2009 (12) TMI 631 - HC - Service Tax

Court quashes order denying refund claim for service tax on rental income, emphasizes due process

Sudha Ramachandran Versus Union of India

The court quashed the orders refusing to adjudicate on the petitioner's refund claim for service tax paid on rental income. It held that the authority ... Return of Refund application - Claim of refund of service tax paid on renting of immovable property - petitioner points out that Section 11B of the Central Excise Act stipulates time limit of a period of one year for claiming refund of any duty paid. Therefore, if the refund application submitted by the petitioner was not entertained by the authority concerned, the same may cause prejudice to the petitioner, because the petitioner will be precluded from claiming refund raising the question of limitation - Held that:- as per Section 11BB interest is payable only on amounts which is ordered to be refunded, within a period of three months from the date of application onwards. Therefore the question of payment of refund will arise only if the application is allowed and an order is passed, respondent is directed to take back application and to dispose of the same on merits, writ petition is disposed of Issues:Challenge against rejection of claim for refund of service tax paid under Exts. P3 & P5 orders.Analysis:The petitioner, a service provider deriving rental income from commercial buildings, sought a refund of service tax paid based on a Delhi High Court decision declaring the levy of service tax on renting immovable properties as illegal. The refund claim was made under Section 11B of the Central Excise Act, applicable to service tax matters. The refund application was initially returned (Ext. P3) citing the pendency of the Department's appeal before the Supreme Court against the Delhi High Court decision. The petitioner argued that the authority must adjudicate on refund claims and cannot simply return them. The 3rd respondent reiterated the pendency of the issue before the Supreme Court and returned the application again (Ext. P5), refusing to adjudicate on the petitioner's eligibility for refund.The petitioner contended that failure to entertain the refund application within the one-year time limit stipulated by Section 11B could prejudice her ability to claim a refund later. The respondent argued that since the issue of service tax liability was pending before the Supreme Court, the refund claim could not be considered at that time. Additionally, the respondent claimed that the petitioner did not provide supporting documents with the refund application, justifying the rejection of the claim.The court held that the return of the refund application did not constitute a legal disposal of the claim. The authority was obligated to consider and pass orders on the application. The court noted that there was no provision allowing for the return of refund claims. The authority could either reject the claim based on pending liability issues or keep the adjudication pending until a final decision was reached. The court clarified that interest on refunds was payable only if the application was allowed and an order was passed within three months. Therefore, the respondent's apprehension about interest payment was unfounded. Consequently, the court quashed Exts. P3 & P5 and directed the 3rd respondent to reconsider and dispose of the refund application on its merits.In conclusion, the court's decision emphasized the obligation of the authority to consider refund applications and highlighted the importance of following due process in adjudicating such claims, especially in cases where legal issues are pending before higher courts.