2024 (12) TMI 1030 - HC - Service Tax

Refund the service tax paid on ocean freight during the period April 2017 to June 2017 - Period of limitation - Section 11B of the Central Excise Act, 1944 - HELD THAT - As is evident from a reading of the principles which came to be enunciated by the Constitution Bench in Mafatlal Industries 1996 (12) TMI 50 - SUPREME COURT , a claim for refund founded on the ground of a provision of the statute having been struck down as unconstitutional would clearly fall outside the purview of the enactment itself. The Constitution Bench thus held that in such a case the claim is maintainable both by virtue of the declaration contained in Article 265 of the Constitution as also in terms of Section 72 of the Contract Act, 1872 Contract Act . It was in that context that the Supreme Court further observed that in all such cases, the period of limitation would have to be calculated taking into account the principles enshrined in Section 17 (1) (c) of the Limitation Act. It is, however, pertinent to note that Mafatlal Industries in unequivocal terms holds that where the refund is claimed consequent to a declaration of invalidity having been rendered, it would clearly fall outside the purview of the principal enactment and could be claimed either by way of suit or by way of a writ petition. Once it is held that the statutory provisions envisaging a levy of service tax on ocean freight had come to be declared unconstitutional, the levy itself would be liable to be viewed as invalid and thus not maintained under the principal enactment. The reliance on Section 11B of the Central Excise Act is thus clearly misconceived. Thus, bearing in mind the mandate of the Supreme Court and which clearly and in unequivocal terms excludes the period between 15 March 2020 and 28 February 2022, it would be wholly incorrect for the respondents to urge that the claim of the petitioners is barred by limitation when computed in light of Section 17 (1) (c) of the Limitation Act. The respondents are directed to attend to and dispose of the refund claims forthwith - petition allowed.

Issues Involved:

1. Refund of service tax on ocean freight for CIF contracts.
2. Constitutionality of service tax levy on ocean freight.
3. Applicability of limitation period for refund claims.
4. Impact of judicial precedents on the refund claim.
5. Application of the doctrine of unjust enrichment.

Issue-wise Detailed Analysis:

1. Refund of Service Tax on Ocean Freight for CIF Contracts:

The petitioners sought a writ of mandamus for the refund of service tax paid on ocean freight from April 2017 to June 2017. They argued that under a CIF contract, the overseas supplier bears the transportation charges, and thus, the local importer should not be liable for service tax on ocean freight. The court acknowledged the petitioners' contention that the service tax on ocean freight for CIF transactions was not justified, especially after the Gujarat High Court's decision in M/s Sal Steel Ltd., which declared such a levy unconstitutional.

2. Constitutionality of Service Tax Levy on Ocean Freight:

The court addressed the constitutional validity of the service tax levy on ocean freight. It referenced the Gujarat High Court's judgment in M/s Sal Steel Ltd., which found the amendments imposing service tax on ocean freight ultra vires the Finance Act, 1994. Furthermore, the Supreme Court's decision in Union of India vs. Mohit Minerals Pvt. Ltd. reinforced this position by declaring that the imposition of IGST on ocean freight amounted to double taxation and was unconstitutional. The court emphasized that once a statutory provision is declared unconstitutional, any levy under it is invalid.

3. Applicability of Limitation Period for Refund Claims:

The respondents argued that the refund claim was barred by limitation under Section 11B of the Central Excise Act and the Limitation Act, 1963. However, the court found this argument unmerited, citing the Constitution Bench in Mafatlal Industries Ltd., which held that claims for refunds due to unconstitutional levies fall outside the purview of the enactment and are not bound by the statutory limitation periods. The court further referenced the Supreme Court's extension of limitation periods due to the COVID-19 pandemic, which applied to the petitioners' case, making their claim timely.

4. Impact of Judicial Precedents on the Refund Claim:

The court considered various judicial precedents, including the Gujarat High Court's decision in Comsol Energy (P) Ltd. and the Tribunal's decision in Kiri Dyes and Chemicals, which upheld the unconstitutionality of the service tax on ocean freight. These decisions supported the petitioners' claim for a refund. The court noted that the absence of a stay on these judgments by the Supreme Court further validated the petitioners' position.

5. Application of the Doctrine of Unjust Enrichment:

The court examined the doctrine of unjust enrichment, which prevents a claimant from being unjustly enriched at the expense of another. It was determined that the petitioners had not passed on the burden of the tax to another party, thus justifying their refund claim. The court reiterated that the doctrine of unjust enrichment does not apply to the state, as the state represents the people and cannot be unjustly enriched.

Conclusion:

The court allowed the writ petitions, directing the respondents to process and dispose of the refund claims with applicable statutory interest. The court's decision was based on the unconstitutionality of the service tax levy on ocean freight, the timely filing of the refund claim considering the extended limitation period, and the absence of unjust enrichment.

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