2022 (2) TMI 140 - AT - Service Tax

Tribunal orders remand for re-examination of refund claim eligibility and unjust enrichment issue.

The Tribunal allowed the appeal by way of remand, directing the Commissioner (Appeals) to re-examine the issue of unjust enrichment and the eligibility of ... Transaction of sale of goods versus composite transaction - transfer of property in goods as determinative of sale - service tax liability for outdoor catering - doctrine of unjust enrichment - absence of valuation machinery for bifurcation prior to Rule 2C - effect of unmodified assessments on refund claimsTransaction of sale of goods versus composite transaction - transfer of property in goods as determinative of sale - service tax liability for outdoor catering - Characterisation of the respondent's sale of packed food on trains - whether the transactions involved any service element liable to service tax or were pure sales of goods. - HELD THAT: - On the facts the respondent sold packed food to passengers through hawkers who carried goods and sold at specified prices; passengers were under no obligation to purchase. The Tribunal found these facts were even stronger than those before the Delhi High Court in IRCTC and applied the High Court's reasoning that where property in goods is transferred on being loaded and kept in railway containers/devices, the transaction is one of sale of goods; any heating/serving is incidental. Accordingly, there is no service element attracting service tax in the respondent's direct sales to passengers, and the respondent is entitled to claim refund of service tax paid under mistake of law, subject to the test of unjust enrichment. This conclusion also follows from the statutory exclusion of transfers of title to goods from the definition of service. (Paragraph 14.) [Paras 14]The sales by the respondent to passengers are transactions of pure sale and not chargeable to service tax; the respondent is entitled to seek refund subject to unjust enrichment verification.Absence of valuation machinery for bifurcation prior to Rule 2C - determination of value of service portion - Whether the Finance Act or existing rules during the relevant period contained a machinery for bifurcating value into service and sale portions for transactions like the present. - HELD THAT: - The Tribunal noted that Rule 2C of the Service Tax (Determination of Value) Rules, 2006, providing specified percentages for service portion, was introduced only w.e.f. 01.07.2012. Prior to that there was no statutory mechanism to bifurcate the transaction into service and sale components for valuation under service tax. Hence, for the period 2006-07 to 2009-10 there was no rule-based method to compute a separate service component in the respondent's transactions. (Paragraph 15.) [Paras 15]No machinery existed during the material period to determine a service portion of the transactions; Rule 2C is prospective (w.e.f. 01.07.2012) and does not cover the respondent's transactions in the disputed period.Effect of unmodified assessments on refund claims - doctrine of unjust enrichment - Whether a refund can be sanctioned where duty has been paid, returns filed and assessments have not been modified; and whether the claim is subject to unjust enrichment. - HELD THAT: - The Tribunal observed that, notwithstanding merits of the refund claim, established precedent requires examination of whether the assessments have been modified or appealed against; where assessments remain unmodified, refund may be barred. The Tribunal directed that the issue of unjust enrichment must be fully examined with opportunity to lead evidence, including whether the tax claimed as refund formed part of consideration or was passed on, and whether assessments have been modified in appeal in light of the Supreme Court's decision in ITC Ltd. (referenced in the order). The Commissioner (Appeals) had failed to engage with the unjust enrichment issue or afford proper opportunity to the respondent. (Paragraphs 16-17.) [Paras 16, 17]Refund cannot be finally sanctioned without adjudication on whether assessments have been modified; the question of unjust enrichment is remitted for fresh consideration after affording the respondent a reasonable opportunity to lead evidence.Effect of binding High Court declaration and pendency of appeal - Whether the pendency of SLPs before the Supreme Court in the IRCTC matter or the fact that the respondent was not a party to the IRCTC litigation affects applicability of the Delhi High Court's declaration to the respondent. - HELD THAT: - The Tribunal distinguished the IRCTC factual matrix from the respondent's facts but held that the Delhi High Court's declaration that similar