Service tax refund for construction of government buildings: impleadment of government department required and bid opening not contract acceptance, with remand on unjust enrichment

Issue concerns entitlement to refund of service tax paid for construction of government buildings, including whether reimbursement by a government department makes it the proper claimant and whether opening of technical/financial bids constitutes contract formation. The tribunal found that reimbursement by the government department meant it bore the tax liability and should be impleaded as co-applicant; consequence: the department may pursue the refund and the sanctioned refunds remain but must be paid to the department. The tribunal held bid opening is not contract acceptance and remanded appeals for fresh adjudication on unjust enrichment and payment after impleadment. Three work orders dated after 01.03.2015 remain rightly rejected.

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Issues: (i) Whether the refund amounts sanctioned should be directed to the Consumer Welfare Fund on the ground of unjust enrichment where the service tax was reimbursed by the Governmental recipient and the refund application was filed by the service provider; (ii) Whether refund claims are maintainable where the contract is said to be entered into before 01.03.2015 but the Work Order accepting the tender is dated after 01.03.2015.

Issue (i): Whether directing sanctioned refund amounts to the Consumer Welfare Fund on the ground of unjust enrichment was justified where the service tax was reimbursed by the Governmental recipient and the provider filed the refund application with a condition to remit any refund to the recipient.

Analysis: The Court examined whether the provider, having been reimbursed by the governmental recipient, was the correct claimant of the refund under section 102 and whether the principle of unjust enrichment could be applied to redirect sanctioned refunds to the Consumer Welfare Fund. The Court relied on authority holding that where the recipient bore the tax and the provider filed the claim on instructions, the recipient may be impleaded as co-applicant and pursue the refund; the adjudicating authority must afford opportunity for impleadment and decide unjust enrichment in accordance with law. The Court maintained the sanction of refund but set aside the direction to deposit in the Consumer Welfare Fund and remitted the matter for fresh decision after allowing impleadment of the governmental recipient, who alone may pursue the claim.

Conclusion: The part of the order directing deposit of sanctioned refund amounts in the Consumer Welfare Fund on the ground of unjust enrichment is set aside; liberty is given to implead the governmental recipient as co-applicant and only the governmental recipient may pursue the refund; the adjudicating authority is directed to re-examine the issue of payment/unjust enrichment and decide in accordance with law.

Issue (ii): Whether a contract is to be treated as entered into prior to 01.03.2015 for the purposes of section 102 where tenders/financial bids were opened before that date but the Work Order accepting the tender is dated after 01.03.2015.

Analysis: The Court analysed the legal effect of tender opening, financial bid evaluation and formal acceptance. Acceptance is the act by which an offer is assented to and only upon acceptance does a contract come into effect. Merely opening technical or financial bids or being declared successful does not constitute contractual acceptance where the Work Order or formal acceptance by the competent authority occurs later. The Court followed prior decisions holding that the date of formal acceptance/Work Order governs entry of contract for section 102 purposes and applied this to the facts where Work Orders were dated after 01.03.2015.

Conclusion: The Commissioner (Appeals)'s rejection of refund claims in respect of contracts whose Work Orders are dated after 01.03.2015 is upheld; such contracts do not satisfy the condition of being entered into before 01.03.2015 under section 102.

Final Conclusion: The sanction of refund is preserved but the direction to credit sanctioned amounts to the Consumer Welfare Fund is set aside and the matter remitted for fresh determination on impleadment and unjust enrichment; claims where contractual acceptance (Work Order) post-dates 01.03.2015 are correctly rejected.

Ratio Decidendi: For exemption and refund under Section 102 of the Finance Act, 1994 the date of entry into contract is the date of formal acceptance (Work Order); where the governmental recipient bore the tax and the provider was reimbursed, the recipient should be impleaded and may alone pursue the refund, and adjudicating authorities must not direct sanctioned refunds to Consumer Welfare Fund for unjust enrichment without first permitting impleadment and deciding unjust enrichment in accordance with law.

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