If Amount paid is not Tax will provisions of Section 11B apply for refund claims?
THE assessee was registered with service tax authorities in Chennai as an ‘Architect'. They provided their services for construction of a building in Sri Lanka and paid service tax. Subsequently they realized that they were not liable to pay any tax and claimed refund. The Assistant Commissioner rejected the refund on limitation and this order was upheld by the Commissioner (Appeals).
The assessee approached the High Court of Judicature at Madras with a Writ Petition seeking a Mandamus, directing the authorities to refund the service tax paid by them under a mistake of law, on export of services. After hearing the arguments from Counsels for both the parties, the Single Judge Bench observed,
"……………. it is clear that if what was paid cannot be taken to be duty of excise, the bar of limitation under section 11B (1) cannot be applied. This is on account of the fact that the bar of limitation prescribed under Section 11B (1) applies only to "any person claiming refund of any duty of excise and interest". Therefore, I am of the considered view that the claim of the petitioner for refund can be entertained by this Court, since there is no dispute about the fact that no service tax was payable by the petitioner and as a corollary, what was paid by them was not service tax."
The High Court further observed that since the assessee has produced adequate proof to show that there will be no unjust enrichment, the authorities were directed to refund the amount paid by them within eight weeks from the date of receipt of a copy of this order. Please see 2010-TIOL-67-HC-MAD-ST.
Earlier, in more or less similar circumstances, an order passed by the Single Judge Bench of Karnataka High Court directing the lower authorities to grant refund was stayed by the Division Bench 2010-TIOL-89-HC-KAR-ST. In that case the assessee who was engaged in construction activity claimed refund of service tax paid by them on the plea that they were not at all liable to pay any service tax for their activity, by relying on TRU Circular dated 17.09.2004. This claim was rejected by the authorities taking recourse to Section 11B resulting in a Writ of Mandamus from the Single Judge Bench directing the lower authorities to sanction refund within two weeks.
Recently, the case in High Court of Madras followed the same trajectory as that of the case in Karnataka High Court. Against the Single Judge Bench order of Madras High Court, Revenue filed a Writ Appeal to the Division Bench of the High Court of Madras, headed by the Chief Justice. The Division Bench on perusing the contents of the petition and the affidavit filed in support thereof and after hearing the arguments from the Counsels for both the parties immediately stayed the order passed by the Single Judge till the disposal of the Appeal. Please see
It may be noted that the Supreme Court in CCE, Chandigarh vs. Doaba Cooperative Sugar Mills held that in making claims for refund before the departmental authority, an assessee is bound within four corners of the statute and the period of limitation prescribed in the Central Excise Act and the Rules framed there under must be adhered to. The Authorities functioning under the Act are bound by the provisions of the Act.
The Supreme Court followed the ratio of this judgment in Porcelain Electrical Mfg. Co., vs. CCE, Delhi and held that the refund claim filed before the authorities has to be governed by the provisions of the statute and that the general law of limitation cannot be made applicable.
Incidentally, the Supreme Court in Union of India vs. ITC Ltd observed, "……..It has been settled by this Court that where excess duty was not payable by the party under the provisions of a statute but had in fact been paid under a mistake of law, the party has a right to recover it and there is a corresponding legal obligation on the part of the Government to refund the excess duty so collected because the collection in such cases would be without the authority of law".
And in Mafatlal Industries Ltd vs. Union of India , the Constitution Bench of the Apex Court observed as follows:
"…………. Applying the law laid down the decisions aforesaid, it is not possible to conclude that any and every claim for refund of illegal/unauthorised levy of tax, can be made only in accordance with the provisions of the Act (Rule 11, Section 11B etc. as the case may be), and an action by way of suit or writ petition under Article 226 will not be maintainable under any circumstances. An action by way of suit or a petition under Article 226 of the Constitution is maintainable to assail the levy or order which is illegal, void or unauthorised or without jurisdiction and/or claim refund, in cases covered by propositions No. (1), (3) (4) and (5) in Dulabhai's case, as explained hereinabove, as one passed outside the Act and ultra vires . Such action will be governed by the general law and the procedure and period of limitation provided by the specific statute will have no application. ……… …".
Tail spark: In the instant case, it appears that the assessee had provided taxable services as an architect for construction of building in Sri Lanka and the High Court (Single Judge Bench) while summarizing the facts of the case, acknowledged it as export of services. In such a scenario it could come under the provisions of Rule 3(1)(i) of Export of Service Rules, 2005 and in terms of Rule 5 of the said Rules, where taxable services are exported, Central Government may grant rebate of service tax paid on such taxable service in terms of Notification No. 11/2005-ST. Strangely, the litigation did not follow this path, but took off in a tangent. We have to keep our fingers crossed for the final outcome of the Revenue Writ Appeals in the respective High Courts.