2025 (1) TMI 633 - HC - Service Tax

Refund of service tax - contrary to the Provisions of Section 11B of Central Excise Act, 1944 or not - principles of unjust enrichment - classification of service under Commercial and Industrial Construction Service and later under works Contract Service . Whether the services rendered by the respondent/assessee is liable for payment of service tax? - HELD THAT - It is not disputed by the revenue that the Kerala Water Authority is not a wing of the Government or a Government of Kerala Enterprise. The allegation in the show cause notice was that the assessee did not produce supporting documents for exemption of service tax. The reply given by the assessee ought to have been accepted by the adjudicating authority as the assessee, in no uncertain terms, stated that the question of claiming exemption does not arise since the service involved does not fall within the scope and ambit of taxable service - The Circular dated 15th September 2009 was issued on a reference being received by the Board with regard to the issues as to what would be the correct meaning of the commercial or industrial construction services as per Section 65 (25b) of the Finance Act, 1994. It was clarified by the Board that the essence of the definition is that the commercial or industrial construction service is chargeable to service tax if it is used, occupied or engaged either wholly or primarily for the furtherance of commerce or industry. As the canal system built by the Government or under Government project is not falling under commercial activity, the canal system built by the Government will not be chargeable to service tax. This Circular was taken note of by the Tribunal in yet another Circular dated 24.5.2010. When the factual position is not in dispute namely, that the assessee has performed the work for the Kerala Water Authority, which is undoubtedly a Government/Government undertaking and the project was aimed at providing civic amenities to the public at large, it can never be termed to be a commercial or an industrial project. Furthermore, the revenue does not dispute the fact that the Kerala Water Authority is the State Government authority under the Public Health and Engineering Department of Kerala State Government and the project was aimed to provide civic amenities to the public at large, namely the citizens of Thiruvananthapuram city and if that be the admitted factual situation, the Water Supply Board cannot be said to be a project for the purpose of profit - The learned Tribunal holding that the service, which was rendered by the assessee to the Kerala Water Authority, will not be a taxable service under Works Contract Services. Whether the other issues regarding the applicability of provisions of Section 11B of the Central Excise Act, 1944, is a case of unjust enrichment? - HELD THAT - Admittedly, the amount which was paid by the assessee on a mistaken impression that the activity undertaken by them would attract service tax was not a payment under the Act and therefore, the question of Section 11B getting attracted would not arise. Identical issues arose for consideration before the High Court of Karnataka in the case of COMMISSIONER OF CENTRAL EXCISE (APPEALS), BANGALORE VERSUS KVR CONSTRUCTION 2012 (7) TMI 22 - KARNATAKA HIGH COURT . The Hon ble Division Bench after noting several decisions held ' When once there was no compulsion or duty cast to pay this service tax, the amount of Rs. 1,23,96,948/- paid by petitioner under mistaken notion, would not be a duty or service tax payable in law. Therefore, once it is not payable in law there was no authority for the department to retain such amount. By any stretch of imagination, it will not amount to duty of excise to attract Section 11B. Therefore, it is outside the purview of Section 11B of the Act.' - the question of Section 11B of the Central Excise Act, 1944 would not stand attracted to the facts and circumstances of the case. Principles of unjust enrichment - HELD THAT - It was never the case of the department that the assessee had opposed on the tax liability. In any event, when tax was not payable under the Act and when Section 11B of the Act would not apply, the theory of unjust enrichment would not stand attracted. Conclusion - The taxes paid by mistake are not subject to Section 11B and that unjust enrichment does not apply when the tax was not legally owed. The learned Tribunal was right in allowing the assessee s appeal and setting aside the order passed by the adjudicating authority as well as the first Appellate Authority - Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment addresses the following core legal questions:

(i) Whether the impugned order dated 09.08.2024 passed by the Tribunal contradicts the provisions of Section 11B of the Central Excise Act, 1944?

