Whether service tax paid mistakenly on construction services which are for non-profit organisations be claimed back as refund?

Case: COMMISSIONER OF CENTRAL EXCISE (APPEALS), BANGLORE V/S. KVR CONSTRUCTION

Citation: 2012(26) S.T.R. 195(KAR.)

Issue:- Whether service tax paid mistakenly on construction services which are for non-profit organisations be claimed back as refund?

Brief Facts:- Assessee is a construction company & rendering services under category of “Construction of Residential Complex Service” and is paying the Service Tax in accordance with Finance Act, 1994. They have undertaken the construction of following works on behalf of Shri Adicht chanagiri Shikshana Seva Trust by virtue of an agreement dated 7-12-2004:

(a) Medical college
(b) AIMS Hospital
(c) SJBIT Engineering College
(d) SJBIT Engineering Boys Hostel

Assessee were paying Service tax in accordance with the Finance Act, 1994 for the services rendered for the above trust by constructing above buildings for the periods May 2005 to February 2006 and May 2006 to February 2007. During the month of March 2008, Assessee filed two refund applications dated 19-3-2008 which were received by the Department on 3-2008 contending that building construction which was done by them was non-profit organization and they were not liable to pay such tax in the light of the Circular No. 80/10/2004 dated 17-9-2004 and sought for refund of Service tax paid.

The Assistant Commissioner came to a conclusion that amount paid by them is not service tax, but it was the nature of deposit with the Department. It was also held that amounts collected erroneously have to be returned to the concerned person. But, however, rejected the refund claim on the ground that applications were filed beyond the, period of limitation prescribed under Section 11B of Central Excise Act, 1944.

In appeal, the Commissioner (Appeals) upheld the order of Original Authority.

Aggrieved by the rejection of the appeal, the Assessee filed a Writ Petition before the Single Judge Bench of the High Court seeking setting aside the order of the Commissioner (Appeals) and for refund of Service Tax paid.

The Single Judge by referring to Section 11B of Central Excise Act, 1944 held that Section 11B is inapplicable since amount paid by petitioner was not a duty paid or deposited and it was held to be deposit with the department and not duty. It was also held there was no necessity for the petitioner to invoke Section 11B of the Act. According to Learned Single Judge, the orders of the Assistant Commissioner and Appellate Tribunal declining to entertain the claim of the respondent was erroneous as it amounted to denial of claim and the order of Commissioner (Appeals) relating to denial of claim is concerned, was held unsustainable and consequently quashed it. The Department was also directed to refund the amounts claimed forthwith in any event not be-yond two weeks from the date of the order.

Aggrieved by the said order, the Department is before the Division Bench questioning the order of the Learned Single Judge.

Appellant’s Contention:- Department contended that the Learned Single Judge totally mis-construed the ratio on all aspects of refund matters by not considering the case of Mafatlal Industries Ltd. v. Union of India reported in 1997 (89) E.L.T. 247 (S.C.), which lays down the parameters of entertaining an application under Section 11B of the Central Excise Act, 1944. Once the amounts are paid as service tax by virtue of Section 83 of Finance Act 1994, the application of Central Excise Act comes into play. Therefore, any amount that has to be refunded has to be in accordance with Section 11B of Central Excise Act, irrespective of the nature of the tax paid, and the refund has to be only under Section 11B of the Act. Hence, he contends that unless, the refund claim is made within the time prescribed under Section 11B of the Act, the respondent could not have had the benefit of refund of the amount and as a matter of fact Form-R prescribed for refund of amounts under Section 11B of the Act was filed by the respondent in the instant case and as such he contends that learned Single Judge erred in holding Section 11B as inapplicable. He also contends that by virtue of Section 35B(1)(b) of the Act, there is statutory appeal to the Appellate Tribunal. Therefore, the Writ Petition itself was not maintainable and for this proposition, he relies upon the judgment of Hon'ble Supreme Court in the case of United Bank of India v. Satyawati Tondon and Others reported in (2010) 8 SCC 110.

Another ground raised by Revenue is regarding maintainability of Writ Petition on the ground that alternate remedy of appeal under section 35B(1)(b) of C.E. Act, is available and without availing the same, writ jurisdiction cannot be invoked and relies upon the decision of Satyawati Tondon. The judgment relied upon by the learned Counsel for the appellants in the case of Union Bank of India v. Satyawati Tondon (supra) was pertaining to maintainability of writ petition under Article 226 of the Constitution.

Respondent’s Contention:- Assessee contends that as long as the amount paid by the respondent was an amount le-viable and collected in accordance with the procedure, then Section 11B of the Central Excise Act would apply and if once the amount paid by the respondent is outside the purview of Section 11B of the Act, none of the provisions of Section 11B of the Act including time limit would apply and therefore amounts in question were paid under mistake and as such it cannot be construed as duty paid. In view of the same, he contends, Section 11B of the Act is not at all attracted to the facts of the present case.

