2026 (1) TMI 1158 - AT - Service Tax

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 ... Refund claim u/s 11B - Service tax demand - burden of proof - doctrine of unjust enrichment - demand along with interest holding that in terms of Rule 6(3) - mistake as service tax into the credit of the Central Government - Whether the demand confirmed for nonpayment of service tax, consequent to the appellant adjusting in terms of Rule 6(3) of Service Tax Rules, 1994, the service tax paid by the appellant by oversight under a mistaken notion of law, against the appellant’s subsequent service tax liability; instead of filing a claim for refund u/s 11B of the Central Excise Act, 1944 as made applicable to Finance Act by virtue of Section 83 of the Finance Act, 1994; is tenable. - HELD THAT:- Since, the manufacturer is claiming the refund and also because the act of passing on the burden of duty is within his possession and exclusive knowledge, it is entirely for him to establish by letting the evidence that he has not passed on the duty to third party. In fact, the Central Excise Act itself under Section 12B mandates a statutory presumption that the incidence of duty has been passed on to the buyer. In light of the categorical finding of the Honourable Supreme Court in the aforesaid judgement in Mafatlal Industries case [1996 (12) TMI 50 - SUPREME COURT] that all claims for refund (excepting those which arise as a result of declaration of unconstitutionality of a provision whereunder the levy was created) have to be preferred and adjudicated only under the provisions of the respective enactment, this Tribunal, as a creature of statute is well aware of its jurisdiction. Thus, this Tribunal has no hesitation to hold that the appellant’s contentions to the contrary as to the inapplicability of Section 11B in the instant case, is wholly untenable and cannot be countenanced. Undisputedly, the Appellant is a manufacturer of motorcycles mopeds etc and is also registered as a service provider for providing various services, such as Consulting Engineer, Market Research Agency, Management Consultant, Architect and Online Information & Database Access and Retrieval. In this connection, it is also pertinent to notice that as per the provisions of Rule 3(1) of the Service Tax Credit Rules 2002, as amended by Notification No.5/2003-ST dated 14-052003, applicable for the relevant period, the appellant as a service provider was entitled to avail input credit on the input services received and further such unutilized credit was also allowed to be transitioned and utilized in the subsequent Cenvat Credit Rules, 2004 too. It is settled position in law that there is no room for intendment in taxation and that a taxing statute has to be given the strict interpretation that it lends itself to. Appellant has arrogated to itself the authority to determine that the levy was non-existent. This tribunal is of the firm opinion that in the light of the analysis made above, such a recourse to suo motu adjustment was impermissible for the following reasons. First, the payment so made by the appellant to the credit of the Central Government by oversight under a mistaken notion of the law, is thereafter considered Government Revenue until a competent authority determines otherwise. Second, the correct and proper procedure has been prescribed in the statute and it involves applying for a refund through the prescribed statutory mechanism under Section 11B as made applicable to the Finance Act, 1994 by Section 83 of the Finance Act, 1994, during which proceedings the competent authority would then make such determination. Third, the payment so made by the appellant also attracts the statutory presumption under Section 12B as made applicable to the Finance Act, 1994 by Section 83 of the Finance Act ibid, namely that the incidence of service tax has been passed on to the buyer/service recipient, Fourth, the right to a refund is also contingent on proving that the burden of tax was not passed on to the end customer/anyone else, but has been in fact borne by the claimant, as has been emphatically laid down in the Mafatlal Industries case reproduced extensively above; which burden in the instant case, the appellant has failed to prove and Last, any condonation of such adjustment on equitable or discretionary considerations would tantamount to according this Tribunal’s imprimatur to an action opposed to the statutory provisions. This effectively translates to bestowing an undeserved legitimacy to such circumventions as those which precisely the law seeks to prevent. Misplaced sympathy is a largesse that this Tribunal can ill afford. Hence, the suo motu adjustment undertaken by the appellant having resulted in short payment of the appellant’s subsequent service tax liability, has therefore been correctly demanded by the original authority, and the appeal preferred by the appellant against the same, has also been rightly turned down vide the impugned order. Thus, this Tribunal is of the considered view that the Order in Appeal passed by the Appellate Authority warrants no interference. Appeal being devoid of merits, is hence dismissed. 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).