(ii) Whether the issue of unjust enrichment is applicable in the case of the respondent?

(iii) Whether the Tribunal's order dated 09.08.2024 contravenes the decisions of the Supreme Court and other High Courts?

(iv) Whether the Tribunal committed a gross error of law in sanctioning the refund to the respondent by ignoring statutory obligations, findings of the adjudicating authority, and the Appellate Authority, given the respondent had voluntarily deposited the service tax by classifying the service under "Commercial and Industrial Construction Service" and later under "Works Contract Service"?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Impugned Order and Section 11B of the Central Excise Act

Relevant legal framework and precedents: Section 11B of the Central Excise Act deals with the refund of duties paid by mistake. The court referenced decisions from the Karnataka High Court and the Supreme Court, such as M.C.I. Leasing (P) Ltd. and KVR Construction, to assess the applicability of Section 11B.

Court's interpretation and reasoning: The court reasoned that the amount paid by the assessee was not a duty under the Act since it was paid under a mistaken impression. Therefore, Section 11B was not applicable.

Key evidence and findings: It was established that the service tax was paid by mistake, not as a statutory obligation.

Application of law to facts: The court applied the principle that if a tax is not payable, the department has no authority to retain it, thus Section 11B does not apply.

Treatment of competing arguments: The court considered the department's argument but found that the precedents supported the assessee's position.

Conclusions: The court concluded that Section 11B was not applicable, supporting the Tribunal's decision.

Issue (ii): Unjust Enrichment

Relevant legal framework and precedents: The concept of unjust enrichment is typically considered when a refund would result in an undue benefit to the claimant.

Court's interpretation and reasoning: The court found that since the tax was not payable, the theory of unjust enrichment was not applicable.

Key evidence and findings: The court found no evidence that the assessee had passed on the tax burden to another party.

Application of law to facts: The court applied the principle that unjust enrichment does not apply when the tax was not legally owed.

Treatment of competing arguments: The court rejected the department's claim of unjust enrichment due to the lack of legal tax liability.

Conclusions: The court upheld the Tribunal's decision that unjust enrichment was not applicable.

Issue (iii): Tribunal's Order and Higher Court Decisions

Relevant legal framework and precedents: The court examined whether the Tribunal's order was consistent with higher court rulings.

Court's interpretation and reasoning: The court found that the Tribunal's decision aligned with established legal principles and precedents.

Key evidence and findings: The court noted that the Tribunal relied on relevant circulars and precedents.

Application of law to facts: The court confirmed the Tribunal's interpretation of the law was consistent with higher court decisions.

Treatment of competing arguments: The court dismissed the department's contention of inconsistency with higher court rulings.

Conclusions: The court concluded that the Tribunal's order was consistent with higher court decisions.

Issue (iv): Tribunal's Error in Sanctioning Refund

Relevant legal framework and precedents: The court considered the classification of services under the Finance Act and the precedent set by the Tribunal's larger bench in Lanco Infratech Ltd.

Court's interpretation and reasoning: The court found that the service provided was not taxable under the Works Contract Service, thus supporting the Tribunal's decision to sanction the refund.

Key evidence and findings: The court highlighted that the service was for a government project aimed at providing civic amenities, not for commercial profit.

Application of law to facts: The court applied the exclusionary clauses from the Finance Act to determine the non-taxability of the service.

Treatment of competing arguments: The court rejected the department's argument that the Tribunal ignored statutory obligations.

Conclusions: The court upheld the Tribunal's decision to sanction the refund as the service was not taxable.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning:

"The legal position is loud and clear that once tax is not payable in law, there was no authority for the department to retain such an amount."

Core principles established: The court reaffirmed that taxes paid by mistake are not subject to Section 11B and that unjust enrichment does not apply when the tax was not legally owed.

Final determinations on each issue: The court dismissed the revenue's appeals, upheld the Tribunal's decision, and concluded that the services provided were not taxable under the Works Contract Service.