TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 1158
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.... Information & Database Access and Retrieval. During 2002-03 and 2003-04, from November 2002 to November 2003, the appellant remitted service tax for technical consultancy services provided to the appellant by foreign service providers in India as well as for the service provided to the appellant by such foreign service providers outside India. The amount of tax remitted for the services provided outside India during the said period amounts to Rs.41,19,987/-. The appellant adjusted the said amount towards their service tax liability for the period November 2003 to September 2004 in terms of Rule 6(3)of the Service Tax Rules, 1994(STR, 1994). 3. The Department was of the opinion that such suo motu adjustment was not permitted in the appellant's context and therefore issued a show cause notice dated 28-05-2004 stating that such suo motu adjustment is not permitted in the Rule 6(3) in the present case and that the appellant ought to have filed a refund claim under Section 11B. The SCN together with its addendum issued, alleged that this wrong adjustment of Rs.41,19,897/- tantamount to non-payment of service tax and required the Appellant to show cause as to why the amount so adjust....
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....ing in accordance with the spirit of the said provision, is therefore correct. 5. Ms. Rajni Menon, the Ld. Authorised Representative appearing for the Department reiterated the finding of the Appellate Authority in the impugned order. Ld. A.R. contended that the Apex Court decision in Mafatlal Industries case has laid down the law and it is no more res-integra that the procedure prescribed in Section 11B is the only manner in which refund ought to be made of any amount that was paid to the credit of the Central Government characterizing it as the service tax payable, even if such payment was made by oversight. 6. When the Ld. Counsel was queried on the applicability of Section 11B, he submitted that while he had no quarrel with the proposition laid down therein per se, however, the same was inapplicable in this case as the provision of Rule 6(3) as given in the STR, 1994 itself provided a mechanism of adjustment that was available to the appellant, which obviated the necessity to prefer a refund claim under Section 11B. 7. Heard both sides, perused the appeal records and the case laws cited as well as relied upon. 8. The issue to be determined is whether the demand conf....
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....st subsequent service tax liability that has arisen. As per the view of the revenue, the appellant could not have made such suo motu adjustment under the said Rule and instead should have made a claim for refund under Section 11B. The tenability of such suo motu adjustment, which according to the Revenue has resulted in short payment of the appellant's subsequent service tax liability, is in question, and it is the consequent short payment of service tax, which has been demanded and stood confirmed by the adjudicating authority. The order of the adjudicating authority stands affirmed consequent to the impugned order of the appellate authority, by which the appellant's appeal was rejected. 11. To appreciate the controversy, it is necessary to reproduce Rule 6(3) of the Service Tax Rules, 2004, which at the relevant time, read as under: Rule 6 of the STR, 1994: Payment of Service Tax (1) The service tax... (2) .... (3) Where an assessee has paid to the credit of the Central Government service tax in respect of a taxable service, which is not so provided by him either wholly or partially for any reason, the assessee may adjust the excess service ....
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.... 6(3) brought within its ambit only cases where for any reason the service provider has received the value of the taxable service along with the applicable service tax beforehand and had paid the same to the central government, i.e. in respect of advances received for the services to be provided. Subsequently when the taxable service was not provided wholly or partially for any reason, then such service tax that was paid in excess was being allowed to be adjusted against subsequent liability to service tax, provided it is duly preceded by refund of the value of the taxable service as well as the pro-rata service tax leviable thereon as it pertains to the taxable service that was not provided. 15. Furthermore, from an analysis of Rule 6(3), two pertinent aspects come to the fore: Firstly, what is material, is that there must be a taxable service, therefore, only a transaction that is covered by a charging provision is taxable; and in respect of such a taxable service which was not provided by the assessee either wholly or partially for any reason, the assessee should have paid service tax to the credit of the central government. Admittedly, the Appellant's contention is ....
