2023 (5) TMI 975 - AT - Service Tax

Refund of service tax paid under a mistake of fact and law - applicability of provisions of section 11B of Excise Act, 1944 for claiming refund before the expiry of one year from the relevant date - applicability of principles of unjust enrichment - manpower recruitment or supply agency services - reverse charge mechanism - HELD THAT - Provisions of section 11-B of the Excise Act relating to limitation would not be applicable in case where payment was made purely on account of a mistake in understanding the Notification. In Commissioner of Central Excise (Appeals), Bangalore vs KVR Construction 2012 (7) TMI 22 - KARNATAKA HIGH COURT , service tax was paid by the assessee under a mistaken notion that it was liable to pay, though it was not liable to pay by virtue of a Circular dated 17 September, 2004 and, accordingly, a refund was sought. The Karnataka High Court examined whether section 11-B of the Excise Act would be applicable if the amount was paid under a mistaken impression that it was liable to be paid. The High Court found that section 11- B of the Excise Act refers to a claim for refund of duty of excise only and does not refer to any other amount collected without authority of law. Thus, it was held that section 11-B of the Excise Act would not be applicable. The Supreme Court, on 11 July, 2011, dismissed the Special Leave Petition filed by the Department to assail the aforesaid judgment of the Karnataka High Court. There is no merit in this appeal filed by the Department - Appeal dismissed.

Summary

Issues Involved:
1. Applicability of Service Tax under the reverse charge mechanism.
2. Principles of unjust enrichment.
3. Limitation under section 11-B of the Central Excise Act for claiming a refund.

Summary:

1. Applicability of Service Tax under the reverse charge mechanism:
The respondent, M/s Afflatun International, claimed a refund of Rs. 1,55,13,061/- for service tax paid under the reverse charge mechanism for "manpower recruitment or supply agency" services. The Commissioner (Appeals) held that the respondent was not required to pay service tax under the reverse charge mechanism as it was not a "body corporate" under section 65(68) of the Finance Act, 1994 and the relevant Notification dated June 20, 2012. The Commissioner (Appeals) also found that the activities undertaken by the contractor amounted to the manufacture of goods, thus service tax was not leviable.

2. Principles of unjust enrichment:
The Commissioner (Appeals) relied on a Chartered Accountant's certificate and the balance sheet to conclude that the principles of unjust enrichment would not apply, thereby entitling the respondent to a refund. This finding was not disputed by the Department.

3. Limitation under section 11-B of the Central Excise Act for claiming a refund:
The issue was whether the limitation period under section 11-B of the Excise Act would apply to the refund claim. The Tribunal referred to several precedents, including the Karnataka High Court in Commissioner of Central Excise (Appeals), Bangalore vs KVR Construction, and the Supreme Court's dismissal of the Department's Special Leave Petition against this judgment. It was held that section 11-B does not apply to amounts paid by mistake. Similar views were upheld by the Madras High Court, Bombay High Court, Kerala High Court, and Jharkhand High Court in various cases, establishing that refunds for amounts paid under a mistaken notion are not barred by the limitation period under section 11-B.

Conclusion:
The appeal filed by the Department was dismissed, affirming that the respondent was not liable to pay service tax under the reverse charge mechanism and was entitled to a refund without the limitation constraints of section 11-B of the Excise Act.