transactions are sales of goods applies to the respondent whose factual position (licensed vendors selling to passengers) is the same or stronger. The pendency of appeals before the Supreme Court and the respondent's non party status do not prevent application of the clarificatory and declaratory pronouncement of the Delhi High Court to the respondent's refund claim in the present facts. (Paragraph 14.) [Paras 14]The Delhi High Court's ruling applies to the respondent; pendency of SLPs and non party status do not preclude application of that declaration in the respondent's case.Final Conclusion: The Tribunal held that the respondent's sale of packed food on trains is a transaction of sale (not service) and the respondent may claim refund of service tax paid under mistake, but directed remand to the Commissioner (Appeals) to decide the issue of unjust enrichment and to verify whether assessments have been modified or appealed, after giving the respondent a reasonable opportunity to lead evidence; appeal allowed by way of remand. Issues Involved:1. Taxability of the sale of packed food and beverages under service tax.2. Applicability of the doctrine of unjust enrichment.3. Applicability of the Delhi High Court judgment in the IRCTC case to the respondent.4. Refund eligibility under the Finance Act, 1994.5. Impact of pending appeals before the Supreme Court on the current case.Detailed Analysis:A. Taxability of the Sale of Packed Food and Beverages:The central issue is whether the activity of selling packed food and beverages by the respondent on board trains and at railway stations is subject to service tax. The Commissioner (Appeals) relied on the Delhi High Court judgment in the IRCTC case, which held that the transaction of supplying food and beverages on board trains is purely a sale of goods and not a service. The High Court determined that the element of service in such transactions is incidental and minimal. Consequently, the sale of food and beverages does not attract service tax under the provisions of the Finance Act, 1994.B. Doctrine of Unjust Enrichment:The Assistant Commissioner of Service Tax initially rejected the refund claim on the grounds of unjust enrichment, stating that the respondent did not reflect the service tax amount as recoverable in their balance sheets and did not provide sufficient documentary evidence to support their claim of having borne the service tax themselves. The Commissioner (Appeals) also noted the lack of documentary evidence from the respondent to substantiate their claim that the service tax was not passed on to consumers. The Tribunal remanded the case to the Commissioner (Appeals) to re-examine the issue of unjust enrichment, giving the respondent an opportunity to present supporting evidence.C. Applicability of the Delhi High Court Judgment in the IRCTC Case:The Tribunal held that the facts of the current case are even more favorable to the respondent than those in the IRCTC case. The respondent sells food directly to passengers without any obligation for passengers to purchase, making it a simple sale transaction with no element of service. Thus, the Delhi High Court's ruling in the IRCTC case, which declared such transactions as purely sales and not services, is applicable. The pending appeals before the Supreme Court regarding the IRCTC case do not affect the applicability of this judgment to the respondent's case.D. Refund Eligibility Under the Finance Act, 1994:The Tribunal noted that the Finance Act, 1994, and the Service Tax (Determination of Value) Rules, 2006, did not provide a mechanism for determining the value of the service component in such transactions before the introduction of Rule 2C on July 1, 2012. Therefore, the respondent's transaction of selling food does not attract service tax, and they are entitled to a refund of the service tax paid under erroneous advice, subject to the test of unjust enrichment.E. Impact of Pending Appeals Before the Supreme Court:The Tribunal clarified that the pending appeals before the Supreme Court in the IRCTC case do not impact the current case. The Delhi High Court's judgment in the IRCTC case remains applicable, and the respondent is entitled to rely on it for their refund claim.Conclusion:The Tribunal allowed the appeal by way of remand, directing the Commissioner (Appeals) to re-examine the issue of unjust enrichment and the eligibility of the refund claim. The respondent is to be given a reasonable opportunity to present evidence supporting their claim. The Commissioner (Appeals) is expected to pass a new order considering all aspects within three months from the respondent's appearance for the hearing. The appeal is thus allowed by way of remand.