2019 (5) TMI 1415 - AT - Service Tax

Tribunal overturns refund rejection, citing unjust enrichment for service tax paid to Military Engineering Services

M/s. Khanna Constructions, M/s. Dashmesh Buildcon, M/s. Pawansut Enterprises, M/s. Khanna Enterprises Versus Commissioner of Customs, CGST & Central Excise, Jodhpur

The Tribunal set aside the rejection of refund claims by the original authority, citing unjust enrichment grounds for service tax paid during a specific ... Taxability - Refund of service tax paid - construction and maintenance services provided to Government of India / Ministry of defence - Mega Exemption Notification No.25/2012-ST dated 20th June, 2012 - HELD THAT:- The appellants were providing Commercial/Industrial Construction Services to Military Engineering Services (MES). It admittedly is a unit of Ministry of Defence, Govt. of India. MES is observed to be Construction & Maintenance agency for Indian Army. We, therefore, opine that the Construction/ Maintenance Services of MES since being linked to the structures/buildings, which are not to be used for commercial purposes but for Ministry of Defence, any service rendered to MES is not taxable. Mega Exemption Notification No.25/2012-ST dated 20th June, 2012 - HELD THAT:- Mega Exemption Notification No.25/2012-ST dated 20th June, 2012 had exempted the services as that of construction, erection, commissioning, installation, completion, fitting out, repair, maintenance renovation or alteration of a civil structure when provided to a Governmental authority from the ambit of service tax. However, said exemption was recalled vide the Notification No.6/2015 dated 1st March, 2015 whereafter the services provided even to Government were leviable to service tax, therefore the same was borne by MES which Service Tax component was deposited by the appellant with the Service Tax Department. By virtue of Section 102 of Finance Act, 2016 incorporating the aforesaid entry No.12A that the services provided by the appellant to MES became exempted retrospectively from 01.04.2015 itself. This observation is sufficient to hold that the intention of the Government had always been to exempt the services being provided to anyone other than commerce industries business or profession i.e. the services provided to Government to remain exempted from the levy of service tax. No doubt for any amendment, which is substantive in nature the same has to be applied prospectively. The refund claim was initiated by the appellants/ the service providers on the request of the service recipient i.e. MES, Ministry of Defence, which is none other than the Government of India - There is a clear declaration in the form of Affidavit as was annexed with the refund claim that since the amount of service tax prayed to be refund has been reimbursed to the appellants/ applicants by the service recipient/ MES that they acknowledged to return the same to MES after the amount is sanctioned and disbursed. Since the service recipient is none other than the Government of India, rejection of refund claim which is liable to be refunded, but the refund claim is rejected only on the ground that the service recipient/ the Department of Government of India has born the burden of said service tax, will ultimately cause the loss to the Exchequer of the said Department of Government of India. The proceedings are placed back before the Assistant Commissioner of Central Excise & Service Tax, Central Excise & Service Tax Division, Jodhpur (Rajasthan) directing that without disturbing the findings and observations on the allowability of the refund claim he shall reconsider the claim - also not the petitioner, but the MES to pursue the refund claim. MES shall join as co-applicant. If so done within one month, the Competent Authority shall decide the applications within one month thereafter. Appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether services provided to a Governmental authority by way of construction/maintenance for non-commercial use were retrospectively exempted for the period 1.4.2015 to 29.2.2016 by the legislative amendment (entry 12A/Section 102) and thus rendered the tax paid for that period refundable. 2. Whether refund claims for service tax paid during the above period are barred by limitation or otherwise non-maintainable. 3. Whether the principle of unjust enrichment (as applied under Section 11B(2) of the Central Excise Act) precludes refund where the service provider admits that the service tax burden was passed on to the Governmental service recipient and the recipient had requested/refused refund pursuit by the provider. 4. Whether an affidavit by the service provider undertaking to return refunded amounts to the service recipient and a request by the service recipient to initiate refund affect the applicability of unjust enrichment and the entitlement to refund. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Retrospective applicability of exemption (legal framework) Legal framework: Mega Exemption Notification exempted construction/related services provided to Governmental authorities; Notification withdrawing exemption w.e.f. 1.4.2015; subsequently Finance Act amendment (Section 102 / entry 12A) restored exemption and provided that no service tax shall be levied for services provided to Government/local authorities from 1.4.2015 onward (subject to conditions and up to 31.3.2020). Precedent treatment: Tribunal relied on established principle that where legislature plainly intends retrospective effect to correct/restore prior position or to supply an omission, such amendment may be treated as retrospective (citing broader authority on retrospective statutes and explanation function), and referenced earlier Tribunal decision treating services to government for non-commercial use as non-taxable. Interpretation and reasoning: The amendment restored the pre-1.3.2015 exemption and explicitly covered the period from 1.4.2015; the Tribunal found that the amendment was restorative (not substantive change creating new liabilities) and therefore applicable retrospectively to render amounts paid for that period non-duty and refundable. The Tribunal observed legislative intent evident in the text of the amendment and the enabling provision. Ratio vs. Obiter: Ratio - The amendment (entry 12A/Section 102) operates retrospectively to exempt services provided to Governmental authorities from 1.4.2015; accordingly