Refund allowed for pre-deposit made under wrong Service Tax Code registration number by same entity

CESTAT New Delhi allowed appellant's appeal for refund of pre-deposit made under wrong Service Tax Code registration number. Tribunal held that payment under incorrect registration by same entity does not constitute non-payment, relying on precedents from Sahara India TV Network and Welspun Corp Ltd cases. Department could adjust discrepancy through proper accounting entries per Board Circular and Trade Notice provisions. Gujarat HC in Devang Paper Mills also supported adjustment mechanism for singular duty liability paid under wrong code. Appeal allowed with refund granted.

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The core legal questions considered in this appeal are:

1. Whether the appellant is entitled to refund of pre-deposit amounts paid under a different Service Tax registration number than that under which the appeal was decided in their favor.

2. Whether the technical defect of mentioning a wrong Service Tax Code (STC) on the pre-deposit challans can justify rejection of the refund claim without verification or rectification.

3. The applicability and interpretation of relevant Circulars, Trade Notices, and judicial precedents regarding rectification of payments made under incorrect accounting codes or registration numbers.

4. Whether the appellant's submission of a Chartered Accountant certificate and affidavit certifying non-utilization of the disputed amount and non-receipt of refund was duly considered.

5. The procedural requirements and remedies available for rectification of remittances made against wrong STC or registration numbers.

Issue-wise Detailed Analysis

Issue 1: Entitlement to Refund of Pre-deposit Paid Under Different Service Tax Registration Number

Legal Framework and Precedents: The refund of pre-deposit under section 11B of the Central Excise Act, 1944 read with section 83 of the Finance Act, 1994 is permissible when the appeal is decided in favor of the appellant. The relevant Circular No. 984/8/2014-CX dated 16.09.2014 by CBIC clarifies that the person who made the pre-deposit should file the refund request. However, the Circular and Trade Notices also recognize the possibility of payments made under wrong accounting codes or registration numbers.

The Tribunal in Sahara India TV Network vs. Commissioner of Central Excise and Service Tax, Noida (2016) held that where the legal entity is the same but the payment was made under a different registration number due to a mistake, refund or adjustment is permissible. The Trade Notice No. 3/2014-S.T. dated 10.07.2014 issued by Cochin Commissionerate provides a procedure for rectification of such errors.

The Gujarat High Court in Devang Paper Mills Pvt. Ltd. vs. UOI (2016) held that a mere wrong code mentioned during payment does not invalidate the payment if the duty was paid by the same legal entity and the amount was credited to the Government account.

Court's Interpretation and Reasoning: The Tribunal noted that the appellant undisputedly paid the pre-deposit amount but under a different registration number of the same legal entity. The appellant also produced a Chartered Accountant certificate and an affidavit confirming that the disputed amount was neither utilized by the other unit nor refunded. The Tribunal relied on the above precedents and Circulars to hold that such technical mistakes are rectifiable and do not amount to non-payment.

The Tribunal emphasized that the appellant should not be penalized for a clerical error in mentioning the registration number and that the Department could have made necessary adjustments rather than rejecting the refund outright.

Key Evidence and Findings: The appellant's Chartered Accountant certificate and affidavit were critical evidences certifying non-utilization and non-refund of the disputed amount. The fact that both registration numbers belong to the same legal entity was undisputed. The CESTAT's earlier order allowing the appeal further supported the refund claim.

The Department's failure to follow the prescribed rectification procedure under the Trade Notice was noted as a procedural lapse.

Application of Law to Facts: Applying the legal principles and Circulars, the Tribunal found that the appellant's refund claim was valid and should not have been rejected merely on the ground of a technical defect in the registration number. The Department was directed to follow the rectification procedure and adjust the amount accordingly.

Treatment of Competing Arguments: The Department argued that refund cannot be granted on challans bearing a different STC and relied on the Commissioner (Appeals) order and Trade Notice to contend that the appellant failed to follow the rectification procedure. The Tribunal rejected this argument on the ground that the appellant had brought the mistake to the Department's notice and provided sufficient evidence of non-utilization, thus fulfilling the requirements of the Trade Notice.

Conclusion: The appellant is entitled to refund of the pre-deposit amount paid under a different Service Tax registration number, subject to adjustment as per the prescribed procedure.

Issue 2: Legality of Rejection of Refund Claim Without Verification or Rectification

Legal Framework and Precedents: Circular No. 58/7/2003 dated 20.05.2003 by CBEC clarifies that wrong accounting code payments should be sorted out with the Pay and Accounts Office (PAO) and the assessee should not be asked to pay tax again. The Trade Notice No. 3/2014-S.T. dated 10.07.2014 prescribes a procedure for rectification of such mistakes.

The Tribunal in Sahara India TV Network and Welspun Corp Ltd. vs. CCE & ST, Rajkot (2023) reiterated that payments made under wrong registration numbers of the same legal entity can be adjusted and do not constitute non-payment.

