2019 (11) TMI 57 - HC - Service Tax

Refund claim - time limitation - Section 11B of Central Excise Act - doctrine of merger - Whether the provisions of Section 11B(5)(ec) or Section 11B(5)(f) of the Central Excise Act, 1944 are applicable in case where the Order-in- Original is challenged inasmuch as the levy of penalty and such levy of penalty is set aside by the Appellate Authority? - Whether under the facts and circumstances of the case, the Order-in-Original passed by the Respondent adjudicating authority merges with the Order-In-Appeal passed by the Commissioner of Central Excise(Appeals)? HELD THAT - The actual liability would be determined subsequent to the order of the Appellate Authority. On the liability created towards the penalty, the amount in balance deposited by the assessee would have been appropriated/adjusted. No question of refund would have arisen if no appeal was preferred by the assessee though relating to the penalty aspect. The actual liability is crystallized subsequent to the order passed by the Appellate Authority. The doctrine of merger being applicable to the case on hand to determine the actual liability and to raise the demand, the relevant date in terms of Section 11B (1) of the Act would be 03.03.2010, the date of passing of the order by the Appellate Authority. The view of the respondent-revenue in denying the refund claimed by the appellant is unjustifiable and hit by Article 265 of the Constitution of India. The substantial questions of law answered in favour of the assessee and against the revenue.

Summary

Issues:
1. Refund claim timeline based on the merger of orders of the original adjudicating authority and the Appellate Authority.
2. Applicability of Section 11B(5)(ec) or Section 11B(5)(f) of the Central Excise Act, 1944 in case of penalty levy set aside by the Appellate Authority.

Issue 1: Refund Claim Timeline

The appeal was filed under Section 35G of the Central Excise Act, 1944 by the assessee regarding service tax demands for the period April 2004 to September 2006. The original adjudicating authority imposed a service tax demand of ?4,05,258/- with penalties under Sections 77 and 78 of the Finance Act, 1994. The penalty under Section 78 was set aside by the Appellate Authority, and a refund claim was made by the assessee on 12.08.2010, which was rejected as time-barred. The main contention was whether the refund claim made within one year from the date of the Appellate Authority's order was within the limitation period.

Issue 2: Applicability of Sections 11B(5)(ec) or 11B(5)(f)

The substantial questions of law that arose for consideration were whether the provisions of Section 11B(5)(ec) or Section 11B(5)(f) of the Central Excise Act, 1944 apply when the penalty levy is set aside by the Appellate Authority. The order of the original adjudicating authority was passed on 16.12.2008, confirming the service tax demand, penalties, and appropriation from the amount deposited by the assessee. The Appellate Authority's order dated 03.03.2010 set aside the penalty under Section 78 and confirmed the penalty under Section 77, merging the original order. The refund claim made on 12.08.2010, after the Appellate Authority's order, was held to be within the one-year limitation period as per Section 11B(1) of the Act.

The Court referred to Section 11B of the Act, emphasizing the timeline for refund claims and the applicability of judgments or orders of the Appellate Authority in determining the refund period. Citing the doctrine of merger, the Court held that the actual liability is determined post the Appellate Authority's order, and the relevant date for refund claims is the date of the Appellate Authority's decision. The respondent's denial of the refund claim was deemed unjustifiable and against the Constitution of India. Consequently, the substantial questions of law were answered in favor of the assessee, directing the revenue to consider and expedite the refund claim. The appeal was allowed accordingly.