According to Assessee, unless the authority to levy and collect tax in question lies with the department, the amounts paid by the petitioner could not be termed as claim for refund of duty as contemplated under Section 11B of the Act. To substantiate his contention, he relies upon the judgment of the Delhi High Court in the case of Hind Agro Indus-tries Ltd. v. Commissioner of Customs reported in 2008 (221) E.L.T. 336 (Del.), judgment of Madras High Court in Writ Petition No. 15357/2009 in the case of Natraj and Venkat Associates v. Asstt. Commissioner of Service Tax, Chennai-II dated 20-10- 2009 [2010 (17) S.T.R. 3 (Mad.) = 2010 (249) E.L.T. 337 (Mad)] and judgment of a Coordinate Bench of this Court in the case of Commissioner of Central Excise, Ban-galore-III v. Motorola India Pvt. Ltd. reported in 2006 (206) E.L.T. 90 (Kar.) = 2008 (11) S.T.R. 555 (Kar.).

Reasoning of Judgment:- The Court held that it is an undisputed fact that total amount of Rs. 1,24,38,991/- was paid as service tax under different TR-6 challans between February 2005 and February 2007. It is not in dispute the clarifications issued in the circular dated 17-9- 2004 includes the building constructions which are for the use of organizations or institutions being established solely for the educational, religious, charitable, health, sanitation or philanthropic purposes and not for the purpose of profit, are not taxable being non-commercial in nature. It is also not in dispute that claim of the respondent before the concerned authority seeking refund of the above said amount was based on the above circular dated 17-9-2004 on the ground that the services are rendered for a non-profit organization. The department is also not denying that services rendered by the respondent by putting up constructions of several buildings stated above to the trust, which is a non-profit organization, hence, a non-profit service is not taxable.

The High Court observed that they are not concerned with the other conditions of Section 11B of the Act because it is not the case of the Department that the burden of service tax was passed on to any other person. As a matter of fact, the controversy in this appeal revolves around the maintainability of the very application filed under Section 11B of the Central Excise Act and whether Sec. 11 applies to the facts of the present case at all. In the case of Mafatlal Industries Ltd. v. Union of India the question was with regard to the refund of Central Excise and Customs Duties. It was held that all claims except where levy is held to be un-constitutional, is to be preferred and adjudicated upon under Section 11B of the Central Excise Act, 1944 or under Section 27 of the Customs Act, 1962 and subject to claimant establishing that burden of duty has not been passed on to a third party. In such circumstances, it was held, no civil suit for refund of duty is maintainable. It also observes that writ jurisdiction of High Courts under Article 226 and of Supreme Court under Article 32 remains unaffected by the provisions of Section 11B of the Act. It was under Article 32 remains unaffected by the provisions of Section 11B of the Act. It was further held that concerned Court while exercising the jurisdiction under the said articles, will have due regard to the legislative in-tent manifested by the provisions of the Act and the writ petition would naturally be considered and disposed of in the light of the provisions of Section 11B of the Act. It has been held therein that power under Article 226 has to be exercised to effectuate the regime of law and not for abrogating it, as the power under Article 226 is conceived to serve the ends of law and not to transgress them. At paragraph 113 of the said judgment, they classify the various refund claims into three groups or categories:

(a) the levy is unconstitutional-outside the provisions of the (I) Act or not contemplated by the Act.
(b) The levy is based on misconstruction or wrong or erroneous (II) interpretation of the relevant provisions of the Act, Rules or Notifications: or by failure to follow the vital or fundamental provisions of the Act or by acting in violation of the fundamental principles of judicial procedure.
(c) Mistake of law - the levy or imposition was (III) unconstitutional or illegal or not exigible in law (without jurisdiction) and, so found in a proceeding initiated not by the particular assessee, but in a proceeding initiated by some other assessee either by the High Court or the Supreme Court, and as soon as the assessee came to know of the judgment (within the period of limitation), he initiated action for refund of the tax paid by him, due to mistake of law.

The High Court found that mere payment of amount would not authorize the department to regularize such payment. When once the department had no authority to demand service tax from the respondent because of its circular dated 17-9-2004, the payment made by the respondent company would not partake the character of "service tax" liable to be paid by them. Therefore, mere payment made by the respondent will neither validate the nature of payment nor the nature of transaction. In other words, mere payment of amount would not make it a "service tax" payable by them. When once there is lack of authority to demand "service tax" from the respondent company, the department lacks authority to levy and collect such amount. Therefore, it would go beyond their purview to collect such amount. When once there is lack of authority to collect such service tax by the appellant, it would not give them the authority to retain the amount paid by the petitioner, which was initially not payable by them. Therefore, Mere nomenclature will not be an embargo on the right of the petitioner to demand refund of payment made by them under mistaken notion.

It was held that the Section 11B of the Central Excise Act “Claims for Refund of Duty”, refers to claim for refund of duty of excise only, it does not refer to any other amounts collected without authority of law. In the case on hand, admittedly, the amount sought for as refund was the amount paid under mistaken notion which even according to the department was not liable to be paid.

The claim of the respondent/assessee is on the ground that they have paid the amount by mistake therefore they are entitled for the refund of the said amount. If we consider payment as service tax and duty payable, automatically, Section 11B would be applicable. When once there was no compulsion or duty cast to pay this service tax, the amount of Rs. 1,23,96,948/- paid by petitioner under mistaken notion, would not be a duty or "service tax" payable in law. Therefore, once it is not payable in law there was no authority for the department to retain such amount. By any stretch of imagination, it will not amount to duty of excise to attract Sec-11B. Therefore, it is outside the purview of Section 11B of the Act.

Decision:- Appeal dismissed.

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PJ/Case Laws/2012-13/1112

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