Court's Interpretation and Reasoning: The Tribunal held that the rejection of refund claim on the mere ground of incorrect STC without undertaking verification or following the rectification procedure was not sustainable. The Department's reliance on the Trade Notice to deny refund was misplaced since the appellant had complied with the evidentiary requirements by submitting an affidavit and Chartered Accountant certificate.

The Tribunal observed that the Department could have rectified the error by obtaining a no-objection certificate and verifying that the amount was not utilized, rather than rejecting the refund outright.

Key Evidence and Findings: The appellant's affidavit and Chartered Accountant certificate were ignored by the Commissioner (Appeals), which was found to be arbitrary. The Department did not produce evidence that the amount was utilized or refunded by the other unit.

Application of Law to Facts: The Tribunal applied the Circular and Trade Notice provisions to hold that the Department must verify and rectify such errors rather than reject claims summarily. The appellant's compliance with procedural requirements entitled them to refund.

Treatment of Competing Arguments: The Department contended that the appellant did not follow the rectification procedure. The Tribunal found that the appellant had indeed brought the mistake to the Department's attention and provided documentary evidence, thus satisfying the procedural requirements.

Conclusion: The rejection of refund claim without verification or rectification was illegal. The Department must follow the prescribed procedure to rectify the error and grant refund.

Issue 3: Consideration of Chartered Accountant Certificate and Affidavit

Legal Framework and Precedents: Documentary evidence like Chartered Accountant certificates and affidavits are recognized means to establish facts such as non-utilization and non-refund of amounts.

Court's Interpretation and Reasoning: The Tribunal criticized the Commissioner (Appeals) for ignoring the appellant's affidavit and Chartered Accountant certificate. It held that such evidence was relevant and material to establish that the disputed amount was not utilized or refunded, which is a prerequisite for refund.

Key Evidence and Findings: The appellant's affidavit and Chartered Accountant certificate were on record and unchallenged by the Department.

Application of Law to Facts: The Tribunal gave due weight to these evidences and held that their disregard by the Commissioner (Appeals) was arbitrary and unjustified.

Treatment of Competing Arguments: The Department did not produce contrary evidence to rebut the appellant's submissions.

Conclusion: The appellant's evidence was sufficient to establish entitlement to refund and should have been considered.

Issue 4: Applicability of Trade Notice No. 3/2014-S.T. and Rectification Procedure

Legal Framework and Precedents: The Trade Notice prescribes a clear procedure for rectification of payments made against wrong STC or registration numbers, including obtaining no-objection certificates and representations to the Commissioner.

Court's Interpretation and Reasoning: The Tribunal noted that the Trade Notice covers the present case scenario and that the appellant had complied with the essential requirements by submitting affidavits and certificates. It emphasized that the Department could have rectified the mistake through the prescribed process rather than rejecting the refund.

Key Evidence and Findings: The appellant's compliance with procedural requirements was established. The Department's failure to initiate rectification was noted.

Application of Law to Facts: The Tribunal directed remand to the adjudicating authority to undertake rectification as per the Trade Notice.

Treatment of Competing Arguments: The Department argued non-compliance with the Trade Notice. The Tribunal found this argument unsubstantiated given the appellant's submissions.

Conclusion: The Trade Notice procedure applies and must be followed for rectification and refund.

Significant Holdings

"The Tribunal held that 'such mistakes can happen and it can scarcely be anybody's case that such mistakes are beyond rectification.'"

"The appellant had submitted the affidavit and a Chartered Accountant Certificate that the disputed amount has not been utilized nor any refund been taken. Hence, we hold that the instant case stands covered by this decision."

"The discrepancy such as payment of service tax under wrong registration can be adjusted against the correct registration for which the service tax is actually due."

"Whatever be the accounting difficulty, when undisputed fact is that the petitioner did pay a certain excise duty, merely mentioning wrong code in the process, cannot result into such harsh consequence of the entire payment not being recognized as valid."

"The appellant is entitled for the refund of the pre-deposit."

"The impugned order is set aside. The appeal is, accordingly, allowed."

Core principles established include:

• A technical defect such as payment under an incorrect Service Tax registration number does not invalidate the payment if the legal entity is the same and the amount was credited to the Government account.
• The Department is obligated to verify and rectify such errors through prescribed procedures rather than rejecting refund claims summarily.
• Documentary evidence like Chartered Accountant certificates and affidavits certifying non-utilization and non-refund are material and must be considered.
• Refund of pre-deposit is permissible upon favorable appellate orders, even if the payment was made under a different registration number of the same legal entity.

Final determinations:

The Tribunal allowed the appeal, set aside the impugned orders rejecting refund, and directed the primary authority to adjust the pre-deposit amount in accordance with the Trade Notice and Circular provisions, thereby granting refund to the appellant.

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