2025 (11) TMI 438 - AT - Service Tax

Refund claim under s.142(5) CGST time-barred; non-obstante clause given restricted meaning, limitation can bar remedy

CESTAT Chennai-AT dismissed the appeal, holding the refund claim under s.142(5) CGST was time-barred; the embedded non-obstante clause must be given a ... Rejection of refund of service tax statedly paid by the appellant on the ground of time limitation of time - Post GST era - no unjust enrichment by the Appellant - Tax paid on services which were not rendered shall be treated as a Deposit - Lack of Consistency in passing orders. Rejection of Refund Claim u/s 142(5) of the CGST Act as time barred - HELD THAT:- The section contains a non-obstante clause “notwithstanding anything to the contrary”, appearing in the middle of a section, whose interpretation has become a bone of contention between the parties. A non-obstante clause is a legislative device mainly seeking to confer overriding effect upon a particular provision/ enactment over other conflicting provisions/ enactment. It helps remove obstructions which may arise out of the provisions of any other law and is not a repealing clause. Section 142(5) does not refer to overriding any particular provision and hence the non obstante clause has to be examined and given a restricted meaning limited to the context in which it is used. Further unlike in cases where the protection of the non obstante clause is sought to be made all encompassing and the section itself starts with the non obstante clause, the clause in this case is embedded immediately after a specific reference is made to payment of amount in cash. This then appears, as stated by the Ld. A.R., in the context of the conflict between the previous provision and the present provision for payment of refund - the ‘existing law’ refers to the Finance Act, 1994 as its provision will override the Rules in the case of a conflict over time limit and the appellant’s claim for refund has to be examined under section 142(5) of the CGST Act which in itself also invokes the provision of section 11B of the Central Excise Act only. The averment of the appellant that their refund claim under Section 142(5) of the CGST Act cannot be rejected as time barred, merits rejection. There is no unjust enrichment by the Appellant - HELD THAT:- The Hon’ble Supreme Court has in a catena of cases held that once it is held that the demand is time barred, there would be no occasion for the Tribunal to enquire into the merits of the issues - Further the presumption in law is that every businessman will arrange his affairs in his best interest and pass on costs which are not his to bear. No prudent businessman will repay to the customer and absorb a tax which he is not required, in the ordinary course to do, only to seek a refund from government later. This is a rebuttable presumption. Hence the claim of the appellant to have promptly issued credit notes to the customers, including the tax element on the cancellation of the subscription cannot be taken at face value. It may require sample verification from the credit note recipients, by the Original Authority and may not be passed based on documents alone, if such an occasion arises - It is refrained from examining this point involving fact and law at this stage when the matter is not a core issue of the impugned orders. Tax paid on services which were not rendered shall be treated as a Deposit - HELD THAT:- The dispute in this case pertains to an order of self-assessment made by the appellant under an intra vires statute and not under a statute which is held ultra vires the Constitution. Hence the assessment has the protection of law, having being done under the authority of a valid law. The fact that the appellant paid the Service Tax first and subsequently did not offer any service will not make the taxes paid to the exchequer a ‘deposit’. In fact, as per Section 73A of the Finance Act 1994. As stated by the Apex Court in UoI & Ors. Vs VKC Footsteps India Pvt Ltd. [2021 (9) TMI 626 - SUPREME COURT], refund is not a constitutional right but a statutory right and therefore, the legislature, in its wisdom, and through statute, can decide how the refund is to be granted. Further this is a case where the appellant has self-assessed the duty but has failed to file the refund claim in time. Hence this is not a situation where the refund is sought to be denied to them. While they may (after verification of the claim) be found to have a right to the refund, the remedy of processing the refund is not available because of their own negligence in not claiming the refund in time. It is trite law that limitation bars the judicial remedy, while it does not extinguish the right. Lack of Consistency in passing orders - HELD THAT:- Minor inconsistencies or additional grounds taken in the orders over a period of time which are not of a diametrically opposite nature and are only in addition to the core question of time bar cannot be held to be a case of inconsistency. Government cannot be held to be bound in perpetuity by the stray decision of one of its officers. There are no substance in the submissions made by the appellant - appeal disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a refund claim filed under Section 142(5) of the CGST Act for service tax paid under the pre-GST regime in respect of services not provided is barred by the one-year time limit prescribed by Section 11B(1) of the Central Excise Act, 1944 (as applicable to service tax). 2. Whether the refund claim is precluded or maintainable due to the doctrine of unjust enrichment as envisaged in Section 11B(2) of the Central Excise Act. 3. Whether service tax paid on services ultimately not rendered constitutes a mere 'deposit' (not paid under authority of law) and therefore falls outside the refund regime and its limitation under Section 11B. 4. Whether alleged inconsistency in departmental orders across similar refund claims gives rise to a valid ground to allow the present claims. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of time-limit under Section 11B(1) to refund claims filed under Section 142(5) of the CGST Act Legal framework: Section 142(5) of the CGST Act provides that claims for refund of tax paid under the existing law in respect of services not provided 'shall be disposed of in accordance with the provisions of existing law and any amount eventually accruing to him shall be paid in cash, notwithstanding anything to the contrary contained under the provisions of existing law other than the provisions of sub-section (2) of section 11B'. Section 11B(1) of the Central Excise Act prescribes a one-year limitation period for refund claims under the erstwhile law. Precedent treatment: Authorities and some single-member orders held that Section 142(5) excludes the time-limit of Section 11B(1); higher court and larger bench precedents on non-obstante clauses require restricted interpretation and override only on clear inconsistency. The larger principle from Mafatlal (7-Judge) is that refund claims (except for unconstitutional levy) must be adjudicated under Section 11B. Interpretation and reasoning: The Court parses Section 142(5) into segments and observes the non-obstante clause appears after the provision authorizing payment in cash; it is therefore contextual and limited to the modality of payment (cash vs. ledger re-credit), and to safeguard the unjust enrichment check under Section 11B(2). Non-obstante clauses do not effect implied repeal of general pre-existing provisions absent clear inconsistency; legislative intent and settled principles require a restricted reading. 'Existing law' refers to the Finance Act, 1994 (statute) rather than subordinate rules. The transitional provision does not expressly abrogate the pre-existing limitation and therefore cannot be read to eliminate Section 11B(1) time bar. Ratio vs. Obiter: Ratio - Section 142(5) does not remove the one-year limitation of Section 11B(1); the non-obstante clause is limited to ensuring cash payment of amounts found refundable and preserving the unjust enrichment safeguard. Obiter - discussion of the semantics of 'disposed of' and 'eventually' and some comparative observations on single-member orders. Conclusion: Refund claims under Section 142(5) are subject to the time limit in Section 11B(1); the appellant's claims filed beyond one year are time-barred and therefore not maintainable. Issue 2: Applicability of unjust enrichment under Section 11B(2) to refund claims under Section 142(5) Legal framework: Section 11B(2) requires that no refund be allowed if it results in unjust enrichment. Section 142(5) expressly preserves Section 11B(2). Precedent treatment: Mafatlal and subsequent authorities establish that unjust enrichment is a mandatory check for refund claims under the excise framework made applicable to service tax; Section 142(5) expressly excludes only Section 11B(2) from its non-obstante override. Interpretation and reasoning: The Court recognises unjust enrichment as a mixed question of fact and law requiring verification, and notes that the original authority did not examine unjust enrichment because the claims were prima facie time-barred. The appellant produced invoices, credit notes and sample evidence of refunds, and customers could not have availed Cenvat credit on club membership under the Cenvat Rules; however, such assertions are rebuttable and may require verification from recipients. The presumption under Section 12B that tax incidence passes to the final consumer militates in favour of requiring unjust enrichment scrutiny. Ratio vs. Obiter: Ratio - Unjust enrichment remains a mandatory inquiry for claims under Section 142(5); time-bar rationale may obviate detailed unjust enrichment examination but does not negate the requirement. Obiter - remarks on the need for sample verification of credit note recipients and the rebuttable presumption regarding passing on of tax. Conclusion: The unjust enrichment test applies and must be satisfied for any allowable refund under Section 142(5); absence of such verification does not save time-barred claims. Issue 3: Whether tax paid on services not rendered is a 'deposit' outside statutory refund regime Legal framework: Article 265 and statutory scheme; Section 73A of the Finance Act 1994 mandates deposit of service tax collected to the Central Government. Mafatlal establishes that refunds for collections under a valid levy must be made under Section 11B, except where the charging provision is unconstitutional. Precedent treatment: Mafatlal (7-Judge) and subsequent constitutional authorities hold that taxes collected under an intra vires statute, even if erroneously assessed or paid, are amounts collected 'under the authority of law' and refunds are governed by statutory refund provisions; only unconstitutional levies fall outside that regime. Interpretation and reasoning: The Court rejects the appellant's alternate plea that amounts are mere deposits collected without authority of law. The payment arose from self-assessment under a valid enactment; Section 73A requires payment of collected sums to government. Misinterpretation or subsequent non-provision of service does not convert a statutorily collected tax into an unauthorized deposit. Hence the remedy is under Section 11B and allied provisions, subject to limitation and other checks. Ratio vs. Obiter: Ratio - Payments made under the Finance Act 1994 are taxes collected under authority of law; they are not 'deposits' and refund must be sought under Section 11B (except where levy is held unconstitutional). Obiter - comparison with cases where mistake of law was invoked but time-bar applied. Conclusion: The amount paid is service tax under authority of law; it is not a deposit outside the statutory refund mechanism; refund remedy lies exclusively under Section 11B subject to its conditions and limitations. Issue 4: Alleged lack of consistency in departmental orders as a ground to grant refunds Legal framework: Doctrine of consistency and Article 14 jurisprudence; authorities hold that revenue uniformity is desirable but stray or minor inconsistencies do not bind the department perpetually. Precedent treatment: Supreme Court authorities cited establish that prior favourable orders do not entitle others to perpetuate irregularities and that equality before law cannot be invoked to perpetuate illegality. Interpretation and reasoning: The Court finds that variations across multiple departmental orders (time-bar vs time-bar plus unjust enrichment) were not diametrically inconsistent but represent minor or additional grounds. Government cannot be bound indefinitely by isolated orders of officers. The cited Supreme Court authorities support rejecting a contention that minor inconsistency mandates relief. Ratio vs. Obiter: Ratio - Minor or additional grounds in administrative orders do not establish binding inconsistency warranting relief; revenue is not perpetually bound by stray favorable orders. Obiter - observations on the nature of the departmental practice across multiple SCNs. Conclusion: Lack of perfect consistency in departmental orders does not afford a ground to entertain time-barred refund claims. Overall Conclusion The appeals are rejected: refund claims filed under Section 142(5) are subject to the one-year limitation under Section 11B(1) of the Central Excise Act; unjust enrichment remains a mandatory safeguard under Section 11B(2); taxes paid under the Finance Act 1994 are not mere deposits; and minor inconsistencies in departmental orders do not vitiate the time-barred nature of the claims.