2019 (11) TMI 566 - AT - Service Tax

Refund of service tax - unjust enrichment - section 11B of CEA - SCN was issued detailing unjust enrichment provisions in Section 11B as well as on the ground that sub-contractors are liable to pay service tax as well as main contractor - HELD THAT - The Commissioner (Appeals) should have decided the matter only on the aspect of unjust enrichment as all other issues were either not raised at the first stage of SCN or settled in favour of the appellant. Though the appellant claimed that they have submitted various records however there is no particular records which show that incidence of service tax initially borne by the appellant was not passed on any other person. The fact remains that the sub contractor has charged the service tax and the same was reimbursed by the appellant to the sub contractor. The provision of the service tax was clearly made as expenditure in the books of the appellant - Even though I agree that merely because the service tax amount was shown as expenses that alone cannot establish that the incidence was passed on. However once the service tax amount is booked as expenditure then the burden to prove that the same was not passed on become heavy on the assessee. Though the service tax paid by the sub contactor though initially borne by the appellant and reimbursed the same to the sub contractor the treatment of the service charge as well as the service tax is same and the total value of service including service tax stand merged with the overall contract value of the appellant which was charged to their client. Therefore, in absence of any direct evidence it was not established that the incidence of service tax for which the refund was sought for has not been passed on to any other person - the refund is clearly hit by unjust enrichment. Appeal dismissed - decided against appellant.

Summary

Issues: Refund claim for service tax reimbursement, unjust enrichment, inclusion of free issue materials, burden of proof, main contractor's liability, sub contractor's liability.

Refund Claim for Service Tax Reimbursement:
The appellant filed a refund application for service tax reimbursement paid to a sub-contractor during 2006-07. An SCN was issued regarding unjust enrichment and both main contractor and sub-contractor's liability to pay service tax. The Assistant Commissioner held both parties liable but did not address unjust enrichment. Appeals followed, leading to a remand by CESTAT for fresh verification. Subsequently, the Assistant Commissioner confirmed unjust enrichment and rejected the refund claim. Further appeals ensued.

Unjust Enrichment:
The appellant argued against the adverse decision on unjust enrichment, citing finality on the issue of free issue materials in a previous case. They contended that the issue of unjust enrichment was already considered in the initial SCN and provided evidence to support their claim. A CA certificate was presented to certify the appellant's bearing of the service tax burden without passing it on. The appellant emphasized being the service recipient from the sub-contractor, negating the unjust enrichment claim. Legal precedents were cited to support their arguments.

Inclusion of Free Issue Materials and Burden of Proof:
The appellant's counsel highlighted that the inclusion of free issue materials had been settled in their favor previously, questioning the Commissioner's adverse decision on this matter. The burden of proof regarding unjust enrichment was a focal point, with the appellant emphasizing their documentation and the lack of evidence showing the passing on of the service tax burden.

Main Contractor's Liability and Sub Contractor's Liability:
The Commissioner (Appeals) focused on the sub-contractor's role in applying for the refund, absence of a disclaimer certificate, lack of evidence on the appellant bearing the service tax burden, and non-inclusion of material value from the principal. The judgment reiterated the importance of proving non-passing on of the service tax burden, especially when it is accounted for as an expense, and concluded that the incidence of unjust enrichment had been passed on to the service recipient due to the nature of the contractual arrangements.

The judgment upheld the decision on unjust enrichment, emphasizing the lack of evidence to establish non-passing on of the service tax burden. The total value of service, including the service tax, was considered merged with the contract value charged to the client, leading to the dismissal of the appeal based on unjust enrichment grounds.