Unjust enrichment applicable when agreement is inclusive of tax.

Case:-MIND EDUTAINMENT PVT. LTD. VERSUS COMMISSIONER OF S.T., NEW DELHI

Citation:-2016 (41) S.T.R. 961 (Tri. - Del.)

Brief facts:-The appellant, M/s. Mind Eutainment Pvt. Ltd. are engaged in providing educational services and holds Service Tax registration under the category of ‘Commercial Training & Coaching Services”. The services provided by the appellant were exempt from the category of taxable services vide Notification No. 25/2012-S.T., dated 20-6-2012 (“the Mega Exemption Notification”). The appellant inadvertently paid service tax of Rs. 16,07,399/-, on the educational services rendered by them which were exempted under Notification No. 25/2012-S.T., dated 20-6-2012. The appellant then filed a refund claim of service tax deposited erroneously. Though Rs. 16,07,399/- was deposited erroneously, the appellant filed refund claim of Rs. 12,74,906/- only for the reason according to the appellant, that as regards this amount, the tax incidence had not been passed on to other. The appellant did not claim refund of Rs. 3,32,493/- as the invoices issued by the appellant charged service tax separately. These aspects were submitted in detail along with necessary documents before the authorities below. The original adjudicating authority as well as appellate authority rejected the refund claim on the ground that it is hit by unjust enrichment. Aggrieved, the appellant has filed this appeal.

Appellant’s Contentions:-The learned Counsel for the appellant urged that rejection of refund claim is highly unjustified as the appellant has established that claim for refund is not hit by the bar of unjust enrichment. That the authorities below have taken the view that the incidence of tax has been passed on, merely for the reason that in the agreement, the ’fee’ was stipulated as “inclusive of tax”. It is submitted by him that the appellant had filed refund claim only in respect of amount where no service tax has been charged separately from service recipient. The learned Counsel relied upon the judgments rendered in CCE, Chandigarh-IIv. J.R. Transformer Pvt. Ltd. - 2014 (36) S.T.R. 1167 (Tri.-Del.) and CST, Delhiv. A.P. Engineers - 2014 (34) S.T.R. 795 (Tri.-Del.). It is further submitted that the appellant had produced certificate of Chartered Accountant and also the Balance Sheet for the relevant Financial Year 2012-13 to substantiate that the incidence of tax has not been passed on to the customer.

Respondent’s Contentions:-Against this, learned Departmental Representative contended that the refund claim was rightly rejected being hit by the bar of unjust enrichment. He drew attention to Section 12B of Central Excise Act, 1944 and urged that a presumption is raised that incidence of tax has been passed on. He relied upon the decision of the Apex Court rendered in Sahakari Khand Udyog Mandal Ltd.v. C.C.E. - 2005 (181) E.L.T. 328 (S.C.).

