2019 (6) TMI 904 - AT - Service Tax

Tax Tribunal Rules in Favor of Appellant, Exempts Online Courses from Service Tax

The Tribunal determined that the services provided by the Appellant, involving online computer courses, fell under 'Commercial Training or Coaching' and ... Unjust enrichment - deposit under protest - refund of amounts deposited during investigation - incidence of tax passed on to recipient - payment to the credit of the Central Government under Section 73A - recovery and interest under Section 73A and Section 73BUnjust enrichment - deposit under protest - refund of amounts deposited during investigation - Whether refund of the amounts deposited by the assessee during the raid is barred by the doctrine of unjust enrichment. - HELD THAT: - The Tribunal held, and this Tribunal concurs, that amounts deposited during the pendency of adjudication or investigation are in the nature of a deposit made under protest and do not constitute payment of service tax or duty. On the consistent line of authorities cited (including decisions of High Courts and the Tribunal), the principle of unjust enrichment does not apply to refund claims for amounts so deposited. The adjudicating authority and Commissioner(Appeals) erred in directing the sanctioned refund to be credited to the Consumer Welfare Fund on the ground of unjust enrichment. Applying the established legal principle that a pre-deposit during investigation is treated as a deposit under protest, the Appellant is entitled to the refund of the sanctioned amount. [Paras 21, 22]Refund of Rs. 1,11,36,840/- is allowable because amounts deposited during investigation are deposits under protest and not subject to the bar of unjust enrichment.Incidence of tax passed on to recipient - payment to the credit of the Central Government under Section 73A - recovery and interest under Section 73A and Section 73B - Whether the Department may examine afresh the allegation that the Appellant collected service tax from customers and recover such amounts, and the procedure to be followed. - HELD THAT: - The Tribunal observed that a separate factual and legal inquiry is necessary to determine whether the Appellant in fact collected 'service tax' from customers (as distinct from 'service charges'). Section 73A (with consequential application of Section 73B) furnishes the statutory mechanism requiring a person who has collected amounts representing service tax to pay them to the credit of the Central Government after issuance of a show cause notice and determination. The Tribunal therefore set aside the Commissioner(Appeals) order only to the extent of directing refund, but left open the Department's right to proceed strictly under Sections 73A and 73B. Any recovery under those provisions must follow the statutory notice, opportunity to the Appellant to prove that amounts were only service charges and not service tax, and determination in accordance with law; earlier findings shall not prejudice the fresh proceedings. [Paras 24, 25, 26, 27, 28]Department permitted to proceed, if advised, under Sections 73A and 73B by issuing appropriate notice and giving the Appellant an opportunity to prove that no service tax was collected; fresh determination to be made in accordance with law.Final Conclusion: The Commissioner(Appeals) order dated 29 April 2013 is set aside to the extent it directed deposit of the sanctioned refund into the Consumer Welfare Fund; the Appellant is entitled to refund of Rs. 1,11,36,840/-, to be paid within two months. The Department, however, remains free to initiate recovery proceedings under Sections 73A and 73B (with requisite notice and opportunity) if it concludes that service tax was in fact collected from customers. Issues Involved:1. Classification of services provided by the Appellant.2. Liability to pay service tax.3. Refund of service tax deposited during investigation.4. Doctrine of unjust enrichment.5. Application of Sections 73A and 73B of the Finance Act, 1994.Detailed Analysis:1. Classification of Services Provided by the Appellant:The Tribunal examined the nature of the activity conducted by the Appellant, which involved providing online computer courses. It was determined that the services fell under the category of 'Commercial Training or Coaching' as defined under Section 65(27) of the Finance Act, 1994, rather than 'Online Information Database Access and/or Retrieval Services' defined under Section 65(75) of the Finance Act, 1994. The Tribunal concluded that since the Appellant was a computer training institute engaged in organizing computer courses, it was eligible for the benefit of the Exemption Notification dated 20 June, 2003, and thus, the activity would not attract service tax.2. Liability to Pay Service Tax:The Appellant argued that the services rendered fell under 'Commercial Training and Coaching,' which were exempt from service tax. Despite this, during an investigation, the Appellant deposited Rs. 1 Crore and subsequently Rs. 11,36,840/- under pressure. The adjudicating officer did not accept the Appellant's contentions and confirmed the demand for service tax, appropriating the deposited amount towards the demand. However, the Tribunal set aside this order, concluding that the Appellant's activities did not attract service tax.3. Refund of Service Tax Deposited During Investigation:Following the Tribunal's order, the Appellant filed for a refund of Rs. 1,11,36,840/-. The adjudicating authority sanctioned the refund but directed it to be credited to the Consumer Welfare Fund due to the doctrine of unjust enrichment. The Tribunal found that amounts deposited during the course of investigation are in the nature of deposits made under protest and not payments towards service tax. Therefore, the principles of unjust enrichment would not apply. The Tribunal referred to several decisions, including those of the Madras High Court in Pricol Ltd. and the Allahabad High Court in EBIZ. Com Pvt. Ltd., which supported this view.4. Doctrine of Unjust Enrichment:The Tribunal held that the doctrine of unjust enrichment would not apply to amounts deposited during investigation. The Appellant had argued that no service tax had been collected from customers, only service charges, and thus the question of unjust enrichment did not arise. The Tribunal supported this argument, citing consistent judicial precedents that amounts deposited during investigations are considered deposits under protest, exempting them from the doctrine of unjust enrichment.5. Application of Sections 73A and 73B of the Finance Act, 1994:The Tribunal noted that if the Appellant had collected service tax from customers but not deposited it with the Government, Section 73A of the Finance Act, 1994, would apply. This section mandates that any amount collected as representing service tax must be deposited with the Government. The Tribunal allowed the Department to proceed under Sections 73A and 73B to recover any such amounts, provided a show cause notice is issued to the Appellant, and the Appellant is given an opportunity to substantiate its case that only service charges, not service tax, were collected.Conclusion:The Tribunal set aside the order of the Commissioner (Appeals) dated 29 April, 2013, and directed the refund of Rs. 1,11,36,840/- to the Appellant within two months. It left open the possibility for the Department to take recourse to Sections 73A and 73B of the Finance Act, 1994, to recover any amounts collected as service tax, following due process.