2006 (12) TMI 529 - AT - Service Tax

Appellant wins service tax refund claim citing exemption for small scale industries. Unjust enrichment doctrine applied.

The Tribunal held in favor of the appellant, ruling that the service tax paid under protest was refundable. The appellant's claim that the tax was not ... - ISSUES PRESENTED AND CONSIDERED 1. Whether service tax levied for the period 16-11-1997 to 01-06-1998 was leviable on the appellant (a small scale industry) as receiver of goods transport operator services, in light of notifications and subsequent amendments. 2. Whether a deposit of service tax made by the appellant on 08-11-2002, described as made 'under protest', is refundable where the adjudicating authority subsequently held the appellant exempt and/or where collection from the service receiver was held not sustainable by higher judicial authority. 3. Whether the refund claim filed on 04-06-2004 is time-barred or otherwise barred from consideration by the authorities. 4. Whether the doctrine of unjust enrichment must be applied when adjudicating refund claims even where payment was made under protest or where collection from the service receiver is subsequently held to be impermissible. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Levy on the Receiver for period 16-11-1997 to 01-06-1998 Legal framework: The Service Tax levy and assessee provisions in the Finance Act and Service Tax Rules as then in force prescribed levy on 'taxable service' and identified who shall discharge liability; Rule making allowed collection from service receivers in certain sub-rules. Precedent treatment: A binding apex court decision held that the tax is on value of services and that only the service provider can be regarded as the assessee; subordinate rules that made persons other than the provider responsible for collection were held ultra vires and quashed. That decision further directed refund of taxes collected from customers/clients of the service provider where collection was found impermissible. Interpretation and reasoning: The Tribunal examined the sequence of notifications (initial levy, subsequent exemption for certain period/beneficiaries, later rescission) and concluded that services to small scale industries for the specified period were not leviable on the receiver in law where collection from receiver was rendered impermissible by higher court rulings. The adjudicating officer had accepted exemption under the notification amendment but did not direct refund; the Tribunal considered both the statutory notifications and the controlling judicial pronouncement invalidating collection from the receiver. Ratio vs. Obiter: Ratio - collection of service tax from the receiver for the period in question was not sustainable where the law and controlling judicial ruling make the service provider the proper assessee and invalidate collection provisions applicable to receivers. Obiter - detailed history of notifications and their dates serves explanatory purpose but the legal ratio rests on the incompatibility of collection-from-receiver rules with the Act as interpreted by the apex court. Conclusion: The tax relating to the period 16-11-1997 to 01-06-1998 was not leviable/realizable from the appellant as receiver; the adjudicating finding accepting exemption supports that conclusion. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Refundability of deposit made under protest on 08-11-2002 Legal framework: Principles governing refunds where tax is paid and subsequently held not leviable; statutory provision requiring scrutiny for unjust enrichment; administrative duty to comply with binding higher court decisions unless stayed. Precedent treatment: Higher authority rulings require subordinate authorities to follow appellate/tribunal and apex court decisions and to avoid refusal to implement such decisions merely because they are 'unacceptable' to the department. Jurisprudence also mandates that refund claims, even where tax was paid under protest, must be examined against the doctrine of unjust enrichment. Interpretation and reasoning: The Tribunal held that where the adjudicating authority concluded the appellant was exempt and where higher judicial authority held collection from receivers impermissible, the deposit made 'under protest' was in substance a refundable payment unless unjust enrichment is established. The Tribunal emphasized that subordinate authorities ought to follow controlling judicial decisions and proceed to examine refund applications on merits rather than reject them for being time-barred or for procedural niceties when the underlying tax was not leviable. Ratio vs. Obiter: Ratio - a deposit made by a receiver under protest, where collection from receivers is held unlawful and the payer falls within exempt class, is refundable subject to the unjust enrichment inquiry. Obiter - comments on departmental notices lacking jurisdiction and the sequence of show-cause communications explain factual background but do not alter the legal ratio. Conclusion: The deposit of Rs. 38,610/- made on 08-11-2002 was a payment under protest for a tax not leviable on the appellant and is prima facie refundable; the refund claim must be adjudicated with due regard to the doctrine of unjust enrichment. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Time-bar and admissibility of refund claim filed on 04-06-2004 Legal framework: Statutory and judicial principles governing limitation for refund claims; effect of payment 'under protest' on limitation; administrative practice to treat acknowledgment and date of application in assessing admissibility. Precedent treatment: Authorities have held that acknowledgement of refund application and the underlying legal position may render a claim not time-barred where payment was made under protest and later shown to be not leviable; subordinate authorities must apply judicially established principles rather than rigidly rejecting claims on limitation when the claim arises from a ruling in favour of the claimant. Interpretation and reasoning: The Tribunal found the refund application dated 04-06-2004 was acknowledged the same day and that rejection on grounds of limitation without examining merits was improper in the factual matrix where payment was under protest and the law (and adjudication) favored exemption. The Tribunal instructed that the refund application must be examined on merits, including limitation and unjust enrichment, by the adjudicating authority. Ratio vs. Obiter: Ratio - filing and acknowledgement of the refund application after adjudicatory relief requires substantive consideration; procedural dismissal as time-barred was unsustainable in the circumstances. Obiter - references to specific departmental notices and dates are factual elucidation. Conclusion: The refund claim filed on 04-06-2004 is not to be summarily rejected as time-barred; the claim must be adjudicated on merits with scrutiny for unjust enrichment. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Application of the doctrine of unjust enrichment Legal framework: The doctrine of unjust enrichment requires that a person who has been paid an amount that he was not lawfully entitled to retain must refund it unless retention would not constitute unjust enrichment; statutory/regulatory refund adjudication must examine and rule out unjust enrichment before ordering refund. Precedent treatment: Apex and appellate authorities have consistently held that even payments made under protest must satisfy the test of unjust enrichment for refund to be granted; authorities must not ignore this doctrine when processing refund claims. Interpretation and reasoning: The Tribunal reiterated the mandatory nature of the unjust enrichment inquiry, directing that the adjudicating authority, before ordering refund, must satisfy itself that refund would not result in unjust enrichment. The Tribunal balanced this requirement against the duty to follow binding judicial authority that struck down collection-from-receiver provisions, holding that compliance with precedent does not relieve the authority from applying the unjust enrichment test. Ratio vs. Obiter: Ratio - refund may be granted only after proper application of the doctrine of unjust enrichment; subordinate authorities must both follow binding precedents and apply statutory/common law tests to prevent unjust enrichment. Obiter - policy statements about exercising power for public good reinforce reasoning but are not the operative law. Conclusion: The refund application must be adjudicated with a directed review for unjust enrichment; only if unjust enrichment is ruled out should the deposit paid under protest be refunded. FINAL DISPOSITION POINT (LEGAL CONCLUSION AND DIRECTIONS) The first appeal order affirming rejection of refund was unsustainable. The Tribunal set aside the impugned order and directed that the adjudicating authority examine the refund application dated 04-06-2004 in light of the preceding legal conclusions: (a) collection from the receiver for the specified period was not leviable where controlling judicial authority so held; (b) the deposit paid under protest is prima facie refundable; and (c) the refund is subject to a proper unjust enrichment inquiry. The adjudicating authority is to pass appropriate orders without further delay.