Unjust enrichment and service tax refund: credit notes issued before the claim supported refund, subject to verification.

Refund of service tax was examined under the unjust enrichment bar in Section 11B of the Central Excise Act, as applied to service tax, where credit notes had been issued before the refund claim. The Tribunal accepted the later principle that refund should reach the person who actually bore the tax burden, and treated the earlier contrary view as no longer applicable. On the facts, the refund was not barred by unjust enrichment, and the assessee succeeded, subject to departmental verification that the credit notes had in fact been honoured.

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Issues: Whether refund of service tax was barred by unjust enrichment when credit notes were issued before filing the refund claim.

Analysis: The appellant had paid service tax on engineering services and later sought refund on the footing that the tax burden had not ultimately been borne by it. The dispute turned on the applicability of the unjust enrichment bar under Section 11B of the Central Excise Act, 1944, as made applicable to service tax matters, and on whether the issuance of credit notes before the refund claim showed that the incidence of tax had been returned. The Tribunal relied on the later view that refund should go to the person who actually suffers the burden of duty or tax, and accepted that the earlier contrary approach was no longer applicable. At the same time, the Revenue's request for verification that the credit notes were actually honoured was treated as a reasonable safeguard.

Conclusion: The refund was not barred on the facts and the appeal was allowed in favour of the assessee, with liberty to the departmental authorities to verify the effect of the credit notes.

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