2023 (2) TMI 10 - AT - Service Tax

Tribunal grants refund in appeal, citing no unjust enrichment on deposits. Accounting method not crucial.

M/s Chambal Fertilizers and Chemicals Limited Versus Commissioner, Central Goods and Service Tax, Udaipur (Raj.)

The Tribunal allowed the appeal, granting the appellant a refund of Rs. 1,26,59,954/- with interest. It held that the principle of unjust enrichment does ... Refund of Service Tax paid - license fee paid to foreign parties for import of technical know-how and engineering design license - import of intellectual property rights service - rejection on the ground that the appellant had not passed the test of unjust enrichment - reverse charge mechanism - HELD THAT:- A similar issue arose before the Allahabad High Court in EBIZ. COM PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, CUSTOMS AND SERVICE TAX AND ORS. [2016 (9) TMI 1405 - ALLAHABAD HIGH COURT]. The assessee was engaged in the business of developing and selling various online/offline educational software packages. The Anti-Evasion Branch of Central Excise Department, NOIDA conducted a search in its premises on 12 January, 2007 and the assessee deposited an amount of Rs. 25,55,000/-. The assessee also deposited an amount of Rs. 2,59,000/- on 21 March, 2007 towards interest. Thereafter, a show cause notice dated 3 July, 2007 was issued to the assessee demanding service tax. The demand was confirmed, against which an appeal was filed which was dismissed by the Commissioners (Appeals) on 29 August, 2008. The assessee filed an appeal before the Tribunal which was allowed by order dated 23 December, 2012 and the matter was remanded to the Commissioner (Appeals). The Commissioner (Appeals), thereafter, by order dated 29 August, 2012 allowed the appeal and set aside the order passed by the adjudicating authority. The assessee thereafter, filed a refund claim on 27 January, 2014. A show cause notice dated 2 April, 2014 was issued requiring the assessee to explain why the refund claim should not be rejected for the reason that it had not been made within one year - The Allahabad High Court examined the provisions of Section 11AB of the Central Excise Act, 1944, which contemplates that the amount shall be refunded to the assessee provided the incidence of such duty had not been passed on by him to any other person. The Allahabad High Court held that any amount deposited during the pendency of the adjudicating proceedings or investigation is in the nature of a deposit under protest and, therefore, the principles of unjust enrichment would not be attracted. This issue was also examined by the Tribunal in COMMR. OF CUS., BANGALORE VERSUS MOTOROLA INDIA PVT. LTD. [2006 (4) TMI 390 - CESTAT, BANGALORE]. The Tribunal upheld the view of the Commissioner(Appeals) that the power of unjust enrichment would not be applicable for refund of an amount deposited during investigation. It is, therefore, clear from the aforesaid decisions of the High Courts and the Tribunal that any amount deposited during the pendency of adjudication or investigation is in the nature of a deposit and, therefore, cannot be considered to be towards payment of service tax or excise duty. The principles of unjust enrichment, therefore, would not apply if a refund is claimed for refund of this amount. The method of accounting followed by an assessee does not impact the admissibility of refund, and cannot be made a basis to hold that the incidence of duty had passed - reliance can be placed on the decision of the Tribunal in COMMISSIONER OF CUSTOMS VERSUS M/S. U.T. ELECTRONICS PVT. LTD. [2019 (12) TMI 1219 - CESTAT NEW DELHI]. The Tribunal held that merely because the excise duty is booked as ‘expenditure’ in Profit and Loss account, it cannot be said the incidence of duty had passed. It further needs to be noted that the price of the goods has been fixed by the Government of India. The cost of goods manufactured by the appellant is ascertained on the basis of cost of inputs, which are, gas and cost of production, plus profit. Considering the nature of goods, and for the purposes of extending subsidy thereon, the Government of India determined the Maximum Retail Price of the goods for sale to the ultimate buyers. The difference between the cost of production and the Maximum Retail Price is reimbursed by the Government of India to the appellant. If the price of goods is fixed by the Government of India, such price cannot be altered by inclusion of any duty. Thus, the issue of unjust enrichment would not be applicable. The order dated 22/26.03.2018 passed by the Commissioner (Appeals) cannot be sustained and is set aside - the appellant would be entitled to refund of the amount of Rs.1,26,59,954/- with interest at the applicable rate - appeal allowed. Issues Involved:1. Applicability of unjust enrichment to the refund of an amount deposited during investigation or proceedings.2. Nature of the amount deposited during the pendency of adjudication or investigation.3. Impact of accounting methods on the admissibility of refund.4. Determination of whether the burden of tax has been passed on to the ultimate buyer.Detailed Analysis:1. Applicability of Unjust Enrichment to Refunds:The core issue revolves around whether the principle of unjust enrichment applies to the refund of amounts deposited during the course of investigation or proceedings. The appellant argued that the test of unjust enrichment does not apply to such refunds, citing precedents like Dewsoft Overseas Pvt. Ltd. vs. Commissioner of Service Tax, Delhi, and Commissioner of Customs vs. U.T. Electronics Pvt. Ltd. The Tribunal acknowledged these precedents, noting that courts have consistently held that amounts deposited during the pendency of adjudication or investigation are considered deposits made under protest, and thus, the principles of unjust enrichment do not apply.2. Nature of the Amount Deposited:The Tribunal examined the nature of the amount deposited by the appellant, noting that it was paid under protest during the investigation. The Tribunal referred to the Madras High Court's decision in Commissioner of Central Excise, Coimbatore vs. Pricol Ltd., which established that such deposits are not considered payments of duty but rather deposits made under protest. This view was supported by other High Court decisions, including EBIZ. Com Pvt. Ltd. vs. Commissioner of Central Excise, Customs & Service Tax and Ors, and Commissioner of Central Excise, Lucknow Vs. Eveready Industries India Ltd. The Tribunal concluded that the amount deposited by the appellant was indeed a deposit and not a payment of service tax, thus exempting it from the principles of unjust enrichment.3. Impact of Accounting Methods:The Tribunal addressed the issue of whether the method of accounting impacts the admissibility of the refund. The appellant had booked the amount as an 'expense' in their Profit and Loss account for the year 2006-07, but later neutralized it by booking the same amount as 'recoverable' in 2016-17. The Tribunal cited the decision in Commissioner of Customs, ACC Import Commissionerate, New Customs House, New Delhi vs. UT Electronics Private Limited, which held that merely booking excise duty as an 'expenditure' does not imply that the incidence of duty has been passed on. This position was reinforced by the Tribunal's decision in Allied Chemicals & Pharmaceutical Private Limited vs. CCE & ST, Jaipur-I.4. Determination of Tax Burden Passing:The Tribunal also considered whether the burden of tax had been passed on to the ultimate buyer. It was noted that the price of the goods manufactured by the appellant was fixed by the Government of India, which determined the Maximum Retail Price for sale to ultimate buyers. This price determination process included the cost of inputs, production costs, and profit, leaving no room for the inclusion of any additional duty. The Tribunal referred to the Supreme Court's decision in State of Rajasthan vs. Hindustan Copper Limited, which held that when the price of goods is fixed by the government, the issue of unjust enrichment does not arise as the price cannot be altered to include any duty.Conclusion:Based on the comprehensive analysis of the issues, the Tribunal set aside the order dated 22/26.03.2018 passed by the Commissioner (Appeals). The appeal was allowed, entitling the appellant to a refund of Rs. 1,26,59,954/- with interest at the applicable rate. The Tribunal's decision emphasized that the principles of unjust enrichment do not apply to amounts deposited during the pendency of adjudication or investigation, and the method of accounting does not impact the admissibility of refunds.