amounts paid for that period cease to be duty. Obiter - General observations about prospective application of substantive amendments were discussed but distinguished on facts. Conclusion: Services provided to Governmental authority for non-commercial use during 1.4.2015-29.2.2016 became exempt retrospectively; tax paid during that period is not a duty and is refundable to the payor (subject to other conditions). Issue 2 - Limitation and maintainability of refund claims Legal framework: Refund regime under Central Excise Act (Section 11B) and applicable refund/notification provisions determine time limits for claiming refunds; amendment restored exemption and enabled claims for amounts paid during the relevant period. Precedent treatment: The appellate authority earlier accepted that claims were not barred by time; Tribunal accepted that limitation was not the basis for disallowance in the impugned appellate order. Interpretation and reasoning: The Tribunal did not sustain limitation as a ground for rejection and observed that restoration of exemption and subsequent actions (including request from service recipient) rendered refund claims maintainable; the Tribunal directed reconsideration without disturbing allowability findings, implying maintainability where statutory conditions are met. Ratio vs. Obiter: Ratio - On these facts the refund claims were not time-barred and were maintainable for reconsideration. Obiter - No broad pronouncement on all limitation scenarios was made. Conclusion: Limitation was not a valid ground to reject the claims in the present matters; claims required adjudication on merits after recognizing retrospective exemption. Issue 3 - Applicability of unjust enrichment where tax burden was passed to Governmental recipient Legal framework: Section 11B(2) (Central Excise Act) and the unjust enrichment principle require that refund not be allowed if the applicant has passed on the duty to the recipient or has otherwise been unjustly enriched; refund is to be denied where element of duty is not borne by the applicant. Precedent treatment: The Commissioner (Appeals) invoked Section 11B(2) to disallow refund on admitted passing on of tax burden; Tribunal examined applicability when the amount paid is held not to be a duty due to retrospective exemption. Interpretation and reasoning: The Tribunal reasoned that once the legislature has declared that no service tax was leviable for the period in question, amounts paid during that period are not 'duty' but deposits made in excess. Section 11B(2) applies to duty paid by the applicant; it does not apply where the sum paid is not a duty (i.e., it is an excess deposit rendered non-recoverable as tax by retrospective exemption). Therefore the mere admission that burden was passed on does not automatically bar refund when the tax paid is not a duty by virtue of retrospective exemption. Further, where the service recipient is the Government and has requested the refund process, denying refund on unjust enrichment grounds would cause the Department/Exchequer of the Government to bear a loss. Ratio vs. Obiter: Ratio - Section 11B(2) cannot be applied to sums that are not duty (i.e., where remedial/restorative legislation renders amounts paid not to be duty); unjust enrichment principle does not bar refund in such circumstances. Obiter - Policy-oriented comments about Exchequer loss if refunds are denied where recipient is the Government. Conclusion: Unjust enrichment under Section 11B(2) does not operate to deny refund where the legislative amendment retrospectively removes the tax liability for the period and the amount paid is therefore not a duty; admission of passing on is not determinative in such circumstances. Issue 4 - Effect of service recipient's request and provider's affidavit undertaking to return refund Legal framework: Principles governing refund claims allow submission of evidence and declarations to establish bona fides and to address unjust enrichment concerns; service recipient's interest in pursuing refund is recognized where recipient bore the burden. Precedent treatment: Tribunal noted that the refund claims were initiated at the request of the Governmental service recipient and supported by an affidavit by the provider undertaking to repay any refunded amount to the recipient. Interpretation and reasoning: The Tribunal treated these facts as material to negate the applicability of unjust enrichment - (i) the Governmental recipient had requested initiation of the refund; (ii) the provider's affidavit acknowledged reimbursement by the recipient and undertook to return the refunded amount to the recipient. These peculiarities remove the usual concern that refund to the provider would unjustly enrich the provider at the expense of the recipient. Moreover, when the recipient is the Government, refusal to allow refund effectively causes the relevant department to suffer loss. The Tribunal therefore concluded that the combined presence of recipient's request and provider's undertaking justify allowing refund adjudication to proceed (and to have the recipient join as co-applicant for appropriate disbursement). Ratio vs. Obiter: Ratio - A refund claim initiated at the request of a Governmental recipient and accompanied by an affidavit by the provider undertaking to return the refunded sum negates the bar of unjust enrichment and supports entitlement to refund adjudication. Obiter - No general rule as to all recipient-initiated claims; decision tied to these factual circumstances. Conclusion: The recipient's request and provider's affidavit undertaking to repay the recipient remove the impediment of unjust enrichment and warrant reconsideration and processing of the refund claim, with the recipient joining as co-applicant if necessary. Relief and procedural disposition (cross-references) Having concluded that the tax paid for the period was not duty (Issue 1), that limitation was not a ground for dismissal (Issue 2), and that unjust enrichment did not bar refund given the statutory restoration plus the recipient's request and provider's affidavit (Issues 3-4), the Tribunal set aside the portion of the appellate order holding unjust enrichment and remanded the matters to the original adjudicating authority for reconsideration. The Tribunal directed that the Governmental recipient be permitted to join as co-applicant and prescribed time limits for fresh disposal.