2023 (8) TMI 470 - AT - Service Tax

Appellant granted extended time for tax refund on chit fund services

The Tribunal allowed the appeal, granting the appellant the benefit of an extended period of limitation for filing refund claims related to tax paid on ... Refund of Service Tax - taxability of chit fund - relevant date for computation of time limitation - HELD THAT:- As per the documents produced by the appellant, appellant is a Member of All Kerala Chitty Formen’s Association who is one of the petitioner in Writ Petition No.32097 of 2007 and revenue had filed an appeal against judgment of the Ld. Single bench to clarify as to whether the decision of the Hon’ble Supreme court in the case of Margadarshi Chit Funds [2017 (7) TMI 224 - SUPREME COURT] applies to the period post introduction of Negative list in 2012. Thus the entire issue regarding taxability on chit fund attained finality only as per the judgment dated 14.03.2018 and not w.e.f 04.07.2017 as held by adjudication authority. As per the judgment dated 14 March, 2018, Hon’ble High court specified that the limitation for filing refund application will be extended for one year from 14.03.2018 - However, Commissioner (Appeals) has not extended the period of limitation on the ground that the appellant was not party to the proceedings pending before the Hon’ble High Court. Such finding is unsustainable. It is evident that Appellant is a Member of All Kerala Chitty Formen’s Association who is one of the petitioner in Writ Petition No.32097 of 2007 and revenue had filed an appeal against judgment of the Ld. Single bench to clarify as to whether the decision of the Hon’ble Supreme court in the case of Margadarshi Chit Funds applies to the period post introduction of Negative list in 2012. Thus the entire issue regarding taxability on chit fund attained finality only as per the judgment dated 14.03.2018 and not w.e.f 04.07.2017 as held by adjudication authority. The appellant are eligible to claim the benefit of extended period of limitation for one year from 14.03.2018. Since there is no other issue raised by the Adjudication/Appellate Authority, the appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the refund claim for service tax paid on chit-fund transactions is barred by limitation where the adjudicating authority treated the relevant triggering date as the earlier Supreme Court judgment (2017) rather than the subsequent High Court ruling (14.03.2018). 2. Whether a taxpayer who is a member of an association that was a petitioner in the High Court proceedings challenging levy on chit-funds is entitled to the benefit of the High Court's extension of the limitation period (one year from 14.03.2018) for filing refund applications. 3. Whether the adjudicating and appellate authorities were correct to reject the refund claim on the ground that the appellant was not a direct party to the earlier writ proceedings before the High Court. 4. Whether the question of unjust enrichment arose on the facts presented and, if not, whether that affects entitlement to refund. 5. Ancillary issue: relevance of authorities holding that limitation should not defeat recovery of amounts paid pursuant to an illegal levy and that the department cannot take advantage of its own wrongful demand. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Limitation: appropriate triggering date for refund claims where multiple court rulings on taxability exist Legal framework: Limitation for refund claims is governed by statutory/time-bar principles and by judicial directions extending limitation where litigation affecting liability attains finality; a judgment that decides the legal question for the relevant period can operate as the date from which limitation runs or may be extended by the Court. Precedent Treatment: The Tribunal relied on (a) an earlier Supreme Court decision deciding taxability of chit funds (2017) as a milestone, and (b) a later Division Bench High Court judgment (14.03.2018) which applied the Supreme Court law to the facts before it and expressly directed extension of limitation from its date. The Tribunal followed the High Court's treatment that the issue attained finality on 14.03.2018 for purposes of the writ appeals it decided. Interpretation and reasoning: The Court reasoned that where the High Court, dealing with writs challenging the levy, applies the Supreme Court ruling and expressly directs that limitation for filing refund applications shall be computed from its judgment date, that High Court judgment is the operative event for claimants who were parties (directly or through association) to those proceedings. The adjudicating authority's fixation of the triggering date as the Supreme Court judgment (04.07.2017) was inconsistent with the High Court's express direction extending the limitation period from 14.03.2018. Ratio vs. Obiter: Ratio - where a court dealing with connected proceedings directs that limitation shall run from its order, that order governs the limitation for persons similarly situated who were parties to those proceedings (directly or through recognized association membership). Obiter - general observations about treating the Supreme Court date always as the triggering date irrespective of subsequent proceedings. Conclusion: The Tribunal held that, for the appellant, the limitation period is to be treated as running from 14.03.2018 (High Court judgment), and therefore the refund application filed on 31.01.2019 was within the extended limitation period. Issue 2 - Entitlement of an association member to benefit from High Court directions in writ proceedings instituted by the association Legal framework: Principles of representative action/association standing and effect of judgments in public-interest or association-filed writs on members depend on whether the member was a petitioner or reasonably identifiable as within the class represented; judicially granted benefits to petitioners or their class may be extended to members who can demonstrate membership and connection to the challenged proceedings. Precedent Treatment: The adjudicating and appellate