2015 (1) TMI 1045 - HC - Service Tax

Denial of refund claim - Unjust enrichment - Held that - There being no dispute that the stay application in the appeal filed by the Revenue before the CESTAT, is rejected, there is no reason for the respondent-Revenue not to effect refund. However, it is stated that there was unjust enrichment and therefore, refund amount was credited to the Consumer Welfare Fund. Therefore, the question as to whether the petitioner gained by unjust enrichment is required to be considered by the CESTAT in the appeal. Although learned counsel for petitioner submits that the said question does not arise for decision making, since CESTAT in its earlier order has opined that petitioner was the Consumer and the money had to be refunded to the petitioner, I am not impressed by that submission at this stage, since it may have to be advanced before the CESTAT in the appeal. Revenue failed to make payment by way of refund of Rs. l 5,16,992/-. If CESTAT concludes that petitioner has not made unjust enrichment, it is needless to say that the Revenue must refund the amount to the petitioner and not to the Consumer Welfare Fund. In that event, petitioner is entitled to interest on the said sum. Since the amount is lying with the revenue from 25-1-2005, and the petitioner is kept away from it, Respondent-State is directed to pay interest at 12% per annum from the date of deposit up to the date of payment and not at 6% per annum as prescribed by Section 11BB of the Central Excise Act, 1944 since it is not a case of mere delay in refund. - Petition disposed of.

Issues:
1. Claim for refund of service tax paid under confusion regarding tax liability.
2. Rejection of refund claim by the revenue authority.
3. Appeal and subsequent orders by Customs, Excise and Service Tax Appellate Tribunal (CESTAT).
4. Direction to file refund claim and subsequent refund sanction with unjust enrichment objection.
5. Pending appeal and stay application before CESTAT.
6. Dispute over unjust enrichment and entitlement to interest on the refund amount.

Issue 1: Claim for refund of service tax paid under confusion regarding tax liability
The petitioner claimed to have used the trade mark of a UK company subject to royalty payment. Due to a change in tax laws with the insertion of Section 66A, a charge was created on service receipts from outside India. Despite confusion in tax administration, the petitioner paid service tax and education cess but later realized it was not liable. The petitioner then claimed a refund, leading to a show cause notice and subsequent rejection of the refund claim.

Issue 2: Rejection of refund claim by the revenue authority
The respondent rejected the petitioner's refund claim initially, leading to an appeal by the petitioner. The Customs, Excise and Service Tax Appellate Tribunal (CESTAT) allowed the appeal, stating that the order was final and binding. However, the revenue authority directed the petitioner to file a refund claim again, which was later sanctioned but credited to the Consumer Welfare Fund due to unjust enrichment concerns.

Issue 3: Appeal and subsequent orders by CESTAT
Following the CESTAT's order allowing the refund appeal, the revenue authority filed an appeal and a stay application. The stay application was dismissed, prompting the petitioner to file a writ petition seeking a refund.

Issue 4: Direction to file refund claim and subsequent refund sanction with unjust enrichment objection
The revenue authority directed the petitioner to file a refund claim again, which was eventually sanctioned but credited to the Consumer Welfare Fund due to unjust enrichment concerns. The Commissioner (Appeals) later allowed the petitioner's appeal against this decision.

Issue 5: Pending appeal and stay application before CESTAT
The revenue authority argued that the petitioner should await the decision on the pending appeal before CESTAT before receiving the refund. However, since the stay application was rejected, there was no reason for the revenue not to effect the refund.

Issue 6: Dispute over unjust enrichment and entitlement to interest on the refund amount
The High Court noted that if CESTAT concludes that there was no unjust enrichment, the revenue must refund the amount to the petitioner and not the Consumer Welfare Fund. In such a scenario, the petitioner would be entitled to interest at 12% per annum from the date of deposit. The court directed the state to pay the interest at the higher rate, considering it was not a mere delay in refund but a case of withholding the amount from the petitioner.

In conclusion, the High Court ordered the petition in favor of the petitioner, directing the revenue to pay the refund amount along with interest at 12% per annum from the date of deposit.

← Previous Next →