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....ely bisected and applied as the appellant desires to do. In view of the analysis of Rule 6(3) stated above, this Tribunal is of the firm opinion that the said Rule 6(3) would have no application with respect to the payment of service tax by oversight made by the appellant as a deemed service provider. The aforesaid view of this Tribunal is also bolstered by the Division Bench decision of the Tribunal in BBC World (I) Pvt Ltd v. CST, New Delhi, 2009 (14) STR 152 (Tri-Del). 17. It is the contention of the Revenue that the appellant could not have taken recourse to Rule 6(3), and it ought to have preferred a refund claim under Section 11B since it was a payment made as service tax by oversight, though such provision of service by the service provider did not attract levy of service tax. When it comes to the issues pertaining to the claim of refund and application of section 11B, which has been made applicable to service tax matters also by virtue of Section 83 of the Finance Act, 1994, this Tribunal needs to look no further than advert to the locus classicus, namely, the Judgement of the 9 Judge Constitution Bench in the case of Mafatlal Industries Ltd v. Union of India, 1996 INSC ....
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.... This class of cases may be called, for the sake of convenience, as illegal levy. In this class of cases, the claim for refund arises under the provisions of the Act. In other words, these are situations contemplated by, and provided for by, the Act and the Rules. xxxxx 22. There is as yet a third and an equally important category. It is this : a manufacturer (let us call him "X") pays duty either without protest or after registering his protest. It may also be a case where he disputes the levy and fights it out up to first Appellate or second Appellate/Revisional level and gives up the fight, being unsuccessful therein. It may also be a case where he approaches the High Court too, remains unsuccessful and gives up the fight. He pays the duty demanded or it is recovered from him, as the case may be. In other words, so far as `X' in concerned, the levy of duty becomes final and his claim that the duty is not leviable is finally rejected. But it so happens that sometime later - may be one year, five years, ten years, twenty years or even fifty years - the Supreme Court holds, in the case of some other manufacturer that the levy of that kind is not exigible in law. (....
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....ht of and in accordance with the provisions of Section 11B. This is for the reason that the power under Article 226 has to be exercised to effectuate the rule of law and not for abrogating it. The said enactments including Section 11B of Central Excises and Salt Act and Section 27 of the Customs Act do constitute "law" within the meaning of Article 265 of the Constitution of India and hence, any tax collected, retained or not refunded in accordance with the said provisions must be held to be collected, retained or not refunded, as the case may be, under the authority of law. Both the enactments are self-contained enactments providing for levy, assessment, recovery and refund of duties, imposed thereunder . Section 11B of the Central Excises and Salt Act and Section 27 of the Customs Act, both before and after the 1991 (Amendment) Act are constitutionally valid and have to be followed and given effect to. Section 72 of the Contract Act has no application to such a claim of refund and cannot form a basis for maintaining a suit or a writ petition. All refund claims except those mentioned under Proposition (ii) below have to be and must be filed and adjudicated under the provi....
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....stablishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., by the people. There is no immorality or impropriety involved in such a proposition. The doctrine of unjust enrichment is a just and salutary doctrine. No person can seek to collect the duty from both ends. In other words, he cannot collect the duty from his purchaser at one end and also collect the same duty from th....
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..... Where the petitioner-plaintiff has suffered no real loss or prejudice, having passed on the burden of tax or duty to another person, it would be unjust to allow or decree his claim since it is bound to prejudicially affect the public exchequer. In case of large claims, it may well result in financial chaos in the administration of the affairs of the State. (viii) The decision of this Court in Sales Tax Officer, Benaras v. Kanhaiyalal Mukundlal Saraf [1959 S.C.R. 1350] must be held to have been wrongly decided insofar as it lays down or is understood to have laid down propositions contrary to the propositions enunciated in (i) to (vii) above. It must equally be held that the subsequent decisions of this Court following and applying the said propositions in Kanhaiyalal have also been wrongly decided to the above extent. This declaration - or the law laid down in propositions (i) to (vii) above - shall not however entitle the State to recover the taxes/duties already refunded and in respect whereof no proceedings are pending before any Authority/Tribunal or Court as on this date. All pending matters shall, however, be governed by the law declared herein notwithstanding that....
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....ent of the 1991 (Amendment) Act [September 19, 1991], they cannot be re-opened and/or governed by Section 11B(3) [as amended by the 1991 (Amendment) Act]. This, however, does not mean that the power of the Appellate Authorities to condone delay in appropriate cases is affected in any manner by this clarification made by us. (xii) Section 11B does provide for the purchaser making the claim for refund provided he is able to establish that he has not passed on the burden to another person. It, therefore, cannot be said that Section 11B is a device to retain the illegally collected taxes by the State. This is equally true of Section 27 of the Customs Act, 1962." (emphasis supplied) 20. In fact, while laying down the aforesaid propositions, the Honourable Apex Court has also stated that these propositions are set out merely for the sake of convenient reference and are not supposed to be exhaustive and in case of any doubt or ambiguity in these propositions, reference must be had to the discussion and propositions in the body of the judgment. Therefore, even if one were to look at the main body of the Judgement, it is seen that the application of Section 11B to the e....
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....1 contained sub-section (4) in identical words. It said : "(4) Save as otherwise provided by or under this Act, no claim for refund of any duty of excise shall be entertained". Sub-section (5) was more specific and emphatic. It said : "Notwithstanding anything contained in any other law, the provisions of this section shall also apply to a claim for refund of any amount collected as duty of excise made on the ground that the goods in respect of which such amount was collected were not excisable or were entitled to exemption from duty and no court shall have any jurisdiction in respect of such claim." It started with a non-obstante clause; it took in every kind of refund and every claim for refund and it expressly barred the jurisdiction of courts in respect of such claim. Sub-section (3) of Section 11B, as it now stands, is to the same effect - indeed, more comprehensive and all-encompassing. It says, "(3) Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any court or in any other provision of this Act or the rules made thereunder or in any law for the time being in force, no refund shall be made except as pr....
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....te in a single enactment all the laws relating to central duties of excise". The Act is a self-contained enactment. It contains provisions for collecting the taxes which are due according to law but have not been collected and also for refunding the taxes which have been collected contrary to law, viz., Sections 11A and 11B and its allied provisions. Both provisions contain a uniform rule of limitation, viz., six months, with an exception in each case. Sections 11 and 11B are complimentary to each other.To such a situation, Proposition No. 3 enunciated in Kamala Mills becomes applicable, viz., where a statute creates a special right or a liability and also provides the procedure for the determination of the right or liability by the Tribunals constituted in that behalf and provides further that all questions about the said right and liability shall be determined by the Tribunals so constituted, the resort to civil court is not available - except to the limited extent pointed out therein. Central Excise Act specifically provides for refund. It expressly declares that no refund shall be made except in accordance therewith. The Jurisdiction of a civil court is expressly barred - vide ....
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....medies. It is, however, equally obvious that while exercising the power under Article 226/Article 32, the Court would certainly take note of the legislative intent manifested in the provisions of the Act and would exercise their jurisdiction consistent with the provisions of the enactment. (emphasis supplied) 69. There is, however, one exception to the above proposition, i.e., where a provision of the Act whereunder the duty has been levied is found to be unconstitutional for violation of any of the constitutional limitations. This is a situation not contemplated by the Act. The Act does not contemplate any of its provisions being declared unconstitutional and therefore it does not provide for its consequences. Rule 11/Section 11B are premised upon the supposition that the provisions of the Act are good and valid. But where any provision under which duty is levied is found to be unconstitutional, Article 265 steps in. In other words, the person who paid the tax is entitled to claim refund and such a claim cannot be governed by the provisions in Rule 11/Section 11B. The very collection and/or retention of tax without the authority of law entitles the person, from whom it is....
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....matic or unconditional right to refund. 70. Re : (II) : We may now consider a situation where a manufacturer pays a duty unquestioningly - or he questions the levy but fails before the original authority and keeps quiet. It may also be a case where he files an appeal, the appeal goes against him and he keeps quiet. It may also be a case where he files a second appeal/revision, fails and then keeps quiet. The orders in any of the situations have become final against him. Then what happens is that after an year, five years, ten years, twenty years or even much later, a decision is rendered by a High Court or the Supreme Court in the case of another person holding that duty was not payable or was payable at a lesser rate in such a case. (We must reiterate and emphasise that while dealing with this situation we are keeping out the situation where the provision under which the duty is levied is declared unconstitutional by a court; that is a separate category and the discussion in this paragraph does not include that situation. In other words, we are dealing with a case where the duty was paid on account of mis-construction, mis-application or wrong interpretation of a provisio....
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....n applicable in that behalf is said to be three years from the date of discovery of mistake of law : The incongruity of the situation needs no emphasis. And all this because another manufacturer or assessee has obtained a decision favourable to him. What has indeed been happening all these years is that just because one or a few of the assessees succeed in having their interpretation or contention accepted by a High Court or the Supreme Court, all the manufacturers/Assessees all over the country are filing refund claims within three years of such decision, irrespective of the fact that they may have paid the duty, say thirty years back, under similar provisions - and their claims are being allowed by courts. All this is said to be flowing from Article 265 which basis, as we have explained hereinbefore, is totally unsustainable for the reason that the Central Excise Act and the Rules made thereunder including Section 11B/Rule 11 too constitute "law" within the meaning of Article 265 and that in the face of the said provisions - which are exclusive in their nature - no claim for refund is maintainable except under and in accordance therewith. The second basic concept of law which is ....
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....d the Customs Act. Once this is so, it is un-understandable how an assessment/adjudication made under the Act levying or affirming the duty can be ignored because some years later another view of law is taken by another court in another person's case. Nor is there any provision in the Act for re-opening the concluded proceedings on the aforesaid basis. We must reiterate that the provisions of the Central Excise Act also constitute "law" within the meaning of Article 265 and any collection or retention of tax in accordance or pursuant to the said provisions is collection or retention under "the authority of law" within the meaning of the said article. In short, no claim for refund is permissible except under and in accordance with Rule 11 and Section 11B. An order or decree of a court does not become ineffective or unenforceable simply because at a later point of time, a different view of law is taken. If this theory is applied universally, it will lead to unimaginable chaos. It is, however, suggested that this result follows only in tax matters because of Article 265. The explanation offered is untenable as demonstrated hereinbefore. As a matter of fact, the situation today is chao....
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....opinion of Hidayatullah, CJ. in Tilokchand Motichand and we respectfully agree with it. In such cases, the plaintiff may also invoke Section 17(1)(c) of the Limitation Act for the purpose of determining the period of limitation for filing a suit. It may also be permissible to adopt a similar rule of limitation in the case of writ petitions seeking refund in such cases. But whether the right to refund or restitution, as it is called, is treated as a constitutional right flowing from Article 265 or a statutory right arising from Section 72 of the Contract Act, it is neither automatic nor unconditional. The position arising under Article 265 is dealt with later in Paras 75 to 77. Here we shall deal with the position under Section 72. Section 72 is a rule of equity. This is not disputed by Sri F.S. Nariman or any of the other counsel appearing for the appellants-petitioners. Once it is a rule of equity, it is un-understandable how can it be said that equitable considerations have no place where a claim is made under the said provision. What those equitable considerations should be is not a matter of law. That depends upon the facts of each case. But to say that equitable considerations....
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....t incorporates a rule of equity. This requirement flows not only because Section 72 incorporates a rule of equity but also because both the Central Excise duties and the Customs duties are indirect taxes which are supposed to be and are permitted to be passed on to the buyer. That these duties are indirect taxes, meant to be passed on, is statutorily recognised by Section 64A of the Sale of Goods Act, 1930 [which was introduced by Indian Sale of Goods (Amendment) Act, 1940 and substituted later by Act 33 of 1963]. 21. Thus, the Constitutional Bench of the Honourable Supreme Court has, in no uncertain terms, held that the burden of proof to establish that the manufacturer / assessee has not passed on the burden of duty to a third party is a matter within the exclusive knowledge of the manufacturer / assessee as he has the best knowledge in his position. 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 ....
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....by such documentary or other evidence including the documents referred to in section 12A as the applicant may furnish to establish that the amount of duty of excise and interest, if any, paid on such duty in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such duty and interest, if any, paid on such duty had not been passed on by him to any other person:" 25. That apart, it is also seen that the Hon'ble Apex Court in Union of India v Solar Pesticide Ltd,2000 (116) ELT 401 (SC), had while considering whether the duty paid on raw material when added to price of finished goods can be considered to be a situation where incidence of duty has been passed, had observed as under: "17. The use of the words "incidence of such duty....." is significant. The words "incidence of such duty" mean the burden of duty. Section 27(1) of the Act talks of the incidence of duty being passed on and not the duty as such being passed on to another person. To put it differently the expression "incidence of such duty" in relation to its being passed on to another person would take it within its ambit not only the passing of the duty directly to an....
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.... Tribunal is not correct in law. (emphasis supplied). 27. It is emphasised that the aforesaid decisions of the Apex Court in Solar Pesticides case and Grasim Industries case which lay down the law, have been noticed to appreciate the factum of the necessity to rebut the presumption of unjust enrichment that an assessee has to necessarily make in the circumstances elucidated therein, in order to be entitled to claim refund of an amount paid to the credit of the Central Government as held in the Mafatlal case supra. 28. As noticed supra, 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 wa....
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....d on the incidence of duty on to its customers. This Tribunal is of the considered view that, absent clarity on the above aspects, it cannot be considered that the appellant has successfully rebutted the presumption of unjust enrichment attracted by virtue of Section 12B of the Central Excise Act as made applicable to service tax matters by Section 83 of the Finance Act, 1994 and the rebuttal of which presumption is a sine qua non even to claim any right to get back the said amount. 30. In Sum, when the Apex Court, sitting in a combination of nine, has categorically held that in the case of mis-interpreting or mis-applying any of the rules, regulations or notifications issued under the Central Excise or Customs Enactments, such a claim has necessarily to be preferred under, and in accordance with, the provisions of the respective enactment before the authorities specified thereunder, and within the period of limitation prescribed therein; this Tribunal is of the considered view that even in a case of payment of service tax, made by an assessee, without proper examination of whether or not the service received in respect of which the assessee had made such service tax payment, wa....
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....his Tribunal is of the considered view that the said premise is unacceptable for more than one reason. First, that would tantamount to reading into the said Rule 6(3) an adjustment that was not envisaged for payment of service tax as a deemed service provider made by oversight, such as in the instant case made by the Appellant. 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. The Hon'ble Supreme Court in in the case of Union of India and Ors. vs. Ind- Swift Laboratories Limited, (2011) 4 SCC 635 :2011 (265) ELT 3 (SC) has summarized the legal position thus:- "19. A taxing statute must be interpreted in the light of what is clearly expressed. It is not permissible to import provisions in a taxing statute so as to supply any assumed deficiency. In support of the same we may refer to the decision of this Court in Commissioner of Sales Tax, UP v. Modi Sugar Mills reported in (1961) 2 SCR 189 wherein this Court at para 10 has observed as follows: "10. .....In interpreting a taxing statute, equitable considerations are entirely out of place. Nor....
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....ii), (iii) & (vii), the Apex Court has in no uncertain term emphasized that refund claims in situations where the levy is said to be unconstitutional, cannot be governed by the provisions of the Central Excise and Salt Act and the Customs Act, and being not contemplated by the said act, is outside their purview. As a corollary, this Tribunal, as a creature of statute, can evidently therefore not accord sanction to such a refund under the provisions of the Act. It is also important to note that the Hon'ble Supreme Court has emphatically stated that a claim for such reason can only be by way of a Civil suit or by invoking the Writ jurisdiction, both of which are proceedings, that do not arise before this Tribunal. It is also pertinent to note that the Honourable Supreme Court in para 99 (x) has also inter-alia held that so far as the jurisdiction of the High Courts under Article 226 of the Constitution or of the Apex Court under Article 32 is concerned, it remains unaffected by the provisions of the Act. The Apex Court went on to hold that even so, the Court would, while exercising the jurisdiction under the said articles, have due regard to the legislative intent manifested by the p....