Whether time limit of section 11B applicable for refund of service tax paid on contract which is terminated later on?

PJ/CASE LAW/2015-16/2630

Case:-C.C.E. & S.T., BHAVNAGARVERSUS MADHVI PROCON PVT. LIMITED

Citation:- 2015 (38) S.T.R. 74 (Tri. - Ahmd.)

Brief facts:- The appellant entered into works contract with M/s. Pipavav Energy Pvt. Limited (‘PEPL’) and received mobilization advance of Rs. 4,83,02,864/- in July-August, 2010 upon execution of bank guarantee. They paid Service Tax at the rate 4.12% on 23-8-2010, 6-9-2010 and 6-10-2010 totally amounting to Rs. 19,11,331/-, on the said mobilization advance, under Works Contract Composition Scheme. The said work contract was terminated by M/s. PEPL on 24-11-2011 and mobilization advance was recovered by M/s. PEPL by encashing the bank guarantee on 16-5-2012, for the service not provided. The appellant filed application for refund of Service Tax amounting to Rs. 19,11,331/- on 25-10-2012 paid by them on advance amount received from M/s. PEPL, which was subsequently recovered on termination of contract without providing any services to their client. The adjudicating authority verified the genuineness of the claim but rejected the refund vide the impugned order on the grounds of limitation. The adjudicating authority held that the Service Tax was deposited on 23-8-2010, 6-9-2010 and 6-10-2010 but they filed refund claim on 25-10-2012 i.e. after a span of two years, which is beyond the limitation prescribed under Section 11B of the Central Excise Act, 1944.” Against the order passed by adjudicating authority, an appeal was filed and first appellate authority allowed the appeal filed by the present Respondent by relying upon the order passed by CESTAT, Mumbai in the case of CCE, Kolhapur v. Pratibha Construction Engineers and Contractors (India) Pvt. Limited[2014 (32) S.T.R. 18L (Tri.-Mum.)].

Appellant’s contention:- Learned AR argued that the Service Tax paid by the Respondent has to be considered as duty paid and not a deposit and hence time bar of Section 11B of the Central Excise Act, 1944 will be applicable. It was thus strongly argued that order passed by the first appellate authority should be set aside and order dated 17-1-2013 of the Adjudicating authority should be restored.

Respondent’s contention:-Shri Alkesh B. Patel (CA) appearing on behalf of the respondent relied upon the following case laws to argue that where no service was provided no tax is liable and hence amounts paid have to be considered as a deposit to which time bar of Section 11B is not applicable :-
(i)    CCE, Kolahpur v. Pratibha Constructions Engineers and Contractors (India) Pvt. Limited - STO-2010-CESTAT-723
(ii)   K.V.R Constructions v. CCE (Appeals), Bangalore - STO-2010-KAR-911 = 2012 (26)S.T.R.195 (Kar.)
(iii) Natraj and Venkat Associates v. Assistant Commissioner of Service Tax, Chennai-II - STO-2009-Mad-1809
(iv) UOI v. ITC Limited - CEO-1993-S.C.-2
(v)   Addition Advertising v. UOI - 2006 (2)S.T.R.288 (Guj.) = (1998) 98 E.L.T. 14 (Guj.)
(vi) CCE v. Motorola India Pvt. Limited - 2008 (11)S.T.R.555 (Kar.) = 2006 (206)E.L.T.90 (Kar.)
(vii)U Foam Pvt. Limited v. Collector of Central Excise - 1988 (36)E.L.T.551 (A.P.)
(viii)      Commissioner v. Suncity Alloys Pvt. Limited - 2009 (13)S.T.R.86 (Raj.) = 2007 (218)E.L.T.174 (Raj.)
(ix) CCE (Appeals), Bangalore v. KVR Constructions - 2012 (26)S.T.R.195 (Kar.)
(x)   Jyotsana D. Patel v. CCE, Nagpur - 2014 (35)S.T.R.77 (Tri. - Mum.)

Reasoning of judgement:- The issue involved in the proceedings was as to whether amount of Rs. 19,11,331/- paid by the Respondent should be considered as payment of ‘duty’ or an amount paid as ‘deposit’. From the facts available on records Service Tax was paid on the amount of advances received by the Respondent but ultimately no service could be provided as the said works contract got terminated. In the case of Addition Advertising v. UOI (supra) jurisdictional Gujarat High Court, inter-alia, held that if no service is provided then there is no Service Tax. It meant that once service is not rendered then no Service Tax is payable. Similarly Karnataka High Court in the case of CCE, Bangalore v. Motorola Private Limited (supra) held that any duty paid by mistake cannot be termed as ‘duty’. Similar view had been taken in the other case laws relied upon by the Respondent. In view of the above, it had to be held that the amounts paid by the Respondent couldn’t be termed as payment of duty but had to be considered as a ‘deposit’ to which provisions of Section 11B of the Central Excise Act, 1944 would not be applicable. Accordingly, there was no reason to interfere with the order dated 23-7-2013 passed by the first appellate authority.

In view of the above findings, the appeal filed by the revenue department was rejected.

Decision:- Appeal rejected.

Comment:- This case brings out an instance of non applicability of provisions of Section 11B of Central Excise Act. It points out the difference between ‘payment of duty’ and ‘deposit’. Relying upon the judgements dictated in various cases mentioned, it can be said that where the duty had been paid on advance contract and such contract was later terminated without its execution, then such amount paid shall not be treated as duty and hence provisions of Section 11B of the Act regarding time limit for filing refund of duty will not be applicable. Rather, such amount shall be treated as deposit and will be refundable without any time limit.

Prepared By:- Sharad Bang

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PJ/CASE LAW/2015-16/2630

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