2015 (11) TMI 563 - AT - Service Tax

Refund claims denied due to service tax liability in construction projects: Limitation and unjust enrichment considerations

Ayyappa Construction Co. Versus Commissioner of Service Tax, Mumbai

The Tribunal upheld the rejection of refund claims in a case concerning liability to pay service tax in construction projects. The appellant's refund ... Commercial or industrial construction service - Refund claim - Unjust enrichment - Held that:- Board has clarified as early as on 1.8.2006 that no service ax is chargeable under the circumstances. The appellant was aware of the said circular. In 2007, the said circular was only reiterated. Further, it is noticed that majority of the service tax has been collected by the appellant from their customer and only few customers have disputed. This would also indicate that the appellant was also aware from their customer that service tax is not leviable. Under the circumstances, it cannot be said that the appellant was not aware of the fact that no service tax was chargeable - Tribunal is the creature of Customs, Excise and Service Tax Acts and has to work within the boundaries of the sections provided therein. Section 11B is the section relating to refund which prescribes the time limit and hence that time limit has to be computed. The appellant has also quoted the Hon’ble Madras High Courts decision in the case of Saralee Household & Bodycare India (P) Ltd [2007 (6) TMI 55 - HIGH COURT, MADRAS ]. In the present case barring an amount of ₹ 3 lakhs, the appellant themselves were admitting that the remaining amount has been recovered from their customers. Even the amount of ₹ 3 lakhs which according to them has been paid by from their own resources cannot be considered for refund as the doctrine of unjust enrichment would be applicable at this stage. - Decided against assessee. Issues:1. Liability to pay service tax in construction projects.2. Refund claims rejection based on limitation and unjust enrichment.Issue 1: Liability to pay service tax in construction projectsThe appellant, engaged in construction activities, was paying service tax under commercial or industrial construction service and construction of complex service categories despite a circular clarifying that the contractor, not the developer, is liable to pay the service tax. The appellant filed refund claims after a consolidated circular reinstated the original position. The original and first appellate authorities rejected the refund claims citing limitation and unjust enrichment.The appellant argued that the High Court of Karnataka allowed a similar refund in KVR Constructions case, and limitation should commence from the date of knowledge of the mistake. They also contended that the doctrine of unjust enrichment does not apply, citing precedents. The Tribunal noted the appellant's consistent collection of service tax from customers, indicating awareness that no service tax was chargeable. The Tribunal differentiated the KVR Constructions case, emphasizing the need to work within statutory boundaries, particularly Section 11B relating to refund time limits. The Tribunal held that the doctrine of unjust enrichment applied, as most amounts were recovered from customers, and only a small portion was claimed to be paid by the appellant.Issue 2: Refund claims rejection based on limitation and unjust enrichmentThe Tribunal considered the circular clarifying non-chargeability of service tax and the appellant's awareness of it. The majority of service tax was collected from customers, suggesting the appellant's knowledge of the tax status. The Tribunal dismissed the appellant's reliance on the KVR Constructions case, highlighting the statutory limitations on refunds. Referring to the Saralee Household & Bodycare India case, the Tribunal emphasized that the doctrine of unjust enrichment applied, especially as the appellant admitted recovering most amounts from customers. Consequently, the Tribunal dismissed the appeals filed by the appellant.Overall, the Tribunal upheld the rejection of the refund claims, emphasizing the appellant's awareness of the non-chargeability of service tax, consistent collection from customers, and the application of the doctrine of unjust enrichment in determining the refund eligibility.