Issuance of Debit/Credit notes sufficient to account for adjustment of negotiation and claiming refund of tax.

PJ/CASE LAW/2016-17/3113

Case:- PIRAMAL ENTERPRISES LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI

Citation:- 2016 (42) S.T.R. 17 (Tri. – Mumbai)

Brief facts:- This appeal is filed by M/s. Piramal Enterprises Ltd. against Order-in-Appeal No: SB(86)86/STC/2010, dated 30th June, 2010 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-I concurring with rejection of the refund claim of ` 36,10,050/- by the Assistant Commissioner of Service Tax, Division-III, Mumbai. The appellant had entered into an agreement with M/s. Nicholas Piramal India Ltd. on 29th April, 2005 by which, in return for services, the appellant would be compensated @ 0.50% of turnover besides sharing in the expenditure incurred by the appellant for rendering services as per agreed proportion. The appellant is registered with the service tax authorities as provider of “management consultancy services.”

The appellant had charged M/s. Nicholas Piramal India Limited an amount of ` 3,00,80,21,300/- in accordance with the agreement for two quarters on 13th April, 2007 and 9th July, 2007 by issue of debit notes. The said amounts included service tax component at the applicable rates. It transpired that the appellant, after discussions with the client on 25th September, 2007, agreed for reduction in charges by ` 2,93,50,000/- for the period covered by the two debit notes issued earlier. Accordingly, a credit note for ` 3,29,60,050/- dated 10th October, 2007 was issued by the appellant. On the service tax component covered in the credit note, the appellant sought refund on account of over payment of tax.

The original authority rejected the claim for refund on the ground that such a reduction did not appear to have extended beyond the second component of the compensation, i.e., the share in expenses, in the sendee agreement. Moreover, as the assessee had neither furnished the basis on which the initial charge was levied nor any documentary evidence in support of the re-negotiated agreement, the application was held to be without merit. The impugned order went into the claim of the appellant that the basis for arriving at the reduction was not relevant as the issue was restricted to return of excess charges (inclusive of service tax) collected from M/s. Nicholas Piramal India Ltd. for which ‘corporate service charge’ ledger account, service tax ledger account and bank account statement were submitted. The first appellate authority noted that debtor’s ledger account had not been made available for confirmation of the claim, that the appellant had received amounts of Rs. 3,51,79,262/- and Rs. 3,42,23,912/- in their bank account for the relevant period which did not correspond to the amounts in the debit notes, and that corporate service charge” ledger and bank account show receipt of only Rs. 3,29,50,000/- from M/s. Nicholas Piramal India Ltd. which, along with the basis for the renegotiated agreement, were not explained by the appellant. The impugned order has held the differential amount between credit note and the bank statement to be attributable to the service tax component and hence barred by the principle of unjust enrichment.

Appellant’s Contention: - The learned Chartered Accountant, canvassing the claim of the appellant, reiterated the contents of the appeal and asserted that the ledger amounts would not match the debit notes or the credit notes owing to the statutory requirement to deduct tax at source for which certificates were produced. Further, decisions of the Tribunal in Commissioner of Central Excise & Service Tax v. Standard Chartered Bank [2006 (3) S.T.R. 751 (Tri.-Bang.)] in support of the contention that tax is leviable only on actual receipts, Shiva Analyticals (I) Ltd. v. Commissioner of Service Tax, Bangalore [2007 (7) S.T.R. 35 (Tri.-Bang.)] which relied upon the decision of the Hon’ble Supreme Court in Mohd. Ekram Khan and Sons v. Commissioner of Trade Tax, UP [2004 (6) SCC 1083 SC] as well as Siltap Chemicals Ltd. v. Commissioner of Central Excise, Vadodara-II [2007 (7) S.T.R. 610 (Tri.-Mumbai) = 2006 (193) E.L.T. 461 (Tribunal)] approving the adequacy of credit notes as evidence of return of amounts to customers, and Addison & Co. v. Commissioner of Central Excise, Madras [2003-TIOL-396-HC-MAD-CX = 2001 (129) E.L.T. 44 (Mad.)] to demonstrate that claimant for refund has merely to show that incidence of duty has been borne by him were adduced by him.

Respondent’s Contention: - Learned Authorised Representative cited the decision of the Tribunal in Bharat Petroleum Corporation Ltd. v. Commissioner of Central Excise, Kochi - 2014 (314) E.L.T. 744 (Tri.-Bang.) to claim that credit notes issued after the event are not sufficient to show that duty burden has not been passed on.

Reasoning Of Judgement: - The short point for consideration is whether there has been excess payment of tax and whether the bar of unjust enrichment will arise in relation to such excess payment of tax. It is now well settled in law that adjustment between commercial enterprises who are in constant interface can occur and that such occurrence is recorded through the medium of credit and debit notes. It is apparent from the records of the instant case that the two entities are part of the same group and hence adoption of this mode of settlement is acceptable as sufficient evidence of compensation for services rendered. The charges levied from M/s. Nicholas Piramal India Ltd. by the appellant are amply evident in the debit notes pertaining to the quarter April, 2007 and September, 2007. It cannot but be accepted that the credit note issued in October, 2007 is intended to reduce the amounts payable by the client to the appellant to the extent of ` 2,93,50,000/-. The contention of the learned Chartered Accountant that any payment can be released only after withholding of tax deducted at source is borne out by the lesser amounts entered in the ledger and the bank statements. We find no flaw in this contention and there is no counter by Revenue that can contest this.
They also note that the decisions of the Tribunal cited by the learned Chartered Accountant clearly bring out the judicial pronouncements by which the bar of unjust enrichment will not operate even if the transactions are by debit and credit notes. It is also worth mentioning that there are only two instalments in which the claim of excess payments by M/s. Nicholas Piramal Ltd. has been made. Re-negotiation after initial payments does not, in any way, weaken the claim of the appellant because the fact of reduced net consideration is incontrovertible; the transaction does not extend to a chain beyond the appellant and M/s. Nicholas Piramal and, therefore, it can be deduced that the incidence of tax has had no scope of being passed on.
Accordingly, they find in favour of the appellant and set aside the impugned order. The appellant is entitled to refund of the amount claimed.

Decision:-Appeal Allowed.

Comment:- The substance of the case is that the bar of unjust enrichment will not operate even if the transactions are by debit and credit notes. Re-negotiation after initial payments does not, in any way, weaken the claim of the appellant because the fact of reduced net consideration is incontrovertible. As far as accounting has been done for negotiation of consideration, it can be deduced that the incidence of tax has not been passed on.

Prepared By: - Alakh Bhandari

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PJ/CASE LAW/2016-17/3113

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