2017 (3) TMI 1026 - AT - Service Tax

Refund claim - payment of tax under protest - rejection of refund on the ground of taxability of activity - Held that - A refund claim may be rejected only for a limited number of reasons at the threshold for being beyond the jurisdiction or on account of bar of limitation and at the sanction stage for being deficient in material relevant to sanction. It is rarely that a refund is claimed on grounds of non-taxability and, when it is, the competent authority is required to adduce reasons for rejection if that be the intent. All of these must, necessarily, be preceded by issue of notice specifying the ground for rejection - the notice relies upon the taxability of the activity as the ground for rejection. No other independent ground has been invoked. Just as a claim for refund on ground of non-taxability should be accompanied by a decision in appeal upholding that contention, a rejection of claim that tax not due was paid incorrectly would have to be backed by an order of assessment. The appellant is justified in claiming that the demand u/s 73(1) is mandated to complete the proceedings and would necessarily have to be followed by an adjudication order that can be legally challenged. By not issuing a notice and a consequential order, the assessee was also denied the opportunity to challenge the contention of Revenue on taxability. The impugned order rejecting the refund claim on ground of taxability is not sustainable as taxability has not been asserted by appropriate process and is set aside - matter is restored to the original authority to reconsider the refund claim - appeal allowed by way of remand.

Summary

Issues:
1. Whether the contract between M/S Raj Transport and M/S Rashtriya Chemicals & Fertilisers Ltd involved activities falling under 'cargo handling service' as per section 65(23) of the Finance Act, 1994 for which tax was unpaid.
2. Whether the refund claim filed by M/S Raj Transport for the tax paid under protest was rightly rejected by the authorities.
3. Whether the rejection of the refund claim solely based on the taxability of the activity without proper assessment or notice is justified.

Analysis:
1. The dispute in this case revolves around whether the activities undertaken by M/S Raj Transport for M/S Rashtriya Chemicals & Fertilisers Ltd constituted 'cargo handling service' as defined in section 65(23) of the Finance Act, 1994. The audit report highlighted that the contract involved more than just transportation of goods, leading to the service tax being paid by the recipient but not for the cargo handling service. Despite relying on precedents and circulars, the claim for refund was rejected based on the activity being deemed taxable as cargo handling service.

2. The refund claim for the tax paid under protest was initially rejected by the original authority and upheld by the Commissioner of Central Excise (Appeals). The rejection was based on the grounds of tax being leviable as cargo handling service, despite arguments citing decisions on services incidental to transportation of goods by road. The appellant's contention that the absence of a demand notice for the tax amount prompted the refund claim was considered, leading to the appeal before the Tribunal.

3. The Tribunal's analysis highlighted the procedural aspects of refund claims and taxability disputes. It emphasized that a refund claim can only be rejected for specific reasons and that the rejection solely based on taxability without proper assessment or notice is not sustainable. The Tribunal pointed out that the proceedings under section 73 of the Finance Act, 1994 would be necessary to determine taxability conclusively, and the rejection of the refund claim was not the appropriate forum for such determination. Consequently, the Tribunal set aside the order rejecting the refund claim and directed the original authority to reconsider the refund claim after addressing the procedural and legal aspects discussed in the judgment.