the condition that the respondent must provide evidence to the Assessing Authority regarding the non-passing of the service tax incidence to the consumers. The court emphasized that unjust enrichment must be addressed per the principal provision of Section 11B of the Act.