2016 (2) TMI 545 - AT - Service Tax

Refund of service tax on the basis of credit note - value of services provided (sharing of expenses) earlier got reduced as per the mutual agreement - whether there has been excess payment of tax and whether the bar of unjust enrichment will arise in relation to such excess payment of tax. - The original authority rejected the claim for refund on the ground that such a reduction did not appear to have extended beyond the second component of the compensation, i.e. the share in expenses, in the service agreement. Held that - The charges levied from M/s Nicholas Piramal India ltd by the appellant are amply evident in the debit notes pertaining to the quarter April 2007 and September 2007. It cannot but be accepted that the credit note issued in October 2007 is intended to reduce the amounts payable by the client to the appellant to the extent of ₹ 2,93,50,000/-. The contention of the learned Chartered Accountant that any payment can be released only after withholding of tax deducted at source is borne out by the lesser amounts entered in the ledger and the bank statements. We find no flaw in this contention and there is no counter by Revenue that can contest this. Regarding unjust enrichment - Re-negotiation after initial payments does not, in any way, weaken the claim of the appellant because the fact of reduced net consideration is incontrovertible; the transaction does not extend to a chain beyond the appellant and M/s Nicholas Piramal and therefore, it can be deduced that the incidence of tax has had no scope of being passed on. - Refund allowed - Decided in favor of assessee.

Summary

Issues:
Refund claim rejection based on reduction in charges and service tax component.

Analysis:
The appeal was filed against the rejection of a refund claim by M/s Piramal Enterprises Ltd. The appellant entered into an agreement with another company, charging a specific amount for services rendered, including a service tax component. Subsequently, after negotiations, the appellant issued a credit note for a reduced amount, seeking a refund on the overpaid tax component. The original authority rejected the claim, questioning the basis of the reduction and lack of supporting evidence. The first appellate authority also found discrepancies in the appellant's submissions. The issue revolved around whether the reduction in charges extended beyond the agreed services and if the appellant could substantiate the refund claim adequately.

The appellant, represented by a Chartered Accountant, argued that the reduced amounts in the ledger and bank statements were due to tax deductions at source, citing relevant judicial decisions supporting the claim that tax is leviable only on actual receipts. The appellant also presented cases approving credit notes as evidence of refunds and highlighting the burden of proof on the claimant regarding duty incidence. The Authorized Representative referenced a Tribunal decision to counter the sufficiency of credit notes issued post-event to prove non-passing of duty burden.

The Tribunal deliberated on whether there was an excess tax payment and the applicability of the principle of unjust enrichment. It acknowledged the commercial practice of adjusting transactions through credit and debit notes, especially between related entities. The Tribunal found the reduction in charges supported by the credit note to be legitimate, considering the intercompany relationship and the clear evidence in the financial records. It accepted the argument that reduced ledger and bank statement amounts were due to tax deductions, with no rebuttal from the Revenue. Additionally, the Tribunal agreed with the cited judicial decisions that the bar of unjust enrichment does not apply in cases involving credit and debit notes, especially when the transactions are limited to the parties involved.

Ultimately, the Tribunal ruled in favor of the appellant, setting aside the earlier rejection and granting the refund claim. The decision was based on the clear evidence of reduced charges, the absence of tax passing on due to intercompany dealings, and the legal precedents supporting the appellant's position.