2025 (4) TMI 1537 - AT - Service Tax

Refund of the Service Tax paid by mistake on transportation of oil cakes - principles of natural justice - HELD THAT - Revenue has not issued any Show Cause Notice seeking to know as to why the refund claim should not be rejected on account of unjust enrichment. The Department has simply issued several letters seeking documentary evidence and calling for balance sheet copies P L account and other payment details. All these documents have been provided by the appellant. Thus the appellant was not even made aware as to on what grounds the refund was proposed to be dismissed. This is a case where the Service Tax has been paid on RCM basis. The question of passing on the burden to the third party or to any other person will arise only when the service is being provided in the normal course for which invoice is issued along with the Service Tax component. In cases of RCM basis no invoice is raised on any other third party. Thus the question of passing on Service Tax burden on a third party does not arise. The only point to be checked is about the taking of the Cenvat Credit on such Service Tax paid which has not been done by the Dept. by way of issue of SCN to this effect. But this point has been raised by the Bench and answered properly by the appellant at the Tribunal stage. Conclusion - i) The appellant is not liable to pay Service Tax on transportation of oil cakes due to exemption. ii) The refund claim filed is timely and valid. iv) The appellant satisfied the unjust enrichment condition by proving no passing on of tax burden. Appeal allowed.

Summary

The core legal questions considered in this matter are:

1. Whether the appellant was liable to pay Service Tax on reverse charge basis for transportation of oil cakes during the period 2013-14, given the exemption under Notification No. 25/2012 dated 20.6.2012.

2. Whether the appellant is entitled to a refund of the Service Tax paid by mistake on transportation of oil cakes.

3. Whether the appellant has satisfied the condition of "unjust enrichment" as required under the refund provisions.

4. Whether the burden of Service Tax was passed on to any third party, affecting the refund claim.

5. Whether the appellant had taken Cenvat Credit on the Service Tax paid under reverse charge mechanism, impacting the refund eligibility.

Issue-wise Detailed Analysis

1. Liability to pay Service Tax on transportation of oil cakes and entitlement to refund

The legal framework revolves around the Service Tax law applicable during 2013-14 and the exemption Notification No. 25/2012 dated 20.6.2012, which exempts transportation of edible oil (including oil cakes) from Service Tax under the Goods Transport Agency (GTA) service. The appellant initially paid Service Tax on reverse charge basis on freight charges for transporting oil cakes but subsequently realized that the tax was not payable due to the exemption.

The Court noted that the appellant filed a refund claim for Rs. 1,27,169/- for the Service Tax paid by mistake. The Revenue, through the adjudicating authority, rejected the refund claim on the ground that the appellant failed to prove absence of unjust enrichment. The Commissioner (Appeals) upheld this rejection without detailed examination of the facts or statutory provisions.

The appellant produced a Chartered Accountant's certificate confirming that the Service Tax burden was not passed on to any third party and was borne by them. The appellant initially wrote off the amount as an expense but subsequently reversed this entry to show it as receivable from the government, which is a recognized commercial practice when pursuing refunds.

The Court emphasized that the refund claim was filed within time and there was no allegation of delay. The Revenue did not issue any Show Cause Notice specifically addressing unjust enrichment but only sought documents such as profit and loss accounts, balance sheets, and payment challans. The appellant complied by furnishing all requested documents.

2. Condition of "unjust enrichment" and passing on of Service Tax burden

The unjust enrichment principle requires that the claimant must not have passed on the tax burden to any other party. The Revenue alleged that the appellant failed to prove this. However, the Court observed that in cases of Service Tax paid under reverse charge mechanism (RCM), no invoice with Service Tax component is issued to any third party, as the service recipient pays the tax directly to the government. Therefore, the question of passing on the Service Tax burden does not arise in such cases.

The appellant's Chartered Accountant certificate further supported the claim that the burden was borne by the appellant themselves. The Court found no evidence that the appellant had passed on the tax burden to any other party.

3. Cenvat Credit issue

The Court inquired whether the appellant had availed Cenvat Credit on the Service Tax paid under RCM. The appellant clarified that as a trader, they were not eligible to take Cenvat Credit since they were neither a manufacturer nor a service provider. The Revenue did not issue any Show Cause Notice alleging wrongful availment of Cenvat Credit. The Court held that without such a notice, the issue of Cenvat Credit could not be raised to deny the refund.

4. Application of precedents

The appellant relied on the decision in Chambal Fertilizers and Chemicals Ltd. versus CC GST Udaipur, which held that refund claims for Service Tax paid under RCM could be allowed where the claimant has borne the tax burden and has not availed Cenvat Credit. The Court found this precedent applicable and persuasive.

Treatment of competing arguments

The Revenue's argument centered on the failure to prove absence of unjust enrichment and the possibility of passing on the tax burden. The Court rejected these arguments, noting the absence of any Show Cause Notice on unjust enrichment and the inherent nature of RCM transactions where no tax invoice is issued to third parties. The appellant's documentary evidence and Chartered Accountant's certificate were accepted as sufficient proof that the burden was not passed on.

Conclusions

The Court concluded that the appellant had paid Service Tax on transportation of oil cakes mistakenly, was entitled to refund, and had complied with the conditions relating to unjust enrichment and non-availment of Cenvat Credit. The rejection of the refund claim by the lower authorities was found to be erroneous for failure to appreciate factual and legal aspects.

Significant Holdings

"It is quite normal commercial practice for any assesse to write off the expenses initially but once they come to know that they are eligible for refund, they can reverse entry in their balance sheet and show the same as receivable from the Government of India."

"This is a case where the Service Tax has been paid on RCM basis. The question of passing on the burden to the third party or to any other person will arise only when the service is being provided in the normal course for which invoice is issued along with the Service Tax component. In cases of RCM basis, no invoice is raised on any other third party. Thus the question of passing on Service Tax burden on a third party does not arise."

"The Revenue has not issued any Show Cause Notice seeking to know as to why the refund claim should not be rejected on account of unjust enrichment."

"After going through all the factual details and the statutory provisions, I find that the lower authorities are in error in rejecting the refund claim, without appreciating the factual details."

The core principles established include:

- Refund of Service Tax paid mistakenly under reverse charge mechanism is allowable where the claimant has borne the tax burden and has not availed Cenvat Credit.

- The condition of unjust enrichment requires the Revenue to specifically allege and prove that the tax burden was passed on; mere demand for documents is insufficient.

- In the context of RCM, since no invoice with Service Tax is issued to third parties, the burden of tax cannot be said to be passed on.

- Commercial accounting practices such as initially writing off the expense and later showing it as receivable from the government do not negate the claim for refund.

Final determinations on each issue were:

- The appellant was not liable to pay Service Tax on transportation of oil cakes due to exemption.

- The refund claim filed was timely and valid.

- The appellant satisfied the unjust enrichment condition by proving no passing on of tax burden.

- The appellant did not avail Cenvat Credit on the Service Tax paid.

- The impugned orders rejecting the refund claim were set aside and the refund was allowed with applicable interest.