2017 (5) TMI 1199 - AT - Service Tax

Refund claim - Club or Association Service - fees collected for issuing Country of Origin certificate to its members - duty paid under protest - denial of refund on the ground that the exemption u/s 96 (J) (1) of FA, 2011 is applicable only to membership fee collected by a Club or Association and that it does not apply to fees collected for issuing Country of Origin certificate to its members Held that - Marking of protest is a message to the department that there is a dispute in payment of tax. In such circumstances, it is for the department to issue a SCN and initiate proceedings for determination of tax as provided u/s 73 of the FA, 1994 - In the present case, no such SCN has been issued and thereby the appellants have been deprived of their right to contest the demand. The ground for rejecting the refund claim as stated in the deficiency memo is that the appellant is liable to pay the service tax for the period 2006-07 and 2007-08. When there has been no determination of the amount due after raising a dispute, the department cannot unilaterally determine that the amount is due and retain the same. The amount paid thus becomes an amount paid by mistake. The appellants are therefore eligible for refund. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Liability to pay service tax on fees for issuing 'Country of Origin' certificates.
2. Eligibility for refund of service tax paid under protest.
3. Requirement for issuance of show cause notice under Section 73 of the Finance Act, 1994.
4. Determination of tax liability and the right to contest it.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax on Fees for Issuing 'Country of Origin' Certificates:
The appellant, a charitable institution registered under the Companies Act, 1956, and the Income Tax Act, 1961, was initially paying service tax on membership fees under the category of 'Club or Association Service.' They also collected fees for issuing 'Country of Origin' certificates. With the introduction of Section 96(J)(1) of the Finance Act, 2011, service tax on 'Club or Association Service' was exempted for the period June 2005 to March 2008. The department, however, contended that fees for issuing 'Country of Origin' certificates fell under 'Technical Inspection and Certification Agency Service' and were taxable from 2006-07 to 2007-08. The appellant disputed this classification and argued that the service was not taxable during the said period.

2. Eligibility for Refund of Service Tax Paid Under Protest:
The appellant paid ?9,96,698/- under protest for the period 2006-07 to 2007-08 after repeated demands from the department. They filed a refund claim, arguing that the payment was made under protest and without a proper determination of tax liability. The department rejected the refund claim, stating that the payment indicated acceptance of liability and that the service was taxable as per Board Circular dated 19.08.2011.

3. Requirement for Issuance of Show Cause Notice Under Section 73 of the Finance Act, 1994:
The appellant contended that the department should have issued a show cause notice under Section 73 of the Finance Act, 1994, to determine the tax liability formally. By not doing so, the department deprived the appellant of the opportunity to contest the liability. The appellant relied on several judgments to support their argument that payment under protest should not be considered as acceptance of liability without proper adjudication.

4. Determination of Tax Liability and the Right to Contest It:
The Tribunal held that the department's failure to issue a show cause notice and initiate proceedings under Section 73 of the Finance Act, 1994, was a significant procedural lapse. The unilateral decision to treat the payment as acceptance of liability was not justified. The Tribunal emphasized that the appellant's marking of payment under protest indicated a dispute, necessitating formal adjudication. The Tribunal cited the judgment in ICICI Bank Ltd. vs. Union of India, which highlighted the importance of issuing a show cause notice to allow the assessee to contest the tax liability.

Conclusion:
The Tribunal concluded that the rejection of the refund claim was unjustified as there was no proper determination of tax liability. The impugned order was set aside, and the appeal was allowed with consequential reliefs. The Tribunal underscored the necessity for the department to follow due process and issue a show cause notice when there is a dispute regarding tax liability.