authorities denied benefit on the ground that the appellant was not individually a petitioner. The Tribunal examined documentary proof of membership of the All Kerala Chitty Formers' Association and the fact that the association was a petitioner in the writ proceedings that culminated in the 14.03.2018 judgment. Interpretation and reasoning: The Tribunal found the denial unsustainable because it would produce an illogical consequence: if non-party status barred reliance on the High Court extension, then similarly non-party taxpayers could not rely on the Supreme Court date either. Where an association is the petitioner and the member can prove membership from a date antecedent to the High Court judgment, that member is entitled to the procedural benefit the Court granted to the petitioning class unless the Court's order limits its operation to named petitioners only. Ratio vs. Obiter: Ratio - a member of an association that was a petitioner in litigation challenging levy is entitled to the benefit of the court's directions (including extension of limitation) where membership is proved and the relief was framed for the class represented; Obiter - commentary that adjudication authorities should not mechanically require a litigant to be a named petitioner to obtain the benefit. Conclusion: The Tribunal concluded that the appellant, having proved association membership from 03.11.2011 and that the association was a petitioner, is eligible for the High Court's extension of limitation from 14.03.2018. Issue 3 - Validity of rejecting refund on ground of non-participation in earlier proceedings Legal framework: Administrative authorities must apply court directions in a manner consistent with their scope and effect; denial of relief because an applicant was not a named litigant requires justification where the court's order addressed a class or representative petition. Precedent Treatment: The adjudicating authority and Commissioner (Appeals) refused the refund and appeal respectively on non-party grounds. The Tribunal reviewed the approach and found it inconsistent with the High Court's guidelines and the record establishing association membership. Interpretation and reasoning: The Tribunal held that the appellate authority's reliance on non-party status was misplaced and unsupportable in circumstances where the High Court judgment explicitly governed the group of petitioners and their membership was established. The Tribunal noted the unfairness and logical inconsistency of denying the extended limitation to a non-party while relying on an earlier court date for limitation when the appellant would equally not have been a party to that earlier proceeding. Ratio vs. Obiter: Ratio - denial of relief solely on non-party technicality is unsustainable where the judgment in question was delivered in proceedings instituted by an association and the claimant can demonstrate membership; Obiter - administrative authorities must examine the substance and the records before denying relief on procedural grounds. Conclusion: The Tribunal found the adjudication and appellate authorities' reasoning unsustainable and allowed the appeal on this ground. Issue 4 - Unjust enrichment and its impact on refund entitlement Legal framework: A refund claim may be barred or reduced if unjust enrichment is established - i.e., the claimant has passed on the tax burden to others or otherwise not suffered the loss; absence of unjust enrichment supports refund. Precedent Treatment: The adjudicating authority considered unjust enrichment and found that it did not arise on the facts presented by the appellant; no further challenge to that finding was pressed before the Tribunal. Interpretation and reasoning: The Tribunal accepted the adjudicating authority's finding of no unjust enrichment based on the documents furnished and no contrary evidence from the revenue. Ratio vs. Obiter: Ratio - absence of unjust enrichment permits grant of refund subject to limitation rules; Obiter - none. Conclusion: Unjust enrichment did not preclude refund in the appellant's case and did not affect the Tribunal's allowance of the appeal. Issue 5 - Effect of an alleged illegal levy and related authorities on limitation Legal framework: Where a levy is held to be illegal, courts have recognized that limitation should not be rigidly applied to deny a refund; principles include that the revenue should not benefit from its own wrongful demand. Precedent Treatment: The appellant relied on authorities holding that limitation may not bar recovery where the levy was illegal or where department's wrongful action produced payments; the Tribunal referenced those principles as supporting the appellant's position that the High Court's extension and equitable considerations were appropriate. Interpretation and reasoning: The Tribunal noted that the earlier departmental circular and consequent demands led to payments under a legal cloud; combined with the High Court's express direction on limitation, equitable considerations reinforced entitlement to refund when limitation was extended by the High Court. Ratio vs. Obiter: Ratio - the illegality of a levy and departmental fault are relevant equitable considerations in determining whether limitation should bar a refund where the Court has signalled or directed extension; Obiter - general equitable principles preventing the department from profiting from its own error. Conclusion: The Tribunal treated the illegality of the levy and the departmental role as supportive of allowing the refund claim within the High Court-extended period. Overall Disposition The Tribunal allowed the appeal, holding that (a) the operative date for limitation was the High Court judgment dated 14.03.2018 which extended limitation for one year, (b) the appellant, as a proven member of the association that instituted the writ, was entitled to the benefit of that extension, (c) unjust enrichment did not arise, and (d) consequential relief for refund was appropriate. The adjudication and appellate findings rejecting the claim on limitation/non-party grounds were set aside as unsustainable.