Refund of Service Tax paid mistakenly on exempted service of Transport of Goods by Rail

PJ/CASE STUDY/2010-11/16

13 August 2010

PJ/Case Study/2010-11/16

Case Study

Prepared By:

CA Pradeep Jain

Parag Ghate, B.Com and

Sukhvinder Kaur, LLB [FYIC]

Introduction:

The concept of Unjust enrichment is applied to the cases of claim of refund to avoid double benefit being gained by the assessee. In case an assessee is found eligible for refund of duty or service tax paid by him it is mandatory to ascertain that he has not passed on the incidence of duty to his consumers and has borne the burden of duty himself. The refund of duty can be denied to him if he has passed on the duty and the refund to be sanctioned to him can be passed on to the Consumer Welfare fund.

In the case under study the issue raised was that whether the concept of unjust enrichment will be applicable when service tax was paid on GTA by rail on which there was no service tax and when the duty was not passed on to any person.

Relevant Legal Provisions:

Section 11B (1) of the Central Excise Act, 1944: -

11B. Claim for refund of duty.-

(1) Any person claiming refund of any duty of excise and interest, if any, paid on such duty to the Assistant Commissioner of Central Excise or Deputy Commissioner of Central Excise before the expiry of one year from the relevant date in such form and manner as may be prescribed and the application shall be accompanied 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:

Provided that where an application for refund has been made before the commencement of the Central Excises and Customs Laws (Amendment) Act, 1991, such application shall be deemed to have been made under this sub-section as amended by the said Act and the same shall be dealt with in accordance with the provisions of sub-section (2) substituted by that Act;

Provided further that the limitation of one year shall not apply where any duty and interest, if any, paid on such duty has been paid under protest.

In the matter of M/s Lucid Colloids Ltd

[Order-in-Original No. 7/2010-R(ST) dated 14.06.2010]

Brief Facts:

- The assessee is engaged in the manufacture of Guar Gum. They were utilizing the service of transportation of goods by road as well as of transportation of goods by rail for transporting their product.

- The assessee paid the service tax on the total freight as appearing in book of accounts. As in case of transportation by road, the service tax liability is on the assessee himself as per provision 2(1)(d) of Service tax Act. But for transportation by Rail, the service tax liability is on the service provider. There is no liability on service recipient. The total freight also included the freight that was paid for transportation of goods by rail. The liability to pay service tax by rail was not on the manufacturer but he has paid the same by mistake.

- Realizing there mistake, the assessee applied for refund of service tax paid on the service of transportation of goods by rail. It was contended that there was no service tax liability on recipient as in the case of transport by road and that they have erroneously paid the same.

- The Adjudicating Authority sanctioned the claim of refund but transferred the amount to Consumer Welfare fund on the ground of unjust enrichment.

- Aggrieved by this order, the assessee filed appeal before the Commissioner (Appeals).

Assessee’s Contention:

¨ Assessee contended that they had erroneously paid service tax on the service of transport of goods by rail on which there was not service tax.

¨ It was further contended that the concept of unjust enrichment was not applicable in their case.

¨ It was also contended that the assessee were not service provider but were service recipient and had paid the service tax themselves. Thus, there is no question of passing on the incidence of duty on anybody else. Thus, the refund was required to be sanctioned to them and should not have been passed on to consumer welfare fund.

Issue Involved:

The issued involved in this matter was

Whether the claim of refund can be passed on consumer welfare fund when there was no service tax on transportation of goods by rail and when there was no one to whom incidence of duty was passed on?

Order of the Commissioner (Appeal):

The Commissioner (Appeal) set aside the order in original by holding that “since there is no service tax on railway freight, the question of recovery of the said service tax from any other person does not arise”.

The Commissioner (Appeal) directed that the claim of refund of service tax given to the assessee.

Decision of the Commissioner (Appeal):

Appeal allowed.

Conclusion:

The Commissioner (Appeal) rightly allowed the refund claim of service tax in this matter. When there was no service tax on freight paid to the railways for transportation of goods then the question of passing of incidence of duty to anyone did not arise. The concept of unjust enrichment could not be made applicable to such a case. Accordingly, the refund has been sanctioned to the assessee by the Adjudicating Authority also.

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PJ/CASE STUDY/2010-11/16
13 August 2010

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