2019 (2) TMI 1424 - AT - Service Tax

Refund of Service Tax erroneously under Reverse Charge Mechanism - unjust enrichment - Held that - The test of unjust enrichment, in its limited applicability, is confined to the consideration as to who had borne the incidence of tax? If it is borne by the appellant and not passed on to any other person, then appellant cannot be regarded as being enriched with the refund of such tax component borne by any other person. In the instant case, going by the service commission agreement - calculation is given as CIF price to customer minus CIF price to Godrej and the service commission calculation has been reached at a certain amount, as found from simple agreement copies placed at page no. 130 131 of the appeal memo - Chartered Accountant also had furnished the certificate indicating non-realisation of tax component from the service receiver - The appellant s claim that it had paid the Service Tax under the erroneous belief that as per Reverse Charge Mechanism, it is liable to pay the same but subsequently Board Circular had clarified the same to be non-taxable. Therefore, the service tax is supposed to be treated as deposit as there is no sanctioned behind it by the legislature in conformity to Section 265 of the constitution of India. The appellant has passed the test of unjust enrichment and it is entitled to the refund claimed by it for non-leviable Service Tax - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Rejection of refund claim based on the doctrine of unjust enrichment.
2. Jurisdiction of the Tribunal to hear the appeal.
3. Applicability of unjust enrichment to the export of services.
4. Evaluation of evidence, including Chartered Accountant certificates and service agreements.

Issue-wise Detailed Analysis:

1. Rejection of Refund Claim Based on the Doctrine of Unjust Enrichment:
The appellant, M/s Godrej & Boyce Manufacturing Co. Ltd., claimed a refund of ?19,66,794/- for Service Tax erroneously paid under the Reverse Charge Mechanism on commission received from a Singapore-based company. The refund was initially refused but later allowed by the Commissioner (Appeals) with directions to follow procedural requirements. However, the Assistant Commissioner of Service Tax rejected the refund again, stating that the appellant failed the test of unjust enrichment. The Assistant Commissioner concluded that the amount received from the foreign customer was inclusive of Service Tax, thus applying the doctrine of unjust enrichment.

2. Jurisdiction of the Tribunal to Hear the Appeal:
The Tribunal first addressed whether it had jurisdiction over the appeal. It concluded that since the refund claim was based on the erroneous payment of Service Tax and involved the doctrine of unjust enrichment, the Tribunal had the jurisdiction to hear the appeal. The Tribunal noted that the issue of unjust enrichment was well within its purview.

3. Applicability of Unjust Enrichment to the Export of Services:
The appellant argued that the provisions of unjust enrichment do not apply to the export of services. The Tribunal considered the service commission agreement and Chartered Accountant certificates, which indicated that the tax was not collected from the service receiver. The Tribunal found that the Service Tax was paid under an erroneous belief and should be treated as a deposit, as there was no legislative sanction for it. The Tribunal criticized the Adjudicating Authority and Appellate Authority for ignoring documentary evidence and relying solely on the bifurcation of the tax component in the invoice.

4. Evaluation of Evidence:
The Tribunal examined the service commission agreement, Chartered Accountant certificates, and foreign inward remittance certificates. It found that these documents supported the appellant's claim that the Service Tax was not passed on to the foreign customer. The Tribunal noted that the authorities had drawn adverse inferences without sufficient proof and had relied on unrelated case law. The Tribunal emphasized that presumption or suspicion cannot replace proof and criticized the authorities for not believing the service receiver's denial of having borne the tax incidence.

Conclusion:
The Tribunal concluded that the appellant had passed the test of unjust enrichment and was entitled to the refund claimed. The order of the Commissioner (Appeals) was set aside, and the appellant was granted a refund of ?19,66,794/- with applicable interest from the date of the refund claim. The respondent department was directed to pay the refund within three months of receiving the order.

Order:
The appeal was allowed, and the appellant was granted the refund with interest. The order of the Commissioner (Appeals) was set aside. The decision was pronounced in court on 22.02.2019.

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