Refund claim under service tax adjustment and requirement to seek refund under Section 11B; adjustment denied and appeal dismissed

Refund claim arising from a mistaken payment of service tax and its subsequent suo motu adjustment is governed by the statutory refund mechanism under Section 11B as applied to the Finance Act; therefore a taxpayer must seek refund rather than adjust against later liabilities. The claimant bears the evidential burden to prove non-passing of the tax incidence to third parties, with a statutory presumption that the tax burden was passed on to the buyer; failure to discharge this burden defeats the refund. Suo motu adjustment that resulted in short payment of later service tax liability is impermissible and such adjustment was correctly demanded and sustained.

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Issues: Whether an assessee who paid service tax by oversight as a deemed service provider could suo motu adjust that payment against subsequent service tax liability under Rule 6(3) of the Service Tax Rules, 1994, instead of seeking refund under Section 11B of the Central Excise Act as made applicable to service tax by Section 83 of the Finance Act, 1994.

Analysis: The Tribunal examined Rule 6(3) and found it is directed to service providers who have received payment for a taxable service and, having failed to provide the service wholly or partially, may adjust excess tax only after refunding the value of service and the service tax to the person from whom it was received. The appellant, being a deemed service provider who paid tax on services rendered outside India by a foreign supplier, could not satisfy the precondition of refund to a customer; thus Rule 6(3)'s scheme did not apply. The Tribunal applied the binding law in Mafatlal Industries which requires refund claims (except those arising from a declaration of unconstitutionality) to be pursued under the statute (Section 11B) and emphasises the requirement to establish that the claimant has not passed on the incidence of tax. The Tribunal noted the statutory presumption under Section 12B (as made applicable to service tax by Section 83) that the incidence of tax has been passed on and observed that the appellant did not plead or prove that it had not passed on the burden or that it had not been unjustly enriched. The Tribunal further rejected expansive or equitable readings that would import Rule 6(3) into the appellant's position, emphasising that taxing statutes are to be strictly construed and that suo motu adjustments that appropriate revenue without the statutory refund process are impermissible.

Conclusion: The appellant could not validly avail Rule 6(3) for the payment made by oversight as a deemed service provider; the proper remedy was a refund claim under Section 11B (as applied to service tax by Section 83), subject to rebutting the presumption of passing on the incidence of tax. The appellant failed to discharge that burden. The appellate order confirming the demand is upheld.

Final Conclusion: The appeal is dismissed and the demand confirmed by the adjudicating authority and the appellate authority is sustained; the Tribunal will not permit a suo motu adjustment in place of statutory refund proceedings.

Ratio Decidendi: Rule 6(3) of the Service Tax Rules applies only where a service provider who has received payment for a taxable service refunds the value and tax to his customer before adjusting excess tax; payments made by a deemed service receiver by mistake cannot be adjusted under Rule 6(3) and refund claims (except those based on an unconstitutional levy) must be pursued under Section 11B, subject to proof that the claimant has not passed on the incidence of tax (presumption of passing on under Section 12B applies).

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