2024 (8) TMI 660 - AT - Service Tax

Refund of service tax paid by the appellant under the category works contract services in respect of a composite contract involving the construction/laying down of drinking water supply pipeline awarded by Kerala Water Authority (KWA) - Applicability of Section 11B of the Central Excise Act, 1944 covering the periods 01 June 2007 to 30 September 2010 and 01 January 2011 to 31 October 2011 respectively - principles of unjust enrichment. Whether the activity undertaken by the appellants for construction of distribution system of water supply for KWA is a taxable service under Work Contract Service in terms of Section 65(105)(zzzza) of the Finance Act, 1994, or not? - HELD THAT - The Larger Bench of this Tribunal in the case of Lanco Infratech Limited 2015 (5) TMI 37 - CESTAT BANGALORE (LB) held that the construction of canals/pipelines/conduits to support irrigation, water supply or for sewerage disposal, when provided to Government/Government undertakings would be for non-commercial, non-industrial purposes, even when executed under turnkey/EPC contractual mode and would fall within the ambit of clause (b), Explanation (ii) of Section 65(105)(zzzza); and would consequently not be exigible to Service Tax, in view of the exclusion enacted in clause (b). Thus, the appellant is not liable to pay service tax for the activity undertaken by them for laying down the pipelines for Government/Government Undertakings for supply of water from KWA in Thiruvananthapuram City. In view of the this , we find that the appellant is not liable to pay service tax - there is no liability of the appellant to pay service tax in this case - issue is answered in favour of the appellant. Whether the refund claims filed by the appellant of service tax paid, which was not payable by the appellant is hit by the provisions of Section 11B of the Central Excise Act, 1944, or not? - HELD THAT - The Hon ble High Court in the case of MDP Infra (India) Private Limited 2019 (2) TMI 208 - MADHYA PRADESH HIGH COURT has examined the issue although the appellant was not liable to pay service tax, which was paid under mistake of law in terms of the Finance Bill, 2016. The appellant is required to file refund claim within a period of six months from the date on which the Finance Bill, 2016 receives the assent of the President - Admittedly, in the said case, the refund claim was filed beyond the time limit maintained under the Finance Bill, 2016, which is not the case in hand. Therefore, the decision of the case MDP Infra (India) Private Limited is not applicable to the facts and circumstances of this case. Thus, the refund claims filed by the appellant, are not hit by the provisions of Section 11B of the Central Excise Act, 1944 as the service tax has been paid by the appellant under mistake of law. Therefore, the issue is also answered in favour of the appellant. Whether the refund claims filed by the appellant are hit by bar of unjust enrichment or not? - HELD THAT - From the letter dated 31.10.2011 issued by Tokyo Engineering Consultants Co.,Ltd., who are the consultant for KWA, it is clearly stated that as the service rendered by them is not a taxable service, therefore, the service recipient refused to pay service tax to the appellant, in that circumstances, it is held that the appellant has borne the service tax by themselves and have passed the bar of unjust enrichment. Accordingly, it is held that the refund claim filed by the appellant are not hit by the bar of unjust enrichment. The appellants are entitled for refund claim - the adjudicating authority is directed to sanction the refund claim to the appellants within one months from the date of receipt of this order - appeal disposed off.

Summary

Issues Involved:
1. Taxability of the construction of distribution systems for water supply under "Works Contract Service."
2. Applicability of Section 11B of the Central Excise Act, 1944, to refund claims for service tax paid by mistake.
3. Applicability of the bar of unjust enrichment to the refund claims.

Issue-wise Detailed Analysis:

Issue No. (a): Taxability of the Construction of Distribution Systems for Water Supply under "Works Contract Service"
The Tribunal examined whether the activity undertaken by the appellants for constructing the water distribution system for the Kerala Water Authority (KWA) falls under the taxable service category of "Works Contract Service" as defined in Section 65(105)(zzzza) of the Finance Act, 1994. It was noted that the services were non-taxable under the category of Commercial or Industrial Construction Service (CICS) before June 1, 2007. However, from June 1, 2007, the appellant started paying service tax under "works contract service" and subsequently filed for a refund when the service recipient (KWA) refused to pay the service tax.

The Tribunal referred to the Larger Bench decision in the case of Lanco Infratech Limited, which concluded that construction activities for government undertakings for non-commercial purposes, including water supply projects, are not exigible to service tax. The Tribunal held that the appellant's activities fall within the exclusionary clause of "Works Contract Service" and are not liable to service tax. This view was supported by CBEC Circular No. 116/10/2009-ST, which clarified that construction of canals and pipelines for government projects is not chargeable to service tax if used for non-commercial purposes.

Issue No. (b): Applicability of Section 11B of the Central Excise Act, 1944, to Refund Claims for Service Tax Paid by Mistake
The Tribunal addressed whether the refund claims filed by the appellant are subject to the time limits prescribed under Section 11B of the Central Excise Act, 1944. The appellant argued that the service tax was paid under a bona fide mistake of law, and thus, the statutory time limit should not apply. The Tribunal distinguished the case from the Madhya Pradesh High Court decision in MDP Infra (India) Pvt. Limited, where the refund claim was filed beyond the statutory time limit.

The Tribunal found that the Telangana High Court in Credible Engineering Construction Projects Limited held that when tax is paid under a mistake of law, the limitation period under Section 11B does not apply. Following this precedent, the Tribunal concluded that the refund claims are not barred by the provisions of Section 11B, as the service tax was paid by mistake.

Issue No. (c): Applicability of the Bar of Unjust Enrichment to the Refund Claims
The Tribunal examined whether the refund claims are affected by the principle of unjust enrichment. The appellant presented a letter from the service recipient (Tokyo Engineering Consultants Co., Ltd.) stating that the service rendered was not taxable, and hence, the service recipient refused to pay the service tax. The Tribunal concluded that the appellant bore the service tax cost themselves and did not pass it on to the service recipient, thereby overcoming the bar of unjust enrichment.

Conclusion
The Tribunal ruled in favor of the appellant on all issues:
1. The construction of the water distribution system for KWA is not taxable under "Works Contract Service."
2. The refund claims are not barred by the provisions of Section 11B of the Central Excise Act, 1944.
3. The refund claims are not affected by the bar of unjust enrichment.

The Tribunal directed the adjudicating authority to sanction the refund claims to the appellants within one month from the date of receipt of the order. The appeals were disposed of accordingly.