Reasoning of Judgement:-The short issue involved in this appeal is whether the refund claim is hit by the bar of unjust enrichment.
At the outset, it has to be stated that the Commissioner (Appeals) has discussed in detail as to the issue of unjust enrichment and whether the fee mentioned in the agreement is inclusive of tax. The relevant portion of para 9 of the Order-in-Appeal dated 31-12-2014 is reproduced below : -
“In view of the aforesaid discussions, I am of the considered opinion that the appellant has passed on the burden of Service Tax paid to the customers and therefore there is no infirmity in the Order-in-Original passed by the original authority in so far as unjust enrichment is considered. However, the original authority has erred in rejecting the refund claim on this ground. Once the refund is admissible on merits and the burden of duty is passed on to the customer by the refund claimant, the refund amount has to be necessarily sanctioned and transferred to the consumer welfare fund in terms of provisions of Section 12B. Accordingly, the Order-in-Original stand modified to the extent that the amount of the refund claimed is transferred to Consumer Welfare Fund.”
The doctrine of unjust enrichment is a just and salutary doctrine. It prevents collection of duty from both the ends. The doctrine can be invoked to deny the benefit to which a person is not otherwise entitled. Before claiming a relief, the applicant has to establish that he has borne the amount for which relief is sought and that he has not passed on the burden to the consumers. In the present case, undisputedly the services were exempted from payment of service tax during the relevant period. It is also not disputed that the appellant paid the tax erroneously. Refund claim is denied on the ground that in agreement entered into between the appellant and service recipient, the consideration, fee is shown as inclusive of tax.
The relevant provisions are noticed as under : -
Section 12A. Price of goods to indicate the amount of duty paid thereon. -Notwithstanding anything contained in this Act or any other law for the time being in force, every person who is liable to pay duty of excise on any goods shall, at the time of clearance of the goods, prominently indicate in all the documents relating to assessment, sales invoice, and other like documents, the amount of such duty which will form part of the price at which such goods are to be sold.
Section 12B. Presumption that the incidence of duty has been passed on to the buyer.- Every person who has paid the duty of excise on any goods under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer of such goods.
Initial burden to establish that the incidence of duty/tax has not been passed on is upon the assessee. The assessee can establish the same or rebut the presumption by sufficient documentary, circumstantial or other evidence. In the present case, according to the appellant the fees were collected on two basis. The first category of cases where the tax incidence has been passed on i.e. service tax has been charged separately and recovered from the schools/parents being a sum of Rs. 3,32,493/- i.e. (Rs. 16,07,399/- less Rs. 12,74,906/-). Copy of sample invoices where service tax is charged separately is produced. Second category of cases where the incidence has not been passed on i.e. service tax is inclusive in the fees charged and borne by the company itself. Copy of sample invoices where service tax is charged inclusively is produced.
In the letter dated October 12, 2013 sent by the appellant to the Superintendent (Refund), Service Tax Division-II, New Delhi, to the queries raised by the Department, the appellant has clarified that the appellant has raised certain invoices wherein service tax has been charged separately and deposited with the Government. The company has not claimed refund of such service tax paid. However, the appellant has also raised certain invoices wherein no service tax has been charged separately. The Company has deposited service tax on such invoices on its own by making backwards calculation of service tax. Since the services are exempt under the Mega Exemption Notification, the appellant claimed refund of such service tax paid.
Tribunal has carefully considered the rival submissions and also perused the records. In the first category of cases where the appellant admits that the incidence of tax has been passed on, the invoice shows as under : -
Programme fee - Rs. 25,000/-
Service Tax @ 12.36% - Rs. 3,090/-
Total amount due - Rs. 28,090/-
The second category of cases where the appellant contends that the incidence of tax has not been passed on and that service tax is inclusive in the fees is only material for consideration. On scrutiny of the sample copy of the agreement and invoices relating to the second category, Tribunal was not able to agree with the submissions made on behalf of the appellant. Annexure ‘B’ of the agreement entered between the appellant and Primus Public School dated April 20, 2012, gives the recitals about the fees. Total annual fee to integrate One Fixed THOTS Lab for 5 days in a week = Rs. 6.666 lacs inclusive of taxes. Total agreement value is Rs. 20 lakhs. Out of this Rs. 3 lakhs inclusive of taxes is to be paid on execution of agreement. Balance amount is divided into 12 instalments of Rs. 1,41,666/- The relevant portion of invoice issued for this agreement shows as under : -
(1)        Fixed THOTS Lab - ‘My Thinking Program delivery’
            Amount due - Rs. 1,41,666/-
            (Inclusive of service tax)
It is apparent from the invoice that it is cum-tax invoice and therefore the incidence of tax is passed on to the school/customer. Section 12A makes it mandatory to prominently indicate in the documents/invoices the amounts of such duty which will form part of the price. When the invoice states that the value is inclusive of service tax, the contention of the appellant that the incidence of tax has not been passed on to other is untenable.
The appellant further relies on the Chartered Accountant’s Certificate and the balance sheet to substantiate that the tax burden has been borne by them. When the invoices raised are such that the incidence of tax has been passed on, the presumption envisaged under Section 12B comes into application. These documents are not sufficient to rebut the statutory presumption.
The appellant relied upon the decision rendered in Commissioner of Central Excise, Chandigarh-IIv. J.R. Transformer Pvt. Ltd. - 2014 (36) S.T.R. 1167 (Tri.-Del.), wherein the refund was sought on the ground that the service tax was remitted by assessee on the rendition of erection, commissioning and installation of transformers at different sites of PSEB, that this service was exempted from the liability of Service Tax under exemption Notification Nos. 11/2010-S.T., dated 27-2-2010 and Notification No. 32/2010-S.T., dated 22-6-2010, that the assessee had erroneously remitted service tax despite the service being exempted. One of the grounds for rejection of refund claim was that the work orders between the assessee and PSEB revealed that rates specified for remunerating the assessee for services rendered included service tax and therefore the service tax component stood included in the consideration received by it. The said decision is not applicable to the case in hand because besides the recital in the agreement as inclusive of taxes, the appellant herein has issued invoices showing that amount is inclusive of service tax. In Commissioner of Service Tax, Delhiv. A.P. Engineers - 2014 (34) S.T.R. 795 (Tri.-Del.), again is not applicable to the facts of this case because the contract value was inclusive of taxes therein and it was borne by the appellant therein without charging the same on M/s. ITDC. The judgments placed by the counsel for appellant would apply in situations where contract value is inclusive of service tax and the same has not been charged separately by the service provider. The appellant herein has issued invoices on cum-value basis, and has not produced any evidence to prove that they have refunded the service tax to their customers.
The Tribunal, in the case of Concrete Moversv. Commissioner of Service Tax, Mumbai - 2015 (38) S.T.R. 86 (Tri.-Mum.) held that when rate quoted and amount collected are inclusive of taxes, the doctrine of unjust enrichment would be applicable. In para 7 of the said judgment it is held as under : -
“7. I have also gone through the agreement produced. I find that the agreement very clearly states that the rate mentioned are inclusive of all taxes and levies. I have also gone through the invoices produced. It is seen that the appellants have been charging based upon the quantity of the concrete pumped through the equipment installed by them and the rate is fixed on that basis. Thus, the charges are not in the nature of rental for a particular day or particular period but with reference to the work performed. Invoices do not indicate any tax element separately. Under the circumstances, it has to be held that the rates quoted and amount collected are inclusive of service tax”.
It is not in dispute that the agreement stipulates the value inclusive of taxes. The invoices issued also indicate that amount collected is inclusive of service tax. Undeniably the presumption under Section 12B is raised that the incidence of tax is passed on to the customer. In such circumstances, the appellant has to establish by evidence that the service tax passed on was returned to the customer. In the absence of such evidence the presumption stands unrebutted.
From the above discussions, as the fees stipulated in the agreement were inclusive of taxes and the invoices issued indicate that the amount includes service tax the refund claim is hit by the bar of unjust enrichment. Therefore, Tribunal do not find any infirmity with the impugned order passed by the Commissioner (Appeals) in ordering to sanction the refund and credit the same to the Consumer Welfare Fund.The appeal is accordingly dismissed.

Decision:-Appeal dismissed.

Comment:-The crux of this case is that in order to claim refund of service tax, the claimant is required to prove with evidences that the burden of duty has not been passed on to the service recipient. When the agreements are inclusive of taxes, it means that the service tax is included and recovered from the service receivers. Consequently, the onus lies on part of the service provider to establish with evidences that service tax has been borne by him and not been passed on to the service receiver.

Prepared by: Alakh Bhandari

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PJ/CASE LAW/2016-17/3106

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