2022 (2) TMI 1074 - AT - Service Tax

Refund of duty paid - applicability of principles of unjust enrichment - reverse charge mechanism - HELD THAT - The impugned service tax liability got leviable upon the appellant in the year 2017, that too, under reverse charge mechanism. The said liability is against the amount of license fee being deposited by the appellant with the State Government of Rajasthan for getting a liquor license in favour of the appellant. The impugned refund would not have ever been applied had there not been an amendment in Finance Act, 2019, that too with the retrospective effect. The said amendment since came two years later, also the duty was not paid at the appropriate time but payments was made later after it was pointed by the audit team, that too, under reverse charge mechanism. Hence, from no stretch of imagination, it can be presumed that the burden of said payment would have been passed on to the customers. Department has not produced any positive evidence to prove the same. Otherwise also the only reason for such presumption is that the aforesaid amount has been shown as an expense in profit and loss account by the appellant - since the payment was made under RCM there appears no error on part of appellant when the said payment is shown as expense in the profit and loss account. Commissioner (A) has failed to appreciate the Chartered Accountants Certificate dated 17.11.2019 as was issued by the statutory auditors of the appellant alongwith the relevant pages of the balance-sheet for the year 2016-17 and 2017-18. The said documents were appreciated by original adjudicating authority to have been shown the pre-paid expenses of ₹ 1,29,17,302/- under the note No.20 of the audited balance sheet 2016.17 . The document were also observed to have provided the bifurcation for an amount of ₹ 15,65,000/- as bar license fees pre-payment and ₹ 39,74,331/- as rates and taxes for the year 2017-18 including therein ₹ 1565000/-as liquor license fee in the balance sheet of 2017-18. These documents were held sufficient by the original adjudicating authority to prove that the appellant had not passed the burden of refund claim amount to the others. Hence, the claim was denied to be hit by clause of unjust enrichment. Commissioner (Appeals) has committed an error by holding the refund to hit by unjust enrichment merely on presumptive basis. No relevant evidence at all been discussed by him while coming to the said conclusion. Rather, the relevant evidence as was considered by Original adjudicating authority has miserably been ignored by the Appellate Authority - the question of adjudication as framed stands decided in favour of the appellant - appeal allowed.

Summary

Issues:
1. Refund of service tax under reverse charge mechanism.
2. Application of the principle of unjust enrichment for the refund claim.

Issue 1: Refund of service tax under reverse charge mechanism

The appellant, a hotel business providing liquor services, paid service tax of ?234,750 to the Rajasthan State Excise Department in 2017-18. After a retrospective exemption was introduced by the Finance Act, 2019, the appellant filed a refund claim. The Department rejected the claim, alleging the appellant could have recovered the amount from customers. The appellant argued that the payment was made before the amendment and the refund was filed in compliance with the law. The Tribunal found the appellant had paid the tax promptly after audit findings and that there was no evasion. The Tribunal held that the refund was correctly sanctioned by the Original Adjudicating Authority.

Issue 2: Application of the principle of unjust enrichment for the refund claim

The Commissioner (Appeals) rejected the refund claim citing unjust enrichment, relying on the Maffatlal Industries case. However, the Tribunal disagreed, stating that the payment was made under reverse charge mechanism and the refund was claimed under the amended law. The Tribunal noted that no evidence was presented by the Department to prove the burden was passed on to customers. The Tribunal emphasized that the amended clause allowed the refund without unjust enrichment implications. The Tribunal also highlighted the Chartered Accountants Certificate and balance sheet details, showing the appellant had not passed on the burden. The Tribunal concluded that the Commissioner (Appeals) erred in rejecting the refund claim based on unjust enrichment without substantial evidence, and set aside the order.

In conclusion, the Tribunal allowed the appeal, holding that the refund claim did not violate the principle of unjust enrichment. The decision emphasized compliance with statutory provisions, lack of malafide intent, and the absence of evidence supporting unjust enrichment. The Tribunal's detailed analysis focused on the specific circumstances of the case and the legal framework surrounding the refund claim under the reverse charge mechanism.