2023 (12) TMI 1070 - AT - Service Tax

Service tax refund allowed as exemption existed during contract bidding under notification 25/2012-ST, no unjust enrichment found

CESTAT NEW DELHI allowed the appeal for service tax refund, rejecting Revenue's unjust enrichment argument. The tribunal found that contracts were signed ... Refund of service tax - Principles of unjust enrichment - incidence of duty - it is alleged that appellant had not passed on the burden of service tax to its client departments. According to the Revenue, unjust enrichment would apply to this case because the contracts were for an all inclusive price (including duties and taxes) and therefore, the appellant must have had reckoned the service tax into the total cost while bidding and at the time of bidding, there was no exemption from service tax and therefore, the appellant must have included in its invoice price, the service tax element. HELD THAT:- This finding because section 102 provides for refunds only if the contracts were signed prior to 1 March 2015. During that period, no service tax was payable because of exemption notification no. 25/2012-ST. cannot be agreed - it is found inconceivable that the appellant would have anticipated that the exemption from service tax would be withdrawn even before submitting its bids and would have included the service tax element in the bills. It is found impermissible to hold that the appellant had indirectly passed on the burden of the service tax to its client government departments. Once this anomalous and baseless presumption that the service tax would have been indirectly passed on by the appellant to its client government departments is removed, no basis remains for rejecting the refund claim or crediting it to the Consumer Welfare Fund. What distinguishes the present case from UNION OF INDIA VERSUS SOLAR PESTICIDE PVT. LTD. [2000 (2) TMI 237 - SUPREME COURT] is the fact that no service tax was paid when the appellant submitted its bids to the clients. Therefore, there is no scope for passing on the burden of any service tax at that stage. After the service was rendered, it was only entitled to the amounts which it bid and which were accepted in the contract and not to any additional amount as service tax. The contracts specifically exclude any additional payments towards service tax - The Commissioner’s reasoning in the impugned order is based on the presumption as to how the appellant would have decided to bid an amount and we find no room in law to speculate as to how the bids would have been made by the appellant. It is their business decision and there is no presumption in law that whenever bids are made, elements X, Y or Z have been reckoned. Based on this presumption as to how the appellant would have made its bids and further, based on the factually incorrect assumption that at the time of making the bids, service tax was not exempted and hence would have been reckoned by the appellant while preparing its bids, the Commissioner held that unjust enrichment would apply. The impugned order deserves to be set aside and is set aside - Appeal allowed. Issues Involved:1. Eligibility of refund on merits.2. Application of the unjust enrichment clause.Summary:Eligibility of Refund on Merits:The appellant, a partnership firm registered with the Service Tax Department, provided Works Contract Services for Central and State Government buildings. These services were initially exempt from service tax by notification no. 25/2012-ST dated 20.6.2012, effective until 31.3.2015. The exemption was withdrawn by notification no. 6/2015 dated 1.3.2015, effective from 1.4.2015, and later restored retrospectively by section 102 of the Finance Act, 1994, as amended by the Finance Act, 2016. The appellant filed a refund claim on 16.8.2016, and the Assistant Commissioner sanctioned a partial refund. The Commissioner (Appeals) did not dispute the eligibility of the refund on merits but questioned the application of the unjust enrichment clause.Application of the Unjust Enrichment Clause:The Commissioner (Appeals) held that the clause of unjust enrichment applied, reasoning that the appellant had indirectly passed on the burden of service tax to the government departments by quoting an all-inclusive price in the bids. The Commissioner relied on the Supreme Court judgment in Union of India vs. Solar Pesticide Pvt. Ltd., which held that the concept of unjust enrichment applies where the incidence of duty is passed on indirectly.The appellant contended that the Commissioner (Appeals) incorrectly assumed that there was no service tax exemption at the time of bidding. The exemption was available until 1.4.2015, and the contracts were entered into before this date. The Tribunal found that the appellant had not invoiced or collected service tax from the government departments and that it was inconceivable for the appellant to have anticipated the withdrawal of the exemption while bidding.The Tribunal concluded that the appellant had not passed on the burden of service tax to the client government departments, and thus, the unjust enrichment clause did not apply. The Tribunal set aside the impugned order and allowed the appeal, emphasizing that the appellant's contracts met the conditions specified under section 102 of the Finance Act, 1994.Order:The impugned order was set aside, and the appeal was allowed. The judgment was pronounced on 22.12.2023.