Appeal allowed for service tax refund under Drought Mitigation Scheme

The Tribunal allowed the appeal, directing the refund of service tax paid erroneously by the appellant to the Government of Madhya Pradesh through MP MARKFED for construction services under the Drought Mitigation Scheme. The services were found exempt from service tax under Notification No. 25/2012-ST, despite initial rejection by the adjudicating authority and Commissioner (Appeals). The refund claim was deemed not time-barred under Section 11B of the Central Excise Act, following the Karnataka High Court ruling. The matter was referred to nominate a third member due to conflicting views on the limitation issue between the Judicial and Technical Members.

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Issues Involved:
1. Whether the services provided by the appellant to the Government of Madhya Pradesh through MP MARKFED are exempt from service tax.
2. If the service tax paid erroneously is refundable, whether the refund claim is barred by limitation under Section 11B of the Central Excise Act.

Issue-wise Detailed Analysis:

1. Exemption from Service Tax:
The appellant provided construction services to the Government of Madhya Pradesh through MP MARKFED, funded by the Government of India for the Drought Mitigation Scheme. Initially, the appellant paid service tax under the mistaken belief that it was required. Later, they claimed exemption under Notification No. 25/2012-ST dated 20.6.2012 [Sl. No. 12(a)], which exempts construction services provided to the Government or Government authorities from service tax. The Department accepted this exemption for the period after July 2014, as no service tax was paid, and no demand was raised. The appellant filed a refund claim for the service tax paid earlier.

The adjudicating authority rejected the refund claim, stating that MP MARKFED is not a Government or Government authority. The Commissioner (Appeals) upheld this decision, noting that services provided to MP MARKFED do not fall under the exempted category. However, the Tribunal found that MP MARKFED acted as a nodal agency for the State Government, and the construction services were for the State Government. Therefore, the services provided by the appellant were exempt from service tax under Notification No. 25/2012-ST.

2. Limitation under Section 11B:
The appellant argued that the service tax paid by mistake should be treated as a deposit, not as tax, and thus, the limitation under Section 11B of the Central Excise Act should not apply. They cited the Karnataka High Court ruling in Commissioner of Central Excise (Appeals), Bangalore Vs. KBR Construction, which held that amounts paid under a mistaken notion do not constitute tax and are not subject to Section 11B's limitation.

The adjudicating authority and the Commissioner (Appeals) rejected this argument, stating that the refund claim is barred by the one-year limitation period under Section 11B. The Tribunal, relying on the Karnataka High Court ruling, held that the amount paid erroneously is in the nature of a deposit, not tax, and thus, the limitation under Section 11B does not apply. Consequently, the refund claim is not time-barred.

Separate Judgments Delivered:
Member (Judicial): Agreed that the appellant is entitled to a refund on merits and that the limitation under Section 11B does not apply, following the Karnataka High Court ruling.

Member (Technical): Disagreed, stating that the limitation under Section 11B should apply, as per the Supreme Court ruling in Mafatlal Industries Ltd vs UOI, which mandates that all refund claims must be processed under the provisions of the respective enactment, including the limitation period.

Conclusion:
The Tribunal allowed the appeal, directing the adjudicating authority to grant the refund with interest, holding that the services provided were exempt from service tax and the refund claim was not barred by limitation. However, due to the difference of opinion between the Judicial and Technical Members regarding the applicability of Section 11B's limitation, the matter was referred to the President for nomination of a third member to resolve the issue.

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