2019 (3) TMI 816 - AT - Service Tax

Refund of service tax paid - unjust enrichment - reliance on CA certificate - onus to prove that the burden of service tax has not been passed on to their customers either directly or indirectly - Held that - If the refund is eligible on merits and is filed within the time limit, unless the unjust enrichment aspect has been provided by the claimant, the refund should be sanctioned and credited to the Consumer Welfare Fund. If the claimant proves that burden of the duty/service tax has not been passed on to their customers, the same needs to be refunded. The question is how to verify whether the claimant could have passed on the incidence of duty/service tax indirectly to their customers by adding the same as their cost of production of goods or cost of rendering the services. If so, whether the claimant can still get the refund of the duty/service tax. This issue has been settled by Hon ble Apex Court in the case of Solar Pesticides Pvt.Ltd. 2000 (2) TMI 237 - SUPREME COURT OF INDIA in which it has been categorically held that even if the appellant passes on the incidence of duty/service tax to their customers indirectly, the concept of unjust enrichment applies. In the present case, there is no dispute about the eligibility of the refund or the time limit. The lower authority rejected the refund claim on the ground of unjust enrichment which is, prima-facie, not in accordance with the law. If he had found that unjust enrichment applies, he should have sanctioned the refund and credited the same to the Consumer Welfare Fund. The first appellate authority, on the other hand, considered all the facts and came to the conclusion that the refund claim has been accounted for in the books of accounts of the appellant as service tax receivable. The contention of the department is the first appellate authority has wrongly came to this conclusion without himself verifying the books of accounts and merely relying on the Chartered Accountant certificate which is not a conclusive proof. This certificate by Chartered Accountant is comprehensive as to how he has arrived at the conclusion that the amount shown as service tax receivable in the books of accounts of the respondent as receivables included the disputed amount - There is no evidence, whatsoever, presented on behalf of the department to show that this certificate is incorrect or doubtful. The burden of service tax has not been passed on by the respondents to their customers and therefore the appeal needs to be rejected - appeal dismissed - decided against Revenue.

Summary

Issues Involved:

1. Eligibility of refund claim on merits.
2. Time limit for filing the refund claim.
3. Application of the principle of unjust enrichment.

Issue-wise Detailed Analysis:

1. Eligibility of Refund Claim on Merits:

The case revolves around the merger of M/s Advanta Limited with the respondent, as per the order of the Hon’ble High Court of Gujarat effective from 01.04.2015. During the interim period before the merger order was passed, M/s Advanta Limited paid service tax on services provided to the respondent. Post-merger, the respondent claimed a refund for the service tax paid, arguing that the services rendered were essentially self-services and thus not liable for service tax. The lower authority acknowledged the refund claim on merits, citing the High Court order, but denied it on the grounds of unjust enrichment.

2. Time Limit for Filing the Refund Claim:

The lower authority confirmed that the refund claim was filed within the time limit stipulated under Section 83 of the Finance Act, 1994. This aspect was not disputed by the appellate authority or the Tribunal.

3. Application of the Principle of Unjust Enrichment:

The crux of the dispute was whether the refund claim was barred by the principle of unjust enrichment. The lower authority denied the refund, asserting that the respondent failed to prove that the service tax burden was not passed on to their customers, either directly or indirectly. This decision was based on the Supreme Court’s judgment in the case of Solar Pesticides Pvt. Ltd., which mandates that the principle of unjust enrichment must be satisfied even if the inputs or input services are used by the claimant.

The first appellate authority, however, overturned this decision. It relied on a Chartered Accountant’s certificate submitted by the respondent, which stated that the service tax amount was shown separately as ‘service tax receivable’ in their books of accounts. The appellate authority noted that the lower authority had not issued a notice or provided an opportunity for the respondent to be heard in person, and had not challenged the facts presented by the respondent. Consequently, the appellate authority found that the refund claim was not subject to unjust enrichment, as the service tax was not passed on to any third party.

The Revenue’s appeal against this decision argued that the Chartered Accountant’s certificate alone was not sufficient proof and that the books of accounts should have been verified to ensure that the service tax burden was not passed on. The Tribunal agreed with the Revenue’s contention that a Chartered Accountant’s certificate is not conclusive proof and that the satisfaction regarding unjust enrichment must be based on comprehensive examination of the books of accounts and other relevant documents.

However, in this case, the Tribunal found the Chartered Accountant’s certificate to be comprehensive and satisfactory. The certificate detailed that the service tax amount was shown as receivables and not as part of the cost of goods sold, and that the respondent did not pass on the service tax burden to any other party. The Tribunal noted that the department did not provide any evidence to counter the Chartered Accountant’s certificate. Therefore, the Tribunal concluded that the burden of service tax was not passed on to the customers, and the principle of unjust enrichment did not apply.

Conclusion:

The Tribunal upheld the order of the first appellate authority, confirming the eligibility of the refund claim on merits, acknowledging that the claim was filed within the time limit, and determining that the principle of unjust enrichment did not bar the refund. The appeal by the Revenue was rejected, and the refund was sanctioned to the respondent.