2025 (9) TMI 330 - AT - Service Tax

Refund claim denied for taxes paid under reverse charge; self-assessment cannot be altered without proper reassessment proceedings

CESTAT New Delhi AT affirmed rejection of the appellant's refund claim of service tax paid under reverse charge, holding that refund proceedings cannot ... Rejection of the refund application filed u/s 11B of the Central Excise Act, 1944 - liability of appellant to pay service tax under RCM under N/N.30/2012–ST dated 20.06.2012 or not - time limitation - principles of unjust enrichment - HELD THAT:- The issue of refund claim has to be decided in accordance with the decision of the Apex Court in ITC Ltd. Vs. CCE, Kolkata [2019 (9) TMI 802 - SUPREME COURT (LB)], which has been subsequently delivered after the impugned order and being the law of the land, the present appeal has to be examined in terms thereof. As noted by the Adjudicating Authority, the appellant was required to pay service tax on the services availed by them, which could have been paid to the service provider, who in turn could have deposited it to the Government exchequer, however, the appellant on its own had deposited the tax amount to the Government exchequer under RCM. Thus, the amount has been deposited towards tax and the refund of the same could be availed only after challenging the same and getting the order modified to that extent. The issue whether refund could be sanctioned, contrary to the self assessment has been decided by the in ITC Ltd., where the Supreme Court has held that all assessments, including self- assessments and unless assessment is modified, no refund could be sanction so as to change the assessment. The simple reason being that the refund proceedings are in the nature of execution proceedings and cannot be used to determine the liabilities. The decision of the Apex Court in ITC Ltd. was basically with reference to the provisions of Customs Act, however, the principle laid down that refund proceedings are only in the nature of execution proceedings and cannot change the assessment are also applicable to the provisions of service tax. Though the Larger Bench of the Tribunal in Balaji Warehouse [2023 (9) TMI 1478 - CESTAT CHANDIGARH (LB)] by a majority decision of two is to one had held that the decision in ITC Ltd. will not apply to service tax matters but Delhi High Court in BT (India) Pvt Ltd [2023 (11) TMI 478 - DELHI HIGH COURT] held that the decision in ITC Ltd. applies to service tax refund also on the basic principle that refunds are in the nature of execution proceedings and they have to be as per the assessment including self assessment. Applying the aforesaid decisions in ITC Ltd. and BT (India) Pvt. Ltd., the Tribunal in M/s. Kalyan Toll Infrastructure Limited [2024 (5) TMI 369 - CESTAT NEW DELHI], observed that since the appellant self-assessed service tax and the assessment has not been modified, it cannot be modified now in the refund proceedings. As per the self assessment, the appellant was not entitled to the refund. The refund claim filed by the appellant is not maintainable as the service tax paid on the basis of self assessment has not been modified - the impugned order rejecting the refund claim is affirmed, though on a different reasoning - Appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the statutory limitation applicable to refund claims applies where amounts paid under reverse charge mechanism were not, on the claimant's case, 'tax or duty'. 2. Whether a refund can be granted in refund proceedings where the claimant has self-assessed and paid service tax (including payments under reverse charge) without prior modification or reassessment of that self-assessment. 3. Whether unjust enrichment is established where the claimant paid service tax under reverse charge and has not shown that the service provider had deposited the tax or that the burden was passed on to another person. ISSUE-WISE DETAILED ANALYSIS - Applicability of Limitation to Payments under Reverse Charge Legal framework: Refund provisions under the Central Excise Act (applied to service tax matters) require claims to meet limitation conditions; Section 11B governs refund procedure. Limitation principles ordinarily apply to tax and duties. Precedent treatment: Revenue contends general limitation principles apply to tax refunds. The adjudicating authority and Tribunal refer to higher court pronouncements on refund procedure and limitation in analogous contexts. Interpretation and reasoning: The Court notes the appellant's contention that amounts paid under RCM were not 'tax or duty' for limitation purposes but records that the payments were made towards service tax liability. The authority treated the payments as tax paid (albeit by the recipient under RCM) and therefore within the ambit of limitation rules applicable to tax refunds. Ratio vs. Obiter: Ratio - where payment is in discharge of tax liability (even under RCM), limitation provisions applicable to tax refunds govern entitlement to refund. Obiter - nuanced distinctions about characterization of payments as not being tax are not accepted on the facts. Conclusion: Limitation is applicable to the refund claim because the amounts deposited under RCM constituted payment of service tax. ISSUE-WISE DETAILED ANALYSIS - Necessity of Modification/Reassessment before Granting Refund of Self-assessed Tax Legal framework: Refund proceedings are treated as execution-like processes that refund amounts determined as payable by an assessment; reassessment or modification of an assessment is the proper route to alter tax liabilities. Statutory schemes (customs and analogous indirect tax provisions) distinguish refund proceedings from assessment/re-assessment. Precedent treatment: The Court relies on authoritative precedent holding that refunds cannot be used to re-open or vary self-assessment; assessment (including self-assessment) must be modified under the prescribed procedure before a refund that changes an assessment can be entertained. Tribunal and High Court authorities have applied that principle to service tax refunds. Interpretation and reasoning: The Tribunal finds the payments were made by the appellant as a form of self-assessment under RCM. Accepting the appellant's refund would effectively modify the self-assessment without following statutory reassessment procedures. Refund processing cannot adjudicate exemption conditions or other liabilities that are assessment issues; allowing refund would amount to impermissible re-assessment in refund garb. Ratio vs. Obiter: Ratio - refund proceedings do not permit substantive re-assessment of tax liabilities; self-assessed amounts cannot be refunded unless the assessment is lawfully modified or reopened through prescribed statutory procedures. Obiter - references to comparative authority on double payment or mistakes of law that might, in other factual matrices, justify different relief. Conclusion: The refund claim is not maintainable because the self-assessed service tax (including RCM payments) was not modified or reopened by proper proceedings; therefore refund cannot be granted in refund proceedings. ISSUE-WISE DETAILED ANALYSIS - Unjust Enrichment and Evidentiary Burden Legal framework: Refund is barred if claimant is unjustly enriched; claimant bears evidentiary burden to show that tax burden was not passed on or that service provider had deposited tax resulting in double payment. Precedent treatment: Adjudicatory approach requires documentary proof (e.g., GRs, invoices, evidence of tax paid by service provider) to establish entitlement and absence of unjust enrichment. Interpretation and reasoning: The adjudicating authority noted absence of documents establishing that the service provider had paid service tax or that the claimant had borne and not passed on the burden. The appellant submitted a Chartered Accountant certificate but did not produce GRs, invoices or evidence of collection/payment by the service provider. Thus unjust enrichment was not disproved on the record. Ratio vs. Obiter: Ratio - absence of requisite documentary proof to rebut unjust enrichment bars refund; burden of proof lies on claimant. Obiter - commentary that misunderstanding of statute or notes on GRs may explain why claimant paid, but such explanations do not substitute for evidentiary proof in refund proceedings. Conclusion: Unjust enrichment was not satisfactorily excluded; refund denial on this ground is sustained on the evidence. INTERPLAY OF PRECEDENTS AND APPLICABILITY TO SERVICE TAX Legal framework: Principles articulated in high court/supreme court decisions concerning customs refund proceedings (that refunds are execution-like and cannot alter assessments) are considered for application to service tax refund claims under analogous rationale. Precedent treatment: The Court adopts the principle that refund proceedings cannot be used to change self-assessment, applying it to service tax despite earlier divergent Tribunal authority; subsequent High Court authority has held the principle applicable to service tax matters. Interpretation and reasoning: The Tribunal reasons that the core principle - refund proceedings being executional and not assessmental - transcends the statutory context and is applicable to service tax law; hence, the line of authority preventing refunds that would alter self-assessments governs the present dispute. Ratio vs. Obiter: Ratio - the doctrine preventing refund proceedings from being used to re-open or vary self-assessment applies to service tax refund claims. Obiter - references to contrary earlier decisions are noted but distinguished in light of higher court authority and principle. Conclusion: The principle that refund cannot change self-assessment is applicable to service tax; therefore the appellant's refund claim fails for want of prior modification of the self-assessment. OVERALL CONCLUSION The refund claim is not maintainable: (a) the amounts paid under reverse charge constitute service tax and are subject to limitation; (b) refund proceedings cannot be used to alter self-assessment and the appellant's self-assessed payment was not modified or reopened by proper procedure; and (c) unjust enrichment was not disproved on the record. The adjudicatory rejection of the refund is affirmed